Ineos-Solvay PVC Joint Venture Faces In-Depth EU Investigation

Ineos Group Holdings and Solvay SA, Europe’s two biggest makers of polyvinyl chloride, face an in-depth European Union probe into their 4.3 billion-euro ($5.8 billion) PVC merger, regulators said.

The European Commission said the deal would remove a key competitor for bleach and for suspension PVC resin used to make pipes and window frames, according to an e-mailed statement today. Concessions offered by the companies “failed to provide a sufficiently clear-cut solution” to eliminate antitrust concerns, it said. The EU set a new deadline of March 21 to rule on the transaction.

The proposed combination, announced in May, would allow the enlarged business to cut costs in areas from transport to marketing and raise profitability amid a European industry suffering from inflated raw material and energy costs. The PVC market is facing overcapacity and weak demand in Europe, prompting companies in the labor-intensive and power-hungry industry to explore mergers. Solvay has said it plans to exit the PVC venture at a later stage.

“The removal of the competitive constraint that Ineos and Solvay currently exert on each other may lead to a reduction of choice for customers and potentially to an increase in prices for the products concerned,” the EU said in the statement.

Ineos and Solvay offered to sell a PVC-production plant in Germany to allay regulatory concerns, two people said in September. Strategic Value Partners LLC’s Vestolit GmbH was among bidders for the Ineos plant in Schkopau, Germany, that the companies offered to sell, two people said last month. The site is valued at about 60 million euros, they said.

Shares Down

Solvay shares closed down 0.9 percent in Brussels trading.

“Both companies remain confident that the proposed joint venture will receive commission clearance, which could be in the first half of 2014,” Richard Longden, a spokesman for Rolle, Switzerland-based Ineos, said in an e-mailed statement. “This would create a competitive and sustainable business that would continue to benefit customers in Europe’s rapidly changing markets and highly challenging economic environment.”

The deal will combine the two leading suppliers of S-PVC in northwest Europe and of sodium hypochlorite bleach in Belgium and Netherlands, the EU said in its statement. The S-PVC market in Europe is worth 3.2 billion euros, it said.

“A lot of jobs downstream depend on PVC, and the industry is going through a very tough time,” said Paul Hodges, chairman of International EChem, which advises chemical companies on strategy. “It’s a perfect storm domestically in Europe, with a combination of high oil prices and construction being in a bad way, whilst U.S. producers have an enormous feedstock advantage in export markets due to shale gas.”

Raw Materials

With low energy and raw-material costs in the U.S., there’s also scope for players there to transport semi-finished vinyl materials to Europe for final processing at local plants. U.S. companies in the industry include Westlake Chemical Corp.

“In terms of potential buyers, the best fit is clearly with a European player,” Hodges said. “With Kem One out of the running due to their administration, Vestolit have an obvious interest as an existing German producer with currently just the Marl site.”

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