INSIGHT: Hexion sees Huntsman as hot property

04 July 2007 17:22  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS news)--So suddenly Huntsman is hot property. The attraction of creating an epoxies producer to rival Dow and further consolidate the business has proved too much for private equity firm Apollo.

But expect a counter bid from Basell’s owners Access Industries, some believe before the end of the week.

Access wants Huntsman to balance its big but vulnerable Basell polypropylene and polyethylene operations. Cash flows from the business will begin to suffer when new low cost commodity polyolefins capacities come on-stream with a vengeance in the Middle East, starting at the back end of 2008.

Huntsman balances Basell for financier Len Blavatnik’s Access, providing relatively more stable profit flows and in-roads into specialised areas of the chemicals business like epoxies and textile effect chemicals. It could be used as a platform for further downstream growth.

Huntsman offers Basell a great deal although no immediately obvious industrial synergies. Combining Huntsman with Hexion, however, is a different prospect – one that will attract the eyes of the regulators, and raise questions about just where the cash will come from to finance the deal.

The tasty offer of $27.25/share from Apollo, $6bn excluding debt and 8% higher than the Access bid, could be too difficult to resist – the $25.25/share offer from Basell was looked on by Huntsman as a good deal.

But concerns have been raised about the market share of a combined Hexion/Huntsman in epoxies. In Europe a combined company would probably have to spin off products like composites and epoxy hardeners.

Those obstacles are not insurmountable by any means but the Huntsman board has to weigh the pros and cons of the riskier Hexion offer against the relatively risk free approach from Basell.

The issue is given further gloss by the fact that Huntsman and Apollo have been in a number of battles together including that over the spun-off Ciba Specialty Chemicals business Vantico. A point made by Kline & Co consultant Ian Butcher is that the Vantico deal helped transform Huntsman from a commodity company into a real specialty player.

The two offers present intriguing possibilities for further development of the Huntsman businesses. Apollo might be expected to want to drive Hexion/Huntsman synergies hard and generate cash quickly from divestments.

It appears that Access want to leave Huntsman very much alone, at first at least. Basell is generating strong cash flows. Huntsman provides a platform for further growth. The combined companies might do better business in vitally important parts of the world like China, India and the Middle East.

How forward looking a combined Hexion and Huntsman might be remains to be seen. It is unlikely, however, that Access/Basell will give up without a fight.

Huntsman without its petrochemicals businesses within a week has become a hot prospect. More money is likely to be put on the table before a deal is done.


By: Nigel Davis
+44 20 8652 3214

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