The polyolefins world was reshaped when Millennium Chemicals Inc. and Lyondell Petrochemical Co. on July 28 announced a joint venture of their polymers and olefins businesses.
The deal combines Millennium, one of the largest North American polyethylene suppliers, with Lyondell, which has important metallocene catalyst patents. The deal also broadens the customer mix for both firms.
The as-yet-unnamed partnership is touted as North America's largest producer of PE and ethylene.
Lyondell of Houston will own 57 percent, while Millennium of Iselin, N.J., will own the remainder of the joint venture, which will be headquartered in Houston.
The percentages were based on the value of the assets each company is bringing to the agreement, said a Lyondell spokesman.
The new company will operate 13 manufacturing locations in the Gulf Coast and Midwest. Total capacity includes roughly 7.2 billion pounds of ethylene, 3.4 billion pounds of high density PE, 2.2 billion pounds of propylene, 1.7 billion pounds of low density PE, 1.1 billion pounds of linear LDPE and 680 million pounds of polypropylene.
The partnership is expected to produce annual savings of $150 million by the end of 1999 by eliminating duplicate overhead and improving purchasing capabilities.
Job reductions will account for less than a quarter of annual savings, officials said.
The combined operation will have 4,600 employees — 3,100 from Millennium and 1,500 from Lyondell. As many as 10 percent of jobs may be eliminated, a Lyondell spokesman said.
The new venture will be governed by a six-person committee, which will be co-chaired by Lyondell President and Chief Executive Officer Dan F. Smith and Millennium Chairman and CEO William M. Landuyt. Smith also will serve as CEO of the new company.
Smith, in a July 28 telephone interview from New York, said the venture will create a more powerful force in developing new product applications.
``It's a unique opportunity to take hand in glove and create a very powerful combination,'' Smith said.
He added that the companies were not strictly competing beforehand, since Lyondell focused on film extruders while Millennium served injection molders and blow molders.
The venture also will allow Millennium to make use of Lyondell's metallocene catalyst patents, Smith said.
The sharing of this technology will speed up the impact of metallocenes on HDPE, according to Balaji Singh, president of Houston's Chemical Market Resources Inc. consulting firm.
Singh added that Millennium previously did not have the combination of capacity, technology and marketing to be regarded as a Tier 1 supplier.
``Millennium was never talked about like Exxon or Dow,'' Singh said in a July 28 telephone interview from Houston. ``They always said they didn't have enough resources to develop their own technology from scratch. But now they've moved into the Tier 1 category.''
Steve Landau, polyolefins product manager for Houston's Phillip Townsend & Associates consulting firm, said the move is ``an interesting blending.''
``Lyondell has good process technology,'' said Landau, who spent 10 years in Millennium's technical services and research departments when the company was known as Quantum. ``And with all of Millennium's capacity it's only going to help them.''
But Landau predicted the merger probably will not have much short-term impact because both companies' capacities are being absorbed by a healthy PE market.
Landuyt said the companies' histories of ownership changes will help them through the transition.
Landuyt, in a prepared statement, said the venture ``helps fulfill Millennium's strategy to maximize value creation in our polyethylene and related businesses by driving down costs.''
The value of the new company is estimated at $5 billion. It will carry a debt of $1.75 billion and will have substantial free cash flow, officials said. Millennium will receive $1 billion from the exchange, while the partnership will assume $750 million of Millennium's inter-company debt. Lyondell also will contribute a $345 million note to the venture.
Of the new firm's manufacturing locations, eight are in Texas (Channelview, Chocolate Bayou, Crockett, LaPorte, Matagorda County, Pasadena, Port Arthur and Victoria), two are in Illinois (Morris and Tuscola), two are in Ohio (Heath and Fairport Harbor) and one is in Iowa (Clinton).
Millennium posted sales of $1.3 billion in PE and related products last year. Totals in those areas for the first half of 1997 were $713 million.
Lyondell's petrochemicals business racked up sales of $2.64 billion last year. Sales to date for 1997 have been $1.34 billion.
The New York Stock Exchange reacted positively to the joint venture, as Lyondell's stock rose 37.5 cents to $26.125 and Millennium's stock rose 93.75 cents to $21.75 the day after the move was announced.
Lyondell was formed from Arco Chemical Co.'s petrochemical refinery operation in 1985. It added Rexene Corp.'s LDPE and PP works in 1989 and Occidental Chemical Co.'s HDPE operations in 1995.
Millennium, which traces its plastics history back to the 1938 merger of U.S. Industrial Alcohol and Robert Rauh Inc., was known as Quantum Chemical Corp. when it was acquired by London-based Hanson plc in 1993. Quantum was spun off and renamed Millennium in 1996.