Foreign Chemical Makers Offer Investment Opportunities

chemicals.jpgIn the most recent M&A deal in the chemical industry, Belgian chemical and plastics maker Solvay (SVYZY) agreed to buy French speciality chemical maker Rhodia(RHAYY) for 3.3 billion Euros. This represents premium of 50% to Rhodia’s closing price on April 1, 2011.  This is an all-cash deal with Solvay offering 31.60 Euros for each Rhodia share.

Solvay’s footprint in the emerging markets of China, Brazil and India is set to increase with this deal. In addition it will beef up its R&D capabilities and innovation of new products. Solvay’s OTC-listed ADR closed at $12.80 today. While Solvay has paid a rich premium for Rhodia, the deal should benefit Solvay tremendously in the long run since demand for chemicals continues to rise in emerging markets. Investors looking to gain some exposure to the chemical sector may want to add Solvay at current levels.

Unlike other industries, acquirers in chemical sector usually pay a nice premium for their targets. Some of the past notable takeovers include the acquisition of UK’s paint maker ICI by Dutuch chemical giant Akzo Noble (AKZOY) in 2007, Dow Chemical’s(DOW) acquisition of Rohm and Haas in 2008, BASF’s (BASFY) $5B acquisition of Engelhard in 2006 and Swiss specialty chemical maker Ciba in 2008. Dow Chemicals paid a 74% premium to buy Rohm and Haas. Some of the foreign chemical stocks that are available on the U.S. market include Bayer (BYERF),Yara International (YARIY),L’Air Liquide (AIQUY), Braskem (BAK), Syngenta (SYT),Arkema (ARKAY),Nova Chemicals Corp.(NCX),K+S AG (KPLUY) and Linde AG (LNEGY)

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