Braskem stock soars 19% as LyondellBasell confirms acquisition talks

Source: ICIS News

2018/06/15

HOUSTON (ICIS)--The US-listed shares of Brazilian polyolefins producer Braskem rose by more than 19% on Friday after LyondellBasell confirmed it is in talks that could lead to the purchase of the company.

US-listed stock of LyondellBasell was also trading higher, up by more than 1%.

Earlier, LyondellBasell and Odebrecht issued a joint statement saying that they entered into exclusive discussions over a potential transaction between the two companies.

The joint statement follows an unconfirmed news report last month which stated that Netherlands-headquartered LyondellBasell had made a bid to acquire the Brazilian polyolefins producer, valuing it at real (R) 41.5bn ($11.2bn).

"Both LyondellBasell and Braskem share a strong culture of operational excellence and legacies of value-creating innovation,” they said in the statement.

“We believe that the potential combination of LyondellBasell's and Braskem's complementary strengths, product portfolios and operational footprints would create significant value for our shareholders, customers and employees."

The discussions are preliminary and no agreements have been reached, the companies said, adding that there was no assurance that they would result in a transaction, or on what terms any transaction may occur.

“LyondellBasell and Odebrecht SA do not intend to make any further comment unless and until the discussions conclude or are required by applicable law,” the statement added.

“Among other things, the parties will need to complete appropriate diligence, negotiate definitive agreements and obtain corporate approvals.”

According to the May news report in financial newspaper Valor Economico, LyondellBasell presented the proposal to Brazilian construction company Odebrecht, which owns a 50.1% voting stake in Braskem.

The proposal would have to be approved by Brazilian state energy producer Petrobras, the other major shareholder of Braskem, according to Valor.

Petrobras and Braskem each issued separate statements on Friday acknowledging the talks between Odebrecht and LyondellBasell.

The offer represented a 12% premium over Braskem's B3 shares on the Brazilian stock exchange, the news report said.

Earlier in October 2017, the Wall Street Journal reported that LyondellBasell had made a takeover approach to Braskem.

At the time, an analyst made the case why such a deal would make sense. Braskem met the acquisition criteria laid out by LyondellBasell during its April 2017 analyst day.

That target would need to be a low-cost producer of commodity chemicals with a similar portfolio. In addition, the acquisition would have to be accretive to earnings/share within two years.

The acquisition would extend LyondellBasell's footprint in Brazil and further extend its share in the polypropylene (PP) market in the US and Europe.

Braskem is the sole producer of polyolefins in Brazil.

It is also the only producer that is building a PP plant on the US Gulf Coast, at its complex in La Porte, Texas.

That plant will have a capacity of 1bn lb/year (453,000 tonne/year), and Braskem should finish construction in 2020.

Braskem acquired its US and European PP plants through a deal with Sunoco in 2010 and with Dow Chemical in 2011.

Braskem is also active in Mexico through its controlling stake in the joint venture Braskem Idesa, which produces polyethylene (PE) at the country's Ethylene XXI complex.

However, it is unclear how the Brazilian government would view the foreign takeover.

If LyondellBasell was successful in acquiring Braskem, it would mark the company's second major acquisition.

LyondellBasell is expected to close on its $2.25bn purchase of plastics compounder A Schulman later this year.

($1 = R3.70)

Additional reporting by Graeme Paterson

(releads, adds paragraphs 2, 11, 17-20)

Photo above shows objects made out of PP. Photo by Al Greenwood