Solvay share price down, announces $5.5-billion acquisition of Cytec Industries

Belgium-based chemical group Solvay SA announced on Wednesday it has agreed to buy US peer Cytec Industries Inc in a push to expand its presence in the lightweight materials business.

Solvay said in a statement it would pay $5.5 billion in cash, or $75.25 per Cytec share, corresponding to an enterprise value of $6.4 billion and representing a 2015 estimated EBITDA multiple of 14.7 times and of 11.7 times when considering potential benefits. The price offered represents a premium of 28.9% compared to Cytecs close on Tuesday and a 26.9% premium over the volume-weighted average closing price over the last three months.

Solvay said the acquisition would make it the worlds second-largest company for aerospace composite materials and would reinforce its advanced materials and advanced formulations platforms, which produce chemicals used in the aerospace, automotive and mining sectors.

The Belgian company will fund the transaction with a €1.5-billion rights issue, €1.0-billion of additional hybrid instruments and a senior debt issuance, which would help it maintain its financial flexibility and allow it to sustain growth in dividend payments over time.

Acquiring Cytec “is a unique opportunity for Solvay to boost its customer offerings in lightweighting with advanced materials in aerospace and automotive, as well as to strengthen its know-how with activities in mining chemicals,” said Solvay Chief Executive Jean-Pierre Clamadieu. “This acquisition will create value for our stakeholders and will support our ambition to become a leader in sustainable chemistry.”

Solvay said it expects pretax synergies of more than €100 million a year and added that both its and Cytecs boards of directors have unanimously recommended the offer. It will hold an extraordinary general shareholder meeting to vote on the proposed rights issue and added that its main shareholder, Solvac, with a 30% stake, has confirmed its support for the transaction. The deal is expected to secure regulatory approval on both sides of the Atlantic and should be finalized in the fourth quarter of 2015.

Solvays strategic focus “is perfectly aligned with our businesses, while the technology synergies with their specialty polymers and formulations expertise should accelerate our growth,” said Cytec CEO Shane Fleming. “Our customers and our employees should expect to see continuity and strong support of our current strategy.”

New Jersey-based Cytec, with 4 600 employees worldwide, generated revenue of $2.0 billion last year, half of which in North America, a third in the Europe, Middle East and Africa region, and the remainder in Asia Pacific and Latin America.

News of the transaction came as Solvay announced a second-quarter net profit of €143 million, compared to a net loss of €292 million a year earlier, on the back of a 4.2% revenue jump to €2.68 billion, helped by currency fluctuations.

Solvay SA traded 3.28% lower at €123.80 per share at 09:41 GMT in Brussels, swinging to a year-on-year drop of 1.71%. The chemical group is valued at €10.84 billion. According to the Financial Times, the 19 analysts offering 12-month price targets for Solvay SA have a median target of €135.00, with a high estimate of €162.00 and a low estimate of €110.00. The median estimate represents a 5.47% increase from the previous close of €128.00.