Indian conglomerate Reliance Industries Ltd. has made a cash bid for LyondellBasell Industries AF SCA, the world's largest polyolefins maker. Rotterdam, Netherlands-based LyondellBasell called the Reliance offer a potential alternative to the reorganization previously filed by the company.
Terms of the offer were not disclosed. A previous published report attributed to sources close to Reliance said the offer would be around $6 billion. A second published report put the price closer to $12 billion.
LyondellBasell acknowledged the offer in a Nov. 21 statement:
LyondellBasell has received a preliminary non-binding offer from Reliance Industries Ltd. to acquire for cash a controlling interest in the company contemporaneously with the company's emergence from Chapter 11 reorganization, officials said.
This offer is in addition to the previous non-binding equity financing proposals received by the company.
Mumbai-based Reliance issued a similar statement, adding that the firm is reviewing a number of global opportunities for growth in its core business.
This review is ongoing and there can be no assurance of the outcome with respect to any of the opportunities under review, including with respect to LyondellBasell, or that any approach made in connection with such opportunities will result in a transaction, officials said.
Reliance India's largest private company has been linked to numerous plastics and petrochemical deals in recent years, including the sale of GE Plastics and the attempted sale of the commodity plastics business of Dow Chemical Co. The LyondellBasell bid is Reliance's first firm offer.
Back in October, officials with LyondellBasell said that the company expected to file an initial public offering sometime in 2010. LyondellBasell also expects to exit bankruptcy in December 2009 or January 2010, officials said at the time.
Industry consultant Balaji Singh said that a Reliance-LyondellBasell deal would be a good opportunity for the worldwide polyolefins industry.
Most of the issues LyondellBasell has faced have been financial. Reliance would have a long-term strategy of utilizing [Lyon- dellBasell] as a strategic asset, said Singh, president of Chemical Market Resources Inc. in Houston.
A controlling stake in LyondellBasell also would give Reliance an automatic distribution presence in the U.S. and Europe. You can't beat that for an opportunity, Singh said.
Roger Young, vice president of Asia Pacific for Robert Eller Associates, also likes the potential combination of Reliance and LyondellBasell, saying the deal would give LyondellBasell a good low-cost supplier of feedstocks, plus give Reliance a major place on the global stage.
Reliance would also benefit downstream, thanks to LyondellBasell's advanced polyolefins unit in Hong Kong and its compounding operations.
Young said the deal shows the rise of firms from developing countries in the plastics business, and the exit of all the Western companies from commodity plastics The landscape is really changing, he said.
If you do not have a low-cost feedstock footprint, you are not competitive and need to move to an asset-light strategy, like Dow Chemical Co., Young said.
Market analyst Esteban Sagel said LyondellBasell provides Reliance with access to a large infrastructure.
Reliance is a very ambitious company with big plans for the future, said Sagel, who's with Chemical Market Associates Inc. in Houston. If they're looking to become a global powerhouse, this is one way to do it.
The two firms already have a business relationship, since Reliance licenses LyondellBasell's Spheripol-brand PP technology at several of its plants in India.
LyondellBasell posted a loss of $7.3 billion on sales of $50.7 billion in 2008. Reliance ranks as one of the world's largest polypropylene makers and rang up sales of about $29 billion last year. The firm also ranks as the world's largest producer of polyester fiber and yarn.
If Reliance buys LyondellBasell, it would continue the trend of non-Western resin suppliers becoming global players. Others include Saudi Basic Industries Corp. of Riyadh, Saudi Arabia, which bought the former GE Plastics; and International Petroleum Investment Co. of Abu Dhabi, United Arab Emirates, which bought Nova Chemicals Corp.
In 2008 Reliance considered taking a step into the U.S. market when it planned to buy a site in Kinston, N.C., and use it to make PET resin. But the company eventually chose not to buy the property. Since then, chemical and financial analysts have watched for Reliance to take a step to boost its worldwide footprint.
Globally, Reliance ranks as the third-largest PP maker, with annual capacity of about 6 billion pounds and a market share of 4 percent. Reliance is cash-rich and dominates its local market, but its growth has slowed a bit of late, as a result of the global economic slowdown. Profit for its 2009 fiscal year which ended March 31 was down almost 22 percent, even as full-year sales grew 8 percent vs. the prior year.
In the six-month period ended Sept. 30, Reliance's sales of $17.5 billion and profit of $1.6 billion each were down 9 percent vs. the same period in fiscal 2009. Its petrochemical sales were down 18 percent in the same comparison, even though the unit's pretax profit was up 24 percent.
Petrochemicals accounted for about 31 percent of Reliance's total sales during that period. Production of PP, polyethylene and PVC also rose 16 percent to 4.2 billion pounds during that period.
Indian investors have reacted negatively to the offer on the Bombay Stock Exchange, knocking Reliance's per-share stock price in half in the last two weeks. The stock price closed at 2,190 rupees ($47.55) on Nov. 25, but by the next day had slid all the way to 1,060 rupees ($23.10). The price stood at 1,090 rupees ($23.60) in early trading Dec. 4.
LyondellBasell ranks as the largest maker of polypropylene in both North America and the world. In North America, the firm also ranks second in markets for HDPE and LDPE.
In the first half of 2009, LyondellBasell's sales fell 53 percent to $13.2 billion vs. the year-ago period. The firm posted a first-half loss of $1.4 billion after showing a $5 million profit in the same period a year ago. In a recent bankruptcy court report, LyondellBasell listed long-term debt of almost $18.4 billion.
Ownership of LyondellBasell is split 50-50 between investment firms Access Industries of New York and ProChemie Holding Ltd. of Oberndorf, Germany.
Plastics News Asia bureau chief Steve Toloken and managing editor Don Loepp contributed to this report.
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