By Al Root

Solstice Advanced Materials isn't waiting around to create a legacy after being spun off from Honeywell in October, 2025.

Monday morning, the maker of products for advanced cooling solutions and nuclear power said it was buying Element Solutions for $14.5 billion. Element shareholders will get 0.5 Solstice share and $10 in cash per Element share held. The deal should close in the first half of 2027.

Element stock dropped 3% to $42.32. Solstice shares fell 15.1% to $68.05, while the S&P 500 added 0.7%.

There are a couple of reasons the stocks fell. There is merger arbitrage. Sometimes arbitrageurs will sell shares of the acquiring company and buy shares of the company being acquired to lock in a spread. The deal currently values Element at about $44, up roughly 4% from recent levels.

There might be some nerves among Solstice shareholders, too. It's a huge deal, struck soon after the Honeywell spinout. It essentially doubles the company's size overnight.

It's worth it, according to Solstice CEO David Sewell. Combined, the company will be at the leading edge of secular AI growth trends. It produces products to make semiconductors that are needed to cool and help power AI computers.

There is little portfolio overlap. Many Element products are used in semiconductor manufacturing. Solstice produces refrigerants as well as uranium hexafluoride, an intermediate product in the process of making nuclear reactor fuel.

"The timing is just perfect," says Sewell. "When you look at the [AI] growth rates over the next five to 10 years, they're undisputed. And now we have a complementary portfolio of leading technologies to support these secular growth trends."

The combined company should have 2027 sales of about $8 billion and earnings before interest, taxes, depreciation, and amortization, or Ebitda, of $2.2 billion.

That leaves the combined entity trading for about 12 times estimated 2027 Ebitda. That isn't a big multiple. Qnity Electronics trades for about 20 times. The S&P 500 trades for about 13 times, according to FactSet.

The 12 times multiple for the combined entity assumes management teams will capture synergies and growth without many hiccups.

To be sure, it's a transformation deal. And one that couldn't have been done while Solstice was a part of Honeywell. Sewell told Barron's that he sent a note to Honeywell CEO Vimal Kapur thanking him for the spin.

The chemical business, which is now Solstice, hadn't made an acquisition in years while it was part of Honeywell, and it always battled for growth capital with Honeywell's larger aerospace and automation divisions.

Now that it's separated, Solstice can make strategic decisions on its own, even bold ones.

Write to Al Root at allen.root@dowjones.com

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