Is acquisition of LyondellBasell a profitable proposition for RIL?

26-Nov-09

Reliance Industries Ltd has made a preliminary offer to acquire a controlling stake in LyondellBasell. The exact value of the deal or the stake that RIL proposes to buy in LyondellBasell is yet not known, however, it is likely to be an all-cash deal. Valuation-wise, the Dutch major is much bigger, but is attainable at a lesser price than in the past. Interestingly, LyondellBasell is already RIL’s technology partner for polypropylene (PP) and High Density Polyethylene (HDPE). The Dutch major is world number one in PP production, while RIL is at number seven. LyondellBasell’s other product portfolio comprises of oxy fuels and polyethylene, and complements that of RIL’s basket of producing paraxylene, purified terephthalic acid (PTA) and mono ethylene glycol (MEG). LyondellBasell has 50 manufacturing facilities across 19 countries while all of RIL’s manufacturing is at 14 facilities across India. LyondellBasell has petrochem facilities ready to come onstream in December in the Middle East. These facilities will use ethane as feedstock secured at long-term supply contracts of USD 1.2-1.4 per mmbtu and will diversify RIL’s current usage of the costlier naphtha as feedstock. RIL will expand its footprint in the US and European fuel markets with access to quality production (high complexity (about 12) oil refinery in Houston, US and another in France) and distribution network in these regions. RIL currently has trading desks in Singapore, Rotterdam and Dubai. Its’ distribution presence is limited and hence it stands to gain with access to global presence. If the acquisition materialises, the deal is expected to propel RIL to the top bracket in global refining and petrochemical, offer RIL market leadership in polyolefins and polypropylene, and will increase revenues from US$32.4 bln in 2009 by about US$50.7 bln posted by LyondellBasell in 2008 compared with RIL’s $32.4 billion in 2009.