INSIGHT: Chemicals M&A activity shows more life

13 November 2009 17:53  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS news)--Chemicals merger and acquisition (M&A) activity has been much reduced this year indeed, it has all but halved in terms of deal values but that is hardly surprising.

However, the industry mood is changing and, with the scent of economic recovery in the air, companies are keener to pursue further restructuring.

Companies that have had restructuring forced upon them might be expected to be in the vanguard in the early part of next year, but overall the number of deals is likely to increase sharply.

“We expect the chemical M&A market to improve meaningfully in 2010 in terms of number of deals completed,” New York-based investment banker Peter Young told ICIS news on 12 November.

“World economies are stabilising, the financing market has improved, and buyers and sellers are starting to close the gap with regard to their price expectations,” he added.

The crucial point is that the gap in price expectations is narrowing.

Deals are not made in the teeth of a financial crisis unless a company is forced to sell. But as conditions ease, some tie-ups can be made to look a great deal more attractive.

And there are attractive assets on the block right now that can be expected to find a new home.

Dow Chemical on 12 November laid its cards on the table regarding its so-called “asset light” ambitions.

Dow is working through an arbitration process following its failed deal in Kuwait. The company says it is now talking to two potential partners for a proportion of it olefins assets and its polyethylene business.

Young’s more general comments on chemicals M&As were reinforced by those made by Dow’s senior vice president for hydrocarbons and basic chemicals, Juan Luciano, who said: “We are in talks with resource owners, but want to make sure we achieve full value for our premier ethylene and polyethylene franchise.”

Dow does not expect much in the way of an economic recovery next year, or expect much help from the chemicals markets, so an “asset light” deal for the chemicals giant may yet be a while in coming. The situation could be different, however, for the planned sale of the styrenics, polycarbonate and other assets belonging to Dow’s Styron division.

Realignment of the global styrene business ultimately could be a drawn out process, but it is likely to place assets such as Dow’s and those of BASF in the hands of newer petrochemical players.

Dow CEO Andrew Liveris has said before that Styron might be attractive to investors that are new to the international scene, possibly backed by state-controlled funds. In a conference call with analysts recently, Liveris spoke of new players emerging from China.

Entities backed by sovereign wealth funds have been expected to play a more influential role in the chemicals business as they have in other areas of commerce.

Abu Dhabi’s International Petroleum Investment Co (IPIC), for instance, has a major stake in polyolefins producer Borealis and owns NOVA Chemicals. Just this past week, it has placed more of its executives on the Nova board and taken tighter strategic control of the company.

IPIC has been rumoured to be pursuing more downstream chemicals assets and has been said to have had its eye on Bayer’s MaterialsScience business.

India’s Reliance Industries, usurprisingly, has been in the news as speculation has mounted about its intentions with LyondellBasell, which plans to raise funds soon to emerge from US Chapter 11 bankruptcy protection.

Reliance has been rumoured to be prepared to pay between $3.25bn (€2.17bn) and $6bn for a stake, or to take over, the globally positioned polyolefins player. It has been a bidder in quite a few recent petrochemicals divestments and must certainly have learned a great deal in the process but never clinched a deal.

Running towards the end of the year, a handful of acquisitions are emerging. AkzoNobel agreed on 12 November to buy Dow’s powder coatings business. Dow has done well this year, divesting assets to help it pay down the bridging loan it took on to buy Rohm and Haas. It struck a fascinating deal with DuPont on 12 November to share genetically engineered soya bean technology.

Dow expects to have bids in for Styron by the end of this year and to close the deal in the first quarter of 2010, its executives said. Styron is worth between $1bn and $2bn, according to Dow, and is the largest piece of some $3.5bn in assets Dow now wants to divest.

Dow’s vice president of corporate development, Jim Fitterling, gave a flavour of the progress being made on the deal when he said the company was in the market “right now actively talking to investors, both strategic and financial”.

In addition to the potential Dow deals, when one considers the Huntsman stalking horse bid for titanium dioxide producer Tronox; the ongoing bid activity in the fertilizer sector between Agrium, CF Industries and Terra Industries; and the recent revelation that there are potential buyers prepared to make bids for parts of bankrupt Chemtura, the chemicals M&A scene looks brighter than at any time this year.

It may not lift off smartly in 2010 but the number, and value, of bids and deals are likely to rise in 2010 as global chemical and financial markets show greater signs of life. Globally, chemicals restructuring could be back on the road again.

($1 = €0.67)

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By: Nigel Davis
+44 20 8652 3214



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