Solvay explores a separation into two independent publicly listed companies

On March 15 Solvay (Alpharetta, Ga., U.S.) announced it is reviewing plans to separate the company into two independent publicly traded companies, EssentialCo and SpecialtyCo.

EssentialCo would comprise mono-technology businesses including Soda Ash, Peroxides, Silica and Coatis, which are reported as the company’s Chemicals segment, as well as the Special Chem business. These businesses generated approximately €4.1 billion in net sales in 2021, Solvay reports.

SpecialtyCo would comprise the company’s currently reported Materials segment, including its high-growth, high-margin Specialty Polymers, its high-performance Composites business, as well as the majority of its Solutions segment, including Novecare, Technology Solutions, Aroma Performance and Oil & Gas. According to Solvay, these businesses combined generated approximately €6.0 billion in net sales in 2021.

“The plan to separate into two leading companies represents a pivotal moment in our journey to transform and simplify Solvay,” says Ilham Kadri, Solvay CEO. “Since we first launched our G.R.O.W. strategy in 2019, we have taken a number of actions to strengthen our financial and operational performance, focus our portfolio on higher growth and higher margin businesses, and reinforce our business purpose across the organization. Our successful focus on cash, costs and returns has strengthened the Materials and Solutions segments to be more self-sustaining and profitable. At the same time, the Chemicals segment has continued its strong track record of resilient cash generation. Notwithstanding  the challenges of the current global environment, we are confident that pursuing this plan would enable us to create compelling value for shareholders over the long-term.”

The Materials would focus on advanced materials, bringing new solutions to customers that address critical performance and environmental challenges.

Upon completion, Solvay says the separation would establish two strong industry leaders that would benefit from the strategic and financial flexibility to focus on their distinctive business models, market and stakeholder priorities. Following the separation, each standalone company would be positioned to:

• Intensify focus on its strategy and growth opportunities;
• Prioritize resources to meet its distinctive business needs;
• Apply differentiated operating models to better serve its customers;
• Pursue distinct capital structures and capital allocation priorities;
• Drive sustainability initiatives, including reaching carbon neutrality before 2040 for SpecialtyCo, and before 2050 for EssentialCo; 
• Attract and retain talent best suited for distinct businesses; and
• Provide a clear investment thesis and visibility to attract a long-term investor base suited to each company.

EssentialCo would provide technologies that have proven essential across a number of attractive and resilient end markets (including building, consumer goods, automotive), Solvay notes, and benefit from a foundation of strong leadership positions. As an independent company, EssentialCo would be positioned to further reinforce its leadership through expansion and consolidation opportunities, including accelerating growth in natural soda ash and sodium bicarbonate, pursuing growth in the Asia-Pacific region and further extending its leadership in a consolidating peroxide market. It would also play a key role in accelerating the energy transition that began in its soda ash business in order to be carbon neutral before 2050. Following the separation, EssentialCo would strengthen its operating model by enhancing its cost leadership and maximizing cash generation.

As an independent company, SpecialtyCo would provide innovative, value-added solutions that support a more sustainable world, driving above market growth and strong returns. SpecialtyCo would be comprised of two business segments, Materials and Consumer & Resources.

The Materials would focus on advanced materials, bringing new solutions to customers that address critical performance and environmental challenges. Materials has the broadest portfolio of patented materials based on high-performance polymer and carbon fiber composite technologies, the company notes, with leading global positions in all core markets. These businesses also have a strong track record of above-market growth, supported by underlying megatrends including electrification, lightweighting, sustainable mobility, and digitalization. With this distinction, the segment would reportedly benefit from increased investments in capacity, innovation and commercial capabilities to support above-market organic growth.

Alternately, the Consumer & Resources segment primarily consists of businesses within Solvay’s current Solutions segment and would provide specialty ingredients focused on more natural and sustainable solutions by anticipating rapidly evolving customer needs. The segment is also said to be well positioned to drive the consumer industry toward bio-based, natural and circular solutions, leveraging its portfolio of innovative solutions and application expertise.  The segment would be positioned to drive above market growth at strong returns. 

Each company would have a tailored capital structure that best supports its value creation objectives. SpecialtyCo would be committed to a strong investment-grade rating. The company would have full financial flexibility at the time of separation to fund its growth plan. EssentialCo would maintain a prudent financial policy to support cash generation. The current investment grade rating of Solvay SA is intended to be preserved until the separation. Solvay SA is committed to offer current USD and EUR senior and hybrid bondholders the option to be transferred to SpecialtyCo in due time. The dividend at the outset is intended to be aligned with Solvay’s current level.

Under the separation plan, Solvay’s shareholders would retain their current shares of Solvay stock, which will continue to be listed on Euronext Brussels and Euronext Paris. The separation would be effected by means of a partial demerger of Solvay whereby the specialty businesses will be spun off to SpecialtyCo. Solvay shareholders at the time of separation would receive shares in SpecialtyCo pro rata to their shareholding in Solvay SA. The shares of each company would be expected to be listed on Euronext Brussels and Euronext Paris. The company expects to structure the separation in a manner that would be tax efficient for a significant majority of shareholders in key jurisdictions. 

The composition of the Boards and management teams, as well as naming for each company, will be provided at a later date.

The transaction is subject to general market conditions and customary closing conditions, including final approval by Solvay’s Board of Directors, consent of certain financing providers and shareholder approval at a general meeting, and is expected to be completed in the second half of 2023. The Board of Directors of Solvac, Solvay’s long-standing reference shareholder, has confirmed its support of Solvay’s transaction. Solvay also envisages updating investors on the strategies for SpecialtyCo and EssentialCo prior to the completion of the separation.