Higher bid offers no guarantee Reliance will bag LyondellBasell

22 February 2010 09:35  [Source: ICIS news]

MUMBAI (ICIS news)--A higher bid of nearly $15bn (€11bn) may not be good enough for Indian conglomerate Reliance Industries to get a stake in global polymer giant LyondellBasell, analysts said on Monday.

Reliance was reported last week to have increased its offer for LyondellBasell from $13.5bn. The new offer comes with a stock and cash options for shareholders and creditors, based on media reports.

RIL sources declined to comment.

“It [the higher offer] doesn’t make sense. Its [Reliance’s] initial valuation of $13.5bn was fine. But now by raising it to $14.5bn and then $15bn, Reliance has unnecessarily raised its stakes,” said Deepak Parikh, analyst with Mumbai-based Angel Securities.

Media reports said that an investment firm appointed by LyondellBasell has put the enterprise value of the company at $14.5bn.

“The deal will definitely not go through. The current bid is almost the same as Lyondell’s valuation, which does not give the company any reason to strike a deal with Reliance at this point,” said another analyst with a foreign investment bank.

“Currently the global petrochemical market demand is not very strong and margin outlook is also subdued. In such an environment, the latest bid is doomed to failure,” he added.

With this latest bid, Reliance may have reached its upper limit, the analysts said. “It may not be possible for Reliance to raise its bid any further,” said Parikh.

Reliance had initially submitted a bid of around $12bn for LyondellBasell in November 2009 and raised it to $13.5bn in January 2010, which was rejected by the polymer giant.

"LyondellBasell has shown that it does not want Reliance on board," said the analyst who declined to be named.

The management of LyondellBasell recently entered into a deal with unsecured creditors, which raised the amount that would be paid out to its creditors by $150 million.

Under the new agreement, unsecured creditors would get around $450 million as against the earlier offer of $300 million.

($1 = €0.73)

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By: Priya Jestin

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