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Reliance Lyondell Bid – Insight + Analysis

November 23, 2009

RIL has made initial cash offer for LYO’s assets, to be considered as an alternative plan under Chapter 11 proceedings which the latter is undergoing. The final offer would be made after due diligence, which then will be decided upon by the creditors vs. the initial reorg plan and other equity financing proposals.

LYO has global leadership position in polyolefins and propylene oxide and is a leading licensor of polyolefin technology and catalysts. The company also has refining capacity of 420 kbpd (~21 MMTPA), with Houston refinery having high complexity (~12)
and generated EBITDA/bbl of US$15/bbl in 1H08

While petchem assets provide size and may be some cost-cutting benefits in the long-term, the US refinery may not provide significant inroads into US apart from operational synergies (crude sourcing, etc.)

Kotak Analyst in a Research Note said,

The impact on RIL’s stock would depend on the valuation of the transaction. We do not see any real synergies between RIL’s current India-centric operations and LB’s operations in Europe and US. Also, the process may be fairly long-drawn and complicated given regulatory and legal issues.

However, RIL is headed by Mukesh Ambani and he definitely has the vision to create Wealth in Long Term.

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