The owner of the world’s largest oil-refining complex, Reliance Industries (BOM:500325), plans to acquire; chemicals and fuel maker, LyondellBasell Industries. If successful this will be the biggest acquisition by an Indian company in two years since Tata Steel (BOM:500470) bought Corus Group for US$12 billion in 2007. Although, the bid has not been disclosed yet, still it is estimated to be between US$10 billion to US$12 billion.
LyondellBasell earned revenue of US$50.7 billion in 2008 with 34 percent from fuels including gasoline, diesel, jet fuel and additives. Approximately 30 percent was from chemicals, including ethylene, propylene and acetic acid, and 35 percent was from plastics.
Analysts believe that, with the deal Reliance will become a significant global player. This deal will increase their presence in the US and Europe. It will help the company as the price the company is paying is very less as compared to starting something afresh in the global market. The acquisition will be beneficial for Reliance Industries as it will also provide access to US fuel market and can help them be the largest producer of polypropylene, applied in refrigerator casings.
The deal with Lyondell will give Reliance a greater bargaining power in terms of sourcing and technology patents. The analysts and investors know that prima facie the deal is not going to be negative. The only concern is that it should not put a halt on Reliance’s profits which is offset by global presence.
Reliance’s aim is to achieve a global scale for its conventional energy platform – petrochemicals, refining and oil-gas exploration and to invest in new businesses like retail and alternative energy.
Shares of Reliance Industries rose to one month’s high after the declaration of the company having made the offer. The offer made is well timed as it will help the company in its core business. Reliance is planning to look for assets abroad as this will help them to mitigate risk of investing mostly in India, where the company is engaged in a lawsuit over natural gas supplies with a firm owned by Anil Ambani, brother of Mukesh Ambani.
Some analysts point out that Reliance does not have an overseas production capacity. They believe that Reliance is oblivious about how much costs can be cut. If Reliance buys all or part of Lyondell it anyways would be a right association.