The prices paid for Petkim and for Lustran reflect two very different perspectives on the current market:
• At the top end, TransCentralAsia Petrochemical has paid $2.05bn for a 51% share in the Turkish petrochemicals major. Yet Petkim’s reported turnover last year was only $1.6bn, and it made a net profit of just $41m.
• Lustran (LANXESS’ ABS business) is similar in size to Petkim, with reported turnover of €900m ($1.2bn), and it is expected to make €40m EBITDA in 2007 before exceptionals. Yet LANXESS will only receive €35m as an initial payment for its 49% of the new JV.
So Petkim is now valued at 256% of turnover, whilst Lustran is valued at just 4% of its turnover (based on the initial payment). Of course, LANXESS will also get 49% of the value contributed by INEOS to the JV for the next 2 years. But even so, the deals appear to be based on completely different valuation mechanisms.
This assessment is reinforced if one looks at the respective market positions of the two companies. Turkey is currently the second largest importer of plastics resins in the world, after China, and Petkim currently holds just 28% of the domestic market. It is unlikely that this share will increase materially in the next few years, with all the new Middle Eastern capacity about to come online. Whereas Lustran is currently Europe’s leading ABS producer, and No 3 in the world.
It is tempting to sugest that TransCentralAsia have overpaid, whilst INEOS have got another bargain. But in fact, both have probably got exactly what they paid for.
The difference in valuations can be best explained by the fact that the Petkim deal is clearly strategic in intent, in an area where the geo-political game is being played for high stakes, whereas the price for Lustran reflects LANXESS's self-confessed difficulties in finding a buyer.
Turkey is a key transit state for gas into Europe, and the government already has various deals under discussion with Gazprom, including new pipelines and a LNG plant. It is therefore not surprising that the successful bidder for Petkim is a Russian-Kazakh consortium.
Meanwhile, the Lustran price reinforces the message we have been promoting for over two years, since oil prices began to rise. This is that when oil prices are high, the upstream part of the value chain is the place to be. ABS was highly profitable when oil was below $25/bbl, and consumer spending strong. But today, upstream integration is a critical success factor for the future.
Both valuation mechanisms therefore make sense, as the context in which Petkim and Lustran now operate is very different.