A pedestrian passes the Solvay headquarters in Brussels. The Belgian maker of chemicals and plastics agreed to buy Cytec Industries for $5.5bn to become the world’s second-largest producer of aerospace composite materials.

Bloomberg/Brussels



Solvay, the Belgian maker of chemicals and plastics, agreed to buy Cytec Industries for $5.5bn to become the world’s second-largest producer of aerospace composite materials.
Shareholders of Cytec will receive $75.25 a share in cash, the Brussels-based company said yesterday. That’s 29% higher than Tuesday’s closing price for Woodland Park, New Jersey-based Cytec.
The transaction is part of chief executive officer Jean-Pierre Clamadieu’s strategy to shift Solvay away from commodity products. The 152-year-old company is focusing on more specialised polymers used to replace heavier metal parts in cars, appliances and airplanes. Cytec is a leader in specialty chemicals to enhance mining separation processes and is developing composites for the car industry. “This is a very significant, but not the last step in the transformation of Solvay,” Clamadieu said on a conference call with reporters. “We will continue to look for opportunities to divest or invest in businesses.”
The purchase will boost adjusted earnings per share after the first year of completion, Solvay said. The company aims for annual pretax synergies of more than €100mn ($111mn) within three years. Solvay fell 1.3% to €126.30 at 9:05am in Brussels. The stock had risen 14% this year through yesterday, giving the company a market value of €10.8bn.
Antitrust issues can be dealt with easily, and the company is confident it can complete the transaction, Clamadieu said. The company aims to wrap the deal in the fourth quarter.
Including debt, the acquisition values Cytec at $6.4bn, Solvay said. That makes it about the same size as its biggest deal, the 2011 purchase of French chemical company Rhodia.
The price is equal to 14.7 times Cytec’s earnings before interest, tax, depreciation and amortisation, Solvay said. Including cost savings, the deal is valued at 11.7 times, the company said. Buyers have paid on average 11.6 times Ebitda for specialty chemical companies over the past five years, according to data compiled by Bloomberg.
It will be many years before Solvay benefits from the deal, Jeremy Redenius, an analyst at Sanford C Bernstein, wrote in a report yesterday.
“We are skeptical of the deal’s value creation potential any time soon,” he said. “Cytec is strong in composites, especially for aircraft, while Solvay’s brings strength in resins and auto. However, the very long development times in these applications means any benefits are a long way off.”
Solvay has bridge financing for the transaction, and it plans to raise €1.5bn in a rights issue. It also will raise €1bn by selling hybrid debt, with the rest of the cost financed through the sale of dollar-denominated bonds.
Solvay declined to identify the investment banks that advised it on the transaction.
Second-quarter profit rose 8% to €500mn, Solvay also said yesterday, surpassing the average analyst estimate of €494mn.
Cytec gets about half its revenue from selling aerospace materials.