Lyondell to Combine with Millennium

Lyondell Chemical and Millennium Chemicals have agreed to merge in a stock-for-stock transaction that will create the third largest publicly traded U.S. chemical company after Dow Chemical and DuPont.

Under the deal, Millennium shareholders will receive about one share of Lyondell stock for each share of Millennium stock they hold. The transaction values Millennium, which had sales last year of almost $1.7 billion, at about $1 billion; Lyondell will also assume about $1.3 billion of Millennium debt.

The combined company will be called Lyondell Chemical and be headed by Dan F. Smith, Lyondell's current president and CEO. If up and running last year, it would have had sales of more than $11 billion, operations in 16 countries, and about 10,000 employees worldwide.

The main result of the transaction will be to consolidate ownership of Equistar Chemicals under one roof. Equistar was formed in 1997 and 1998 as a three-way petrochemicals and plastics joint venture among Lyondell, Millennium, and Occidental Chemical. OxyChem sold its share to Lyondell in 2002 and, today, Equistar is owned 70.5% by Lyondell and 29.5% by Millennium.

The deal will also integrate Millennium's acetyl chemicals business with its key feedstock, ethylene, and put Millennium's titanium dioxide business in the hands of a larger global entity. Smith expects such synergies will result in at least $50 million in annual cost savings; he says the deal will add to Lyondell earnings by next year.

Following the merger, 52% of Lyondell's sales will be from Equistar, 33% from Lyondell's propylene oxide and derivatives business, 10% from titanium dioxide, and 5% from acetyl and terpene chemicals. Lyondell is also majority owner of a Texas oil-refining joint venture with the Venezuelan state oil company PDVSA.

Although the merger will turn the two companies into a sizable global player, it remains to be seen whether joining forces will improve their ability to weather the petrochemical industry cycle. Lyondell and Millennium both lost money last year and both are saddled with high amounts of debt. Both firms have a "junk" designation from credit ratings agency Standard & Poor's.