LyondellBasell-Braskem the Next Merger?
Will LyondellBasell and Braskem be the next two companies to enter a marriage of convenience? It is yet unclear how much weight a report by the US financial newspaper Wall Street Journal (WSJ), claiming that the Houston-managed petrochemicals group has made a takeover approach to its Brazilian rival, should carry.
When the news broke on Oct. 30, Braskem rushed to deny it had received a bid, but the attention dedicated to it in the press, along with comments voiced, seemed to some to suggest the markets should take it seriously. Shares of both companies rose in the wake of the WSJ report, although some analysts said such a deal was risky.
While declining to comment directly, Odebrecht, Braskem’s controlling shareholder with 38.1%, said it intended to hang onto its shares. The other major shareholder, Petrobras, owns 36.1%. Some reports placed the selling price in the range of $10 billion. Braskem has a market capitalization of $12.7 billion and consolidated net debt of $10.4 billion. LyondellBasell’s market capitalization is estimated at $32.2 billion.
Were the deal to go through without major portfolio changes, LyondellBasell, which has its financial headquarters in the Netherlands, would become the world’s largest integrated petrochemicals and plastics producer and the largest producer of polyolefins. The acquisition also would be the largest of a public company in Brazilian history, with the two sides combining pro-forma sales of more than $46 billion.
A Lyondell-Basell deal would attract regulatory attention and at the same time rally opposition in Brazil to the takeover of a national “champion” by a US company, commentators noted. Up to now, the Houston group has had no production activities in the South American country, although the two petchems players compete in some international markets.
Beyond the normal metrics, some observers believe financing an all-cash a transaction estimated at $11.4 billion would prove difficult for LyondellBasell. By the same token, the Brazilian group’s shares are performing better – which analysts said could preclude an all-share deal. Another issue to watch is that Odebrecht and Braskem have been mired in the recent Brazlian corruption scandals.
While acknowledging that present industry conditions are by no means similar, finance expert John Abbink, writing on the website Seeking Alpha, recalled also that Basell’s highly leveraged acquisition of Lyondell in 2009 plunged the merged company into Chapter 11 insolvency proceedings in the US. On a more positive note, he said the combination of Braskem’s sugarcane-fed ethanol-to-ethane technology with LyondellBasell’s production knowhow would be an advantage going forward.
