Analyst lays out case for LyondellBasell buying Braskem

HOUSTON (ICIS)–An analyst made on Monday a case why Braskem would be an attractive acquisition target for LyondellBasell, arguing that the share price of the Brazilian producer trades at a discount to its peers.

Hassan Ahmed of Alembic Global Advisors made his argument in a research note published before a report from the Wall Street Journal, which said that LyondellBasell had made an acquisition approach to the company.

The talks are still in early stages, and there is no guarantee that any deal would go through, the Wall Street Journal reported.

LyondellBasell would not comment about the report, saying it is company policy not to discuss market speculation. Braskem also would not comment.

In his note, Ahmed argued that Braskem is the only company that meets 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, Ahmed said. In addition, the acquisition would have to be accretive to earnings/share within two years.

If the two companies were negotiating a deal, it would likely need to pass muster from Brazilian contractor Odebrecht and state energy producer Petrobras. The companies are Braskem’s largest shareholders.

Odebrecht and Braskem are connected in other ways as well. The current CEO of Odebrecht, Luciano Guidolin, was previously an executive vice president of Braskem.

Petrobras had been making plans to sell its stake in Braskem before these were removed from its divestment programme by the Brazilian government.

Any deal would also need approval from anti-trust authorities. Both companies make polypropylene (PP) and polyethylene (PE).

However, LyondellBasell has no PE or PP capacity in Brazil, since Braskem is the sole producer of these resins in the country.

Similarly, Braskem produces mostly PP in Europe and the US and little PE. It recently started a plant in La Porte, Texas, which makes ultra-high-molecular-weight PE (UHMW-PE).

The company makes PE in Mexico through the Braskem Idesa joint venture.

(adds paragraphs 1-2, 5-6; adds word “likely” paragraph 7)