Honeywell spin-off Solstice targets AI supply chain with $14.5bn deal for Element

Honeywell spin-off Solstice Advanced Materials is combining with Element Solutions in a $14.5bn deal to create a speciality chemicals giant less than a year after breaking off from the industrial conglomerate.

Solstice said on Monday that it was acquiring Element in a largely stock-based deal, which gives Element an implied equity value of $50.10 a share, a 15 per cent premium to Thursday’s closing price.

The deal will create a leading advanced materials company with a combined enterprise value of roughly $29bn, generating $6.8bn in annual sales.

The FT reported earlier on Monday that the two companies were in merger talks over a deal that could be announced as soon as this week.

The combination will bolster Solstice’s expertise in refrigerants and performance materials for industry with Element’s capabilities in producing speciality materials for semiconductors, electronics and automotives.

It will position Solstice as a supplier to the AI supply chain, providing everything from packaging and thermal management capabilities to data centre cooling technology.

For each share, Element investors will receive 0.5 shares of Solstice common stock and $10 in cash, Solstice said. Once the deal closes, Element shareholders are set to own about 44 per cent of the combined company.

The deal allows Solstice to take advantage of its strong share price performance since breaking away from Honeywell eight months ago. The stock is up 75 per cent, giving Solstice a market value of $12.7bn at Thursday’s close.

Solstice’s shares fell 12.3 per cent in Monday morning trading following the announcement. Element’s shares dropped 1.3 per cent.

“We’ve done very well since the spin and this was just a perfect combination,” Solstice chief executive David Sewell told the FT.

The addition of Element would “really round out our electronics portfolio,” Sewell continued. “The current chip fabrication demand is so strong and so the upside from AI is so strong . . . We have complete solutions for this generational growth opportunity.”

Shares in Element had increased 77 per cent over the past year to Thursday’s close, as it benefited from increased demand from the high-end electronics market, giving it a market capitalisation of $10.6bn.

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Under chief executive Ben Gliklich, Element has also struck a series of smaller deals in recent years to bolster its presence in the semiconductor supply chain. It bought Micromax, a maker of conductive pastes for electronics, for $500mn last year.

Gliklich will serve on the combined company’s 11-person board, alongside two other directors chosen by Element. The deal will be funded by a $4.7bn bridge loan provided by Goldman Sachs.

The transaction comes amid a boom in dealmaking, with a record 47 transactions valued at more than $10bn in the first half of the year, helping to push global dealmaking volume to $2.8tn, according to LSEG.

Solstice’s public listing was the first part of Honeywell’s complex break-up. The $135bn industrial giant last month split into two publicly traded companies: one focused on aerospace and the other on automation.

Goldman, PJT Partners and Consello provided advice to Solstice, while Davis Polk and Hogan Lovells served as legal counsel. Bank of America, Paul Weiss and Collected Strategies served as Element’s advisers.