INEOS buys BP's Innovene petchem unit for $9 bln
Fri Oct 7, 2005 12:45 PM ET
LONDON/FRANKFURT, Oct 7 (Reuters) - Privately owned British chemicals company INEOS said on Friday it was buying oil giant BP Plc's Innovene petrochemicals business for $9 billion in one of the world's biggest leveraged buyouts.
BP, which will return the net proceeds to shareholders, had been planning an initial public offering of Innovene that would have valued the unit at $6-7 billion, but decided to sell the business after recent IPOs had mixed success. News of the sale confirmed a Reuters report earlier on Friday.
INEOS will borrow 9.9 billion euros ($12 billion) for the deal from Barclays Capital, Merrill Lynch and Morgan Stanley, sources said. They said it would use the extra cash of about $3 billion to refinance its existing debt.
An INEOS spokesman said the company would raise funds through senior bank facilities and a high-yield bond.
The deal will quadruple INEOS's turnover and bring it into the top four petrochemical companies in the world along with Dow Chemical Co. and DuPont of the United States and Germany's BASF, with sales of $33 billion.
The acquisition comes months after INEOS lost out in the bidding for Basell, the plastics joint venture of BASF and Royal Dutch/Shell.
"It's a sensible price and happened sooner than expected," said a London-based analyst. "This will enable BP to return cash to shareholders, improves the return on the chemicals business and focuses the portfolio more on the upstream."
Another analyst who asked not to be named said it was a good price, at 4.7 times estimated 2005 core earnings, or earnings before interest, tax, depreciation and amortisation, of $1.9 billion.
The most recent similar deal was the sale of Basell, which fetched a much higher multiple -- nearly 15 times -- its last disclosed EBITDA figure from 2003, but the industry then was far away from the peak many analysts now believe it is approaching.
"Innovene has proved to be a very attractive business to its peers in the chemicals sector," BP Chief Executive John Browne said in a statement. "This deal is the very best of a number of good offers."
Indian petrochemicals firm Reliance Industries had been linked to a possible bid, though it had never confirmed interest.
Shares in BP closed up 0.24 percent at 622 pence.
Morgan Stanley and Goldman Sachs advised BP and Merrill Lynch advised INEOS.
INEOS said in a statement that it expected the deal to be completed by around the beginning of 2006, subject to U.S. and European regulatory approval.
"This is a transformational acquisition elevating INEOS to the world's fourth largest independent petrochemicals company," Jim Ratcliffe, INEOS chief executive, said in a statement.
INEOS was founded in a management buyout of a former BP petrochemical asset in Antwerp in Belgium led by Ratcliffe.
INEOS had been buying plastic building blocks propylene and ethylene from Chicago-headquartered Innovene. The acquisition gives it 19 manufacturing sites in Europe and North America to add to its own 46 facilities in 14 countries across the world.
BP's Browne said the decision to sell Innovene removed any uncertainty about market conditions at the time of an IPO.
"Consistent with existing BP practice, we remain committed to returning excess free cash flow, including the net proceeds of this sale, to shareholders," he added.
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