From Bloomberg.com
BASF, Ineos Form 5 Billion-Euro Venture to Build Styrene Scale
November 30, 2010, 5:03 AM EST
Nov. 30 (Bloomberg) — BASF SE and Ineos Group Holdings plan to merge their styrene operations, creating a plastics company with sales of more than 5 billion euros ($6.6 billion).
Styrolution will incorporate assets making materials such as polystyrene and styrene monomers, used in consumer goods, Ludwigshafen-based BASF and Ineos of Switzerland said in a joint statement today. The company, which will operate as a separate entity, will be equally owned by Ineos and BASF.
While Ineos has made acquisitions to expand in styrene, BASF has sought an exit from that market for almost four years as Chief Executive Officer Juergen Hambrecht pursues growth in more profitable, less commoditized markets such as cosmetic ingredients and crop protection. A joint venture would be a prelude to BASF exiting the market altogether, a company official with knowledge of the situation said a year ago.
“For BASF this is a detour on their way to exit the business completely,” said Jochen Schlachter, a credit analyst at UniCredit in Munich. “It’s good for BASF to get rid of another commodities business and it will help their margins. Ineos may well have wanted to buy BASF’s styrene assets whole, but they may lack the financial resources.”
The move follows Dow Chemical Co.’s creation of Styron Inc., which Bain Capital Partners eventually bought for $1.63 billion in June.
Door Opens
As a prelude to the agreement, Ineos first bought out Abu Dhabi-owned Nova Chemicals’ share of an existing styrene joint venture as three-way talks over a combination with BASF failed to materialize.
“Ineos and Nova’s separation opened the door to getting the deal done,” Callum Maclean, an executive at Ineos overseeing refining and styrenics, said in an interview. “Although we’ve been somewhat at the edges, we’ve been gradually building our styrenics up. It’s a natural product for Ineos to be in, given the markets we serve.”
The two companies are betting that creating a styrene business of scale will raise competitiveness in a market threatened by lower-cost operators in the Middle East with access to cheaper feedstock. Ethylene and benzene are the main raw-materials for styrene.
BASF will retain its global polystyrene foams business, where demand is less volatile, and also styrene monomers and polystyrene operations within its Ludwigshafen and Nanjing integrated chemical complexes. BASF felt less pressure to exit the business via a sale to private equity firms amid a rebound in demand for plastics that helped drive up prices and improve earnings, two people familiar with the situation said in May.
New Era
The venture marks a new period of growth for Ineos after it had to refinance debt. The company, which this year moved its headquarters to Switzerland to save on tax expenses, bought BP Plc’s olefins and derivatives business for $9 billion in 2005 and added Lanxess’s AG ABS plastics business two years later.
The agreement marks the German company’s intention to stay in the business in the medium term, Ineos’s Maclean said. Although competitors in the Middle East have access to ethylene, they don’t have big positions in polystyrene and ABS, where products are becoming more specialized. Nova’s exit from the styrene venture is a sign that Abu Dhabi didn’t view that market as its strength, he said.
“It’s all about size and scale and technology,” said Maclean. “They’ve left us to get on with it.”
–With assistance from Howard Mustoe in London. Editors: Benedikt Kammel
To contact the reporters on this story: Andrew Noel in London at anoel@bloomberg.net.
To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net