Solvay and BP forge polymer-exchange deal

By Staff -- Purchasing, 2/8/2001

Solvay S.A., the international pharmaceutical and chemical group headquartered in Brussels, Belgium, recently forged an agreement with British Petroleum (BP), based in the U.K., which would result in a strengthened global position for each company in its respective core polymer markets.

The agreement would essentially transfer Solvay's polypropylene (PP) business to BP, and Solvay would receive BP's engineering polymers business. In addition, it provides for two joint ventures to manufacture high-density polyethylene ( HDPE ) in Europe, North America and South America.

For the U.S. joint venture, Solvay would own 51% of the combined HDPE business, while BP would own the remaining 49%. The second JV, covering Europe and one small facility in Brazil, would be owned equally. Also, BP's shares in its existing HDPE joint ventures in Indonesia, Malaysia and the Philippines will not be contributed, according to a source at Solvay.

"From our point of view, the agreement would double our sales of engineering polymers (to approximately 700 million euros, giving us a leadership position in this innovative, high-growth market," says Martial Tardy, corporate press representative at Solvay.

When completed, the deal would create the third-largest player in the worldwide high-density polyethylene market (HDPE), and the largest player in Europe. Previously, Solvay ranked fifth worldwide and BP ranked eleventh in the HDPE market, according to Solvay. Combined annual production capacity is estimated at 2.2 million tons.

"As for polypropylene (PP), we're exiting a market in which we were not big enough to compete effectively," Tardy says. As a result, Solvay will turn over its PP business, valued at 500 million euro/yr, and with a total capacity of about 780,000 tons/yr.

The deal offers the companies a win-win solution to aligning their operations to maximize growth. Along with the advantages of the deal to Solvay's operations, BP will benefit from its re-emergence in the U.S. HDPE market. Some years ago, the company exited the market due to a weak position caused by insufficient scale.

"Now BP is re-entering the market under optimal conditions," says Solvay's Tardy. "The company is now a global petrochemical company with access to hydrocarbons around the world and a strong position in the olefins wedge," Tardy says. "Through these ventures, Solvay can access global feedstocks and markets that will allow the JVs to grow faster and more efficiently than either company could on a standalone basis," he says. "Also, ethylene supply at competitive prices in Europe and the U.S. is one of Solvay's motivations for this venture," Tardy says.

The agreement must clear both companies' due diligence and approval from regulatory bodies, both in Europe and in the U.S. Its completion is anticipated by June 2001. The issue of choosing a corporate headquarters for the JVs will be decided over the coming months.