The deals just keep getting bigger in resin land. This time around, polypropylene giant Basell Holding BV is snagging polyethylene and ethylene maker Lyondell Chemical Co. in a $19 billion acquisition that will create the world's largest producer of polyolefins.
It's the third time in three months that a major resin maker has changed hands. In May, Saudi Basic Industries Corp. bought GE Plastics for $11.6 billion, while earlier this month, Hexion purchased Huntsman Corp. for $10.4 billion.
Basell, based in Hoofddorp, the Netherlands, had been in the running for Huntsman, but its $9.6 billion bid was trumped by Hexion.
The Basell/Lyondell deal was signaled in May, when Access Industries Inc. - the New York investment firm that bought Basell in 2005 - bought an option to acquire an 8 percent stake in Houston-based Lyondell.
The all-cash transaction, announced July 17 and approved by the boards of both companies, includes assumed debt and calls for a $48 per-share price for Lyondell. That mark is 20 percent higher than the firm's July 16 closing price. Lyondell stock was trading around $25 as recently as January.
The deal will create the world's largest polyolefins firm, based on annual capacity. Basell already ranked No. 1 in global PP, with capacity - including joint ventures - of about 17 billion pounds. The firm also ranks No. 5 globally in PE production, with most of its production in Europe. Lyondell has a large presence in the North American PE market, ranking second in both high and low density PE and fourth in linear LDPE, based on annual sales. Lyondell also operates an oil refinery in Houston that can process 268,000 barrels per day.
The combined firms will have annual sales of about $34 billion and employ 15,000 worldwide. In a news release, Access Chairman and founder Len Blavatnik said the combination ``strengthens Access' long-term strategic position in the petrochemical industry.''
In the same release, Lyondell Chairman, President and Chief Executive Officer Dan Smith said he is ``very pleased that Basell recognizes the value and fit of our portfolio of chemical and refining assets.''
Stock analyst Kevin McCarthy said the union is ``a good strategic fit.''
``Lyondell is long on propylene monomer, the key building block for polypropylene, Basell's largest product,'' McCarthy wrote in a July 17 investment note from Banc of America Securities in New York. ``Both companies compete in polyethylene, where [Basell's] market presence in Europe could complement Lyondell's position as the second-largest ethylene producer and third-largest producer of polyethylene in North America.''
Banc of America estimates that the purchase price is almost seven times Lyondell's forecasted pretax earnings for 2007.
Representatives of both Access/Basell and Lyondell said there is very little overlap in the firms' businesses and no changes to Lyondell's management team are expected ``for the foreseeable future.''
``Ultimately, this is about global presence, and Lyondell will be a strong complementary fit,'' Access spokesman Stan Neve said. ``Right now, getting integrated with Lyondell is the priority.''
Lyondell spokeswoman Susan Moore said the deal has a lot of ``integration potential'' for Lyondell. Both sides said the deal is expected to close by the end of the year.
Recent projects for Basell include the scheduled 2008 restart of almost 500 million pounds of idled PP capacity in Bayport, Texas.
Lyondell has announced plans to build a major plant making propylene oxide and plastic feedstock styrene monomer in Ningbo, China. That plant - part of a joint venture with Sinopec Zhenhai Refining and Chemical Co. Ltd. of Beijing - is set to open in 2009.
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Headquarters: Hoofddorp, the Netherlands
2006 sales: $14.3 billion
No. 1 in PP globally and in N. America
2006 sales: $22.2 billion
In North America, No. 2 in HDPE and LDPE, No. 4 in LLDPE
Source: Plastics News, industry sources