Chemical and pharmaceutical company Solvay SA (SOLB.BT) confirmed Monday it is selling its drug making activities to U.S. rival Abbott Laboratories (ABT) for EUR4.5 billion in cash, as the Belgian conglomerate takes advantage of the drug industry's push for consolidation, while raising money to expand its plastics and chemicals businesses.

Abbott will pay about EUR4.5 billion in cash, with up to another EUR300 million if certain milestones are met between 2011 and 2013. The U.S. pharma company is also assuming EUR400 in liabilities from Solvay, raising the total value of the pharma business to EUR5.2 billion, the Brussels-based company said in a statement.

"The proceeds from the divestment will be reinvested in external and organic growth with a sharp focus on long term value creation," said Solvay Chief Executive Officer Christian Jourquin, adding that the focus will be on geographical regions that offer strong growth potential.

Solvay had said in April that it was reviewing options for its pharma activities, as research, development, production and approval of new drugs becomes more complicated and expensive. Some major players in the sector have recently shown willingness to spend big money on acquisitions, despite the economic downturn. In January, U.S. pharma company Pfizer Inc. (PFE) bought smaller rival Wyeth (WYE) for $68 billion while Merck & Co. (MRK) agreed in March to buy Schering-Plough Corp. (SGP) for $41 billion.

However, the pharma unit has been a cushion for Solvay against the economic downturn in recent quarters because it partially offset a worse performance at its chemicals and plastics businesses, which are dependent on badly hit industries like autos and construction.

Solvay -- one of the last remaining big hybrids along with Germany's Bayer AG (BAY.XE) -- makes products as diverse as car fuel tanks to soda ash for the manufacture of glass.

The deal with Abbott came as a surprise to many, as privately-owned Swiss drug company Nycomed was until only recently seen as the only bidder for Solvay's drug business.

The total value of EUR5.2 billion is a bit lower than expected, said Bernard Hanssens, an analyst at Bank Degroof in Brussels. However, this isn't a total surprise because Solvay pharma's profitability is slightly lower than that of peer businesses, he noted. Hanssens cut his rating to accumulate from buy.

Jourquin said that the investment of the proceeds from the pharma sale will target long-term growth in an effort to limit the impact of cyclicality on the company.

"We are building a new refocus for the group," he said, adding that the company will continue its dividend policy.

The sale of the pharma operations to Abbott marks another sign of the consolidation of the drug industry.

Abbott sees Solvay as a way to expand into emerging markets in Eastern Europe and Asia, where Abbott had limited presence, while adding new drugs for hypertension and Parkinson's disease. It is the biggest deal Abbott has done since 2002 and it will add more than $3 billion in annual sales, most of which will be outside the U.S., the U.S. company said in a statement Monday.

"In anticipation of future market needs, we are ensuring we have the technologies, products, infrastructure and reach to serve patients globally and continue to deliver sustainable industry-leading growth," said Abbott's Chief Executive Miles D. White in the statement.

The deal also gives Abbott full control of two drugs for cholesterol and triglycerides that Abbott and Solvay already sell together -- Tricor and Trilipix.

Solvay also sells hormone treatments and has a small flu-vaccine business -- a hot area in the drug industry as concern mounts about flu pandemics.

Solvay shares were up 2.9% at EUR76.88 as of 0708 GMT on Monday, outperforming an overall positive Bel-20 index of stocks traded in Brussels. Solvay has gained 41% since the beginning of the year, with most of the gains coming after it announced the sale of the pharma unit.

Company Web sites: www.solvay.com/; www.abbott.com/

-By Alessandro Torello, Dow Jones Newswires; +32 2 741 14 88; alessandro.torello@dowjones.com