Basell To Buy Lyondell

LESS THAN A WEEK after it lost out to Hexion Specialty Chemicals in a bid for Huntsman Corp., Basell has rebounded with an agreement to buy Lyondell Chemical. The transaction, valued at more than $19 billion, will be one of the largest mergers in the history of the chemical industry.

Basell, which is owned by the privately held industrial group Access Industries, is offering $48 per share for the company, a 20% premium over the closing share price on July 16, the day before the deal was announced. The transaction values Lyondell's stock at $12.7 billion, and Basell will assume Lyondell's $6.5 billion debt. The combined company would have had chemical revenues of $32.7 billion in 2006, ranking it as the sixth-largest chemical company in the world, just behind Ineos Group.

"This combination further strengthens Access' long-term strategic position as one of the top chemical companies in the world," says Len Blavatnik, the founder and chairman of Access Industries.

Basell's move is hardly a surprise. Access purchased an option in May to buy an 8.3% stake in Lyondell. The company has also been on the prowl for major chemical acquisitions. It reportedly bid for GE Plastics, which Saudi Basic Industries won with an $11.6 billion offer. At the end of June, it agreed to purchase Huntsman in a $9.6 billion deal, only to be edged out weeks later by a $10.6 billion bid by Hexion.

Basell's merger with Lyondell is arguably more complementary than a merger with Huntsman would have been. Basell was the polyolefins joint venture of BASF and Shell Chemicals before Access bought it in 2005. It is the largest polypropylene producer in the world. The company is also the largest polyethylene maker in Europe and a major world licensor of polyolefins technologies.

Lyondell was spun off from Atlantic Richfield in 1989. It grew to become North America's second-largest ethylene and propylene maker, as well as its third-largest polyethylene producer. The company is also the world's largest manufacturer of propylene oxide and operates a 268,000-barrel-per-day oil refinery in Houston.

"Basell and Lyondell share a common vision for continued success, and the combination of our companies will enhance our opportunities," says Lyondell CEO Daniel F. Smith. Both companies say they expect no change in management for the foreseeable future.

Analysts also are praising the upcoming merger for its potential synergies. "We believe that the proposed acquisition of Lyondell by Basell is a positive strategic move for Basell, extending its geographic and product-line diversity," said UBS equity research analyst Gregg A. Goodnight in a report.

P. J. Juvekar, a chemical stock analyst with Citigroup, says the new company, with 5% of global capacity, will be the second-largest ethylene producer, behind Dow. "The combination creates a new global 'chemical titan,' " he recently wrote regarding the deal. He adds that Lyondell's U.S. base "complements Basell's European foundation, offering the synergies of a global manufacturing system."

Industry stock analysts say Basell is paying a fair price for Lyondell. However, they do not rule out the possibility that another potential bidder for Lyondell might emerge, as happened to Basell with the Huntsman bid. "We would not be surprised if another strategic buyer, like India's Reliance or a Middle East investment consortium, stepped in with a [share] price in the low $50s," wrote Morgan Stanley analyst Charles Neivert in a recent note to clients.