FocusRivals lined up for BASF styrenics

19 July 2007 17:24  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS news)--INEOS, SABIC and Basell are frontrunners to acquire BASF’s estimated €1.6bn ($2.1bn) commodity styrenics business as blockbuster M&A activity in the sector rolls on, industry sources said on Thursday.

SABIC and Basell would benefit from further integration of their respective upstream styrene and benzene positions, with Basell’s expected to be bolstered significantly after its planned purchase of Lyondell, they added.

INEOS, which last month agreed to acquire the Lustran ABS (acrylonitrile butadiene styrene) business from Lanxess could also consolidate that and its Nova Innovene polystyrene (PS) interest further with such a deal.

The European market was abuzz with comment following BASF’s review of its styrenics business.

“The business would appeal to players such as INEOS, SABIC, Basell and possibly Total", said Richard Sleep, a Nexant Chem Systems vice president.

“The styrenics business needs consolidation. It is a business under threat,” he added.

Margins in the styrenics chain had moved towards benzene and the cracker in recent years, Sleep said, and products such as ABS were facing stiff competitive pressure from other polymers.

The German chemicals giant said on Tuesday that it had received an initial offer for its styrene monomer (SM) polystyrene (PS), styrene butadiene co-polymer (SBC) and ABS activities and that it intended to focus on foams and specialties.

The styrenics businesses under review had sales of €3.2bn in 2006.

BASF’s styrenics earnings globally have been under considerable pressure in recent years alongside those of other players in the sector in a volatile and high cost feedstock cost environment with global product overcapacity.

Consolidation in the downstream businesses particularly has continued apace with players in Europe and North America, such as NOVA Chemicals, and Innovene/INEOS, creating joint ventures to weather the storms, they said.

BASF said that the styrenics assets under consideration are in Antwerp, Belgium; Altamira, Mexico; Sao Jose dos Campos, Brazil; Ulsan, South Korea; and Dahej, India.

“Earnings in our styrenics activities have improved considerably thanks to efficiency optimization measures and fine-tuning of business models,” John Feldmann, BASF board member in charge of the company’s plastics and oil & gas segments said.

“However, further repositioning steps are necessary to meet appropriate levels of profitability,” he added.

“We will now begin talks to examine this initial offer as well as consider other options to see if these activities can realise additional potential in their highly competitive markets as part of the portfolio of a company experienced in the global commodities sector.”

BASF said it was being advised by Lazard on the potential transaction

Both SABIC and Basell have struck multi-billion dollar deals in the past two months to further consolidate their positions as integrated petrochemical players.

SABIC’s $11.6bn offer for engineering plastics maker GE Plastics was accepted on 21 May.

Lyondell, the third largest publicly held chemical company in the US, agreed to a $19bn offer from new York financier Len Blavatnik’s Basell earlier this week.

The SABIC acquisition gives the company a considerable presence in downstream engineering plastics markets but only a relatively small plant producing ABS in Europe. BASF, Dow Chemical and Lanxess are the three largest producers of ABS in Europe.

The Saudi Arabian petrochemical company has access to benzene feedstock in Europe from its plants in the UK (acquired last year from Huntsman) and from the crackers it bought earlier from DSM.

The Lyondell purchase, made at close to 11 times normalised EBITDA (earnings before interest, tax, depreciation and amortisation), gives the Netherlands based polyolefins major considerable upstream integration in the US.

It also gives it access to large quantities of styrene monomer from Lyondell’s propylene oxide/styrene monomer (PO/SM) plants in Europe.

The earnings multiples being offered currently for chemicals business has created a flurry of M&A (merger and acquisition) activity in the sector.

INEOS has been consolidating its global position in petrochemicals following the acquisition of Innovene refining and petrochemical assets from BP.

Both upstream and downstream integration are key to the potential BASF styrenics deal, the sources said.

($1 = €0.73)

By: Nigel Davis
+44 20 8652 3214

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