Millennium Chemicals Inc. is moving forward with its plans to sell off its 29.5 percent share in Equistar Chemicals LP, North America's largest polyethylene producer, by the end of the year.
``When we formed Equistar, we had a clear strategy to de-emphasize commodity chemicals,'' said Mickey Foster, vice president of investor relations for Iselin, N.J.-based Millennium. ``We've lessened our commodity exposure by one-third and we look to continue doing that.''
Foster said Millennium plans to use some of the proceeds from the sale to buy back company stock in order to improve the firm's financial health. Millennium has spent $50 million on stock buybacks since January and plans on spending up to $200 million in this area.
The company now plans to focus more on its titanium dioxide business and other specialty chemicals markets, Foster added.
Millennium's share of Equistar is valued at between $1.3 billion and $1.5 billion, although it's unlikely the company would receive that much in a sale because of the current depressed condition of petrochemical markets.
``Even if we get $800 million or $1 billion in the sale, that would allow us to buy more shares at our current stock price,'' Foster said. ``If we wait until the market turns up, we'd get more for our shares but we also wouldn't be able to buy back as many shares. In that sense, it really doesn't matter when we get out.''
Millennium is one of three partners in Equistar. Lyondell Petrochemical Co. of Houston controls 41 percent of the venture, with Occidental Chemical Co. of Dallas holding the remaining 29.5 percent. Equistar was formed in July 1997 when Lyondell and Millennium combined their polyolefin and olefin assets. OxyChem contributed its olefins to the mix eight months later.
The venture now ranks as North America's largest PE maker, holding the No. 1 spots in high density and low density PE and the No. 5 position in linear LDPE. It produces more than 6 billion pounds of PE annually at seven plants on the Gulf Coast and in the Midwest. Equistar is also the world's second-largest producer of ethylene and third-largest propylene maker along with controlling about 4 percent of the North American PP market.
Equistar's intention was to gain economic advantages through low-cost production of large volumes of polyolefins and olefins. It has produced cost savings for its partners but also has struggled as polyolefin and olefin prices have plummeted in the last 18 months.
This struggle has been reflected in stock prices at Millennium and Lyondell. Each company's share price was around $30 in mid-July, but Millennium now trades at less than $20 while Lyondell has dipped below $14.
Industry sources said Millennium may have some difficulty in selling at a time when industry margins and profits are so low. Foster said the firm has met with several potential buyers, but he declined to identify specific companies. He admits that ``not a lot of people are going to be buying going into a trough.''
But, Foster adds, Equistar's sales and profit have increased each month so far in 1999, leading him to believe the firm is ``bouncing off the bottom.''
A March 18 report from New York investment firm Salomon Smith Barney said that although established petrochemical firms might not be interested in buying Millennium's share of Equistar, buyers from the financial industry might want to, betting the petrochemical cycle will eventually turn and they can profit from the age-old ``buy low, sell high'' strategy.
Industry sources said Equistar partners Lyondell and OxyChem probably would not be interested in the shares, since Lyondell currently carries a heavy debt load and OxyChem is focused on its parent company Occidental Petroleum's efforts in the struggling oil market.
Lyondell officials declined to comment on Millennium's decision, but pointed out that company management is ``comfortable with [its] current position'' in Equistar in Lyondell's newly released 1998 annual report.
Officials at OxyChem could not be reached for comment.
Industry consultant Rob Harvan said that, in the current business environment, he would question why anyone would buy part of ``a fundamentally sick business'' such as Equistar.
``Long-term, [selling the Equistar share] is a positive for a company going down the specialty chemicals path,'' Harvan said. ``But Equistar presents a supply, distribution and manufacturing nightmare because of the differences among its multiple plants, products and grades.''
Harvan added that he doesn't believe Equistar has achieved the financial advantages it hoped for when it initially was formed, partially because of the assortment of technologies and facilities Millennium and its predecessors had acquired over the years.
``The Millennium business always carried the baggage of its predecessors, both economic and otherwise,'' Harvan said.
Equistar officials said the company achieved $50 million in savings last year and hopes to reach $200 million in savings in 1999.