FocusLyondellBasell, Bayer MaterialScience, others fit IPIC - analysts

20 November 2009 17:30  [Source: ICIS news]

LONDON (ICIS news)--LyondellBasell, INEOS, BP Chemicals and Bayer MaterialScience would all be a good fit as Europe-headquartered acquisition targets for International Petroleum Investment Co (IPIC), analysts said on Friday. 

Abu Dhabi-based IPIC, which earlier this week revealed it is nearing an acquisition in Europe, will be interested in buying assets that are global leaders in terms of market share and technology for the product areas IPIC is interested in developing, analysts agreed.

On 17 November, IPIC managing director Khadem al-Qubaisi, revealed the company is in talks with five major petrochemical players in the US and Europe, including Bayer MaterialScience, and expects to close a European acquisition by the first quarter of 2010.

IPIC plans to use technology from the new acquisition to help develop production at the Chemaweyaat chemical city in Abu Dhabi, in the United Arab Emirates.

This includes a 1.45m tonne/year ethylene plant, with further phases involving the production of aromatics and phenol, Al-Qubaisi said previously.

“As IPIC already has a pretty big polyethylene (PE) and polypropylene (PP) business with Borealis, it would make sense to optimise the benzene and phenol chain,” according to a France-based analyst.

“So clearly, polyurethanes would be a nice fit and polycarbonate a perfect fit. [Bayer MaterialScience] is number one globally in polycarbonate with 25% market share, and in the top two in polyurethanes with 30% of the market.

“IPIC’s [Chemaweyaat complex] could produce aromatics and phenol. This would offer nice backward integration for [Bayer MaterialScience's] polycarbonate and polyurethane products. Additionally, IPIC is looking for producers with cutting-edge technologies and that would fit nicely with [Bayer MaterialScience],” the France-based analyst said.

Bayer is a holding company consisting of three operating units: MaterialScience, HealthCare and CropScience. The company has always rebutted suggestions that it should split the group to make it more focused.   

In 2010, however, Bayer CEO Werner Wenning and chief financial officer Klaus Kuhn are leaving the group.

Wenning’s replacement is Marijn Dekkers who has a strong background in life sciences.

“The new CEO will probably refocus the company again on the pharma side, so the polymer business could be non-core and be disposed [of]. An opportunity to sell the business now would facilitate the transition in terms of management next year, and the cash will be probably used to reduce debt or finance acquisitions in healthcare,” according to the the France-based analyst.

He added: “In terms of price, it wouldn’t be a perfect situation. We are in a downturn situation and earnings are really depressed for this business. They wouldn’t maximise the value, but from a strategic point of view it makes a lot of sense.”

The analyst said that a purchase price of €10.7bn ($15.97bn) would make sense, as it would represent eight times the company’s average 2002-2009 earnings before interest, tax, depreciation and amortisation (EBITDA), which has been the average transaction multiple in the chemicals sector in recent years.

A London-based investment banker said: “IPIC has a track record of taking stakes in groups with which they have joint ventures [for the provision of technology]. You can imagine [Bayer MaterialScience] would be a good fit with Chemaweyaat. At some point I’m sure they’ll get involved in some of these [Bayer MaterialScience] products.”

However, a London-based consultant said it would not make sense for Bayer to sell the MaterialScience unit.

“They’d be selling it because it’s not doing very well at the moment and that’s just cyclical. You miss out on the recovery potential. [Bayer MaterialScience] has made some good money,” the London-based consultant said.

UK-headquartered INEOS is also seen as a good acquisition candidate for IPIC, according to the France-based analyst.

“INEOS is carrying a lot of debt. And, in terms of product, they have a number of downstream products that could be well integrated with IPIC such as styrenics, which would be a good add-on to NOVA [Chemicals]. INEOS also has a good base in Europe,” the France-based analyst said.

He added: “INEOS also has polyvinyl chloride (PVC) but it’s not a great business. They are the leader in PVC in Europe, but that’s not a very sexy business with good technology and growth prospects in comparison to [polyurethanes] and [polycarbonate], for example. INEOS’ phenol and acetone could also be attractive.”

The London-based consultant added: “They’ve got some PE through Borouge, so they might want a phenol business from INEOS Phenol, which is number one. They might want to do acrylonitrile with INEOS, too.”

According to the London-based consultant, BP Chemicals would also be a good fit for IPIC, because it has world-leading positions in purified terephthalic acid (PTA) and paraxylene (PX).

Another company that would be a good option for IPIC is LyondellBasell, according to the France-based analyst, because “it is a market leader in terms of market share and technology”.

LyondellBasell has leading positions in PP, plus refineries in the US and Europe. The company is also financially fragile but says it hopes to emerge from US Chapter 11 bankruptcy protection early in 2010.

IPIC already has stakes in the following companies with chemical interests: Spain’s CEPSA (48%), Borealis (64%), NOVA Chemicals (100%), Austria’s OMV (20%), Hyundai Oilbank (70%) and Chemaweyaat (40%).

($1 = €0.67)

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By: Will Beacham
+44 20 8652 3214



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