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Ineos Is Buying BP's Innovene

Acquisition will transform Ineos into a major player in the chemical industry

by Patricia Short
October 17, 2005 | A version of this story appeared in Volume 83, Issue 42

Big Buy
Credit: BP Photo
Innovene plant at Chocolate Bayou, Texas, will be transferred to Ineos.
Credit: BP Photo
Innovene plant at Chocolate Bayou, Texas, will be transferred to Ineos.

The privately held British firm Ineos will become a top chemical industry player with an agreement to buy Innovene, BPs olefins and derivatives operation, for $9 billion.

BP split off the olefins business from its other, more profitable chemical operations in April 2004, planning to launch the unit on the stock market.

BP sweetened the olefins package in November 2004 by adding two of its refineries, and early this year the operations were officially formed into Innovene. By that time, BP was fielding a number of acquisition offers, according to CEO John Lord Browne.

Innovene had 2004 sales of roughly $18 billion in olefins, derivatives, and refining. The $9 billion cash sale, which is subject to regulatory approvals, includes all of Innovenes manufacturing sites in the U.S., Canada, the U.K., France, Belgium, Germany, and Italy. The deal also includes Innovenes stake in its styrenics joint venture with Nova Chemicals and its markets and technologies. The sale is expected to be completed early in 2006.

The deal will vault Ineos—which has an exceptionally low profile—into the top tier of global chemical companies. According to CEO Jim Ratcliffe, Ineos already has sales of about $8 billion per year. That figure, combined with the contribution from Innovene, would have placed the company as the sixth largest chemical company worldwide, between ExxonMobil and Total, in C&ENs latest ranking of the top 50 global chemical companies (C&EN, July 18, page 20).

This is a transformational acquisition elevating Ineos, says Ratcliffe, whose company has thrived by buying and investing in unfashionable commodity chemical businesses.

The roots of Ineos go back to BP chemical operations in Antwerp, Belgium. Ratcliffe led a management buyout of these operations in 1992, creating the new company Inspec, for which he was managing director until the firm Laporte acquired it in 1998. Ratcliffes group held onto the Antwerp plant and subsequently acquired numerous commodity chemical businesses from firms such as ICI, Dow Chemical, and Degussa.

The deal has led Standard & Poors ratings services to lower its BB long-term corporate credit rating on Ineos to BB–. The acquisition will significantly increase Ineos debt leverage, and the risk associated with combining several companies into one group is expected to be high, credit analyst Khaled Zitouni says.

Andrea V. Borruso, senior consultant at SRI Consulting, sees the Innovene sale as part of a trend—acquisition by primarily financial investors—that began in specialty chemicals and has spread to commodities. This is really changing who the players are in the business, and I think you will see more of this, particularly in anticipation of 2007, 2008, and 2009, when people expect there will be a severe downturn in the West as petrochemical capacity comes onstream in the Middle East and China.



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