INSIGHT: Huntsman gives Basell earning power

26 June 2007 18:11  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS news)--Basell owner Len Blavatnik has been looking to strengthen the polyolefins major's upstream and downstream positions for some time. GE Plastics was rumoured to have been in his sights not too long ago.

The big deal just announced, between his Access Industries and the US-headquartered Huntsman group, combines the world’s largest polypropylene (PP) maker and a mover and shaker in polyolefins technology with a producer of diversified downstream chemicals. Huntsman has moved away from its upstream focus and built a business centred on polyurethanes effect materials and performance products.

It is big in epoxies and textile effect products and getting close to important customers. The portfolio shift has been driven by management’s realisation of just how difficult it is to play in the upstream petrochemicals and polymers big time. Top line and earnings growth potential looks much more attractive, and possibly stable, in more diversified and specialty-oriented businesses.

The Huntsman business created 24 years ago by Jon Huntsman has been through a number of manifestations but as management has shifted the business away from petrochemicals - and, all importantly, paid down debt - the business has become more attractive.

Blavatnik has wanted to add strength in depth to his chemicals assets. Having missed out on GE Plastics- which was eventually acquired by Saudi Arabia’s SABIC, Huntsman looks like a good buy.

Questions will be asked about synergies but perhaps that is the engineer talking in too many chemical industry executives.

This deal is not about product and technology synergies but about developing a big, diversified business with complementary strengths. Basell is doing well now but Blavatnik and his team know the business will be hit hard when new low-cost commodity capacity comes on stream in the Middle East and new plants are added in China.

Basell can play with the big boys - no-one is bigger in PP - but a more broadly based and diversified portfolio is more than welcome.

By the same token, businesses that are run close to the customer fit with large parts of the Basell offering.

Letting customers know that you know your business, can produce the goods and deliver new technological advances is very much the game in chemicals now. Commodity businesses have become more focused on feedstock rich-parts of the world.

Rapid industrial development in places like China, India and the stirring of downstream growth in the Middle East all demand to be fed. Having the right products in the right place is hugely important. Tapping into strong downstream growth - which in many instances can be well above that of gross domestic product (GDP) - is important.

Huntsman will help balance Basell for Blavatnik and his investment vehicle Access Industries. Peter Huntsman told ICIS news in an exclusive interview on Tuesday that he expects the two businesses to be run in tandem. That implies that there will be time to work out the synergies later on.

The Huntsman acquisition, however, is all about growth and capturing stronger earnings power.

Basell expects to be aligned with a strong partner; its cashflows look as though they have been used wisely. In private hands once again also, the Huntsman assets look as though they can continue to flourish.

By: Nigel Davis
+44 20 8652 3214

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