LyondellBasell Ends Braskem Talks
LyondellBasell has ended talks with Brazilian conglomerate Odebrecht regarding the potential acquisition of Braskem. Odebrecht is the controlling shareholder of the Sao Paulo-based petrochemicals producer.
“The combination of LyondellBasell and Braskem is compelling because of the companies' complementary strengths, product portfolios and operational footprints. However, after careful consideration, we jointly decided not to pursue the transaction,” said LyondellBasell CEO Bob Patel without elaborating on why both parties had decided to call it quits after more than a year of talks.
Rumors about a potential merger surfaced in October 2017 in a report by US financial newspaper Wall Street Journal. It took until June 2018 before LyondellBasell eventually confirmed the talks but it has been a rocky road since with several delays and much speculation as to whether a deal with Odebrecht was on or off.
In March this year, news agency Reuters, quoting three sources “with knowledge of the matter,” said Braskem’s delay in filing its US annual report as well as a delay in signing a long-term naphtha supply contract with Petrobras were major stumbling blocks to the deal.
Petrobras, which said it had “preferred rights” to buy the Odebrecht share in Braskem kept the other participants in the dark about its interest throughout the discussion process.
Braskem announced last month that the New York Stock Exchange had suspended trading of its US-listed shares after it failed to file its 2017 annual report by the May 16 deadline. A source told Reuters that LyondellBasell’s board had decided it would not conclude a deal before Braskem filed its report, or Form 20-F, with the US Securities and Exchange Commission.
Concerns about Braskem’s liability regarding subsidence caused by its salt mining operations in Maceio, Alagoas, Brazil, would certainly not have helped negotiations either. Braskem suspended its mining operations at the site last month, as well as its production of chloralkali and dichloroethane pending analysis of a report by the Brazilian Geological Service.
Odebrecht and Braskem’s other shareholder, Petrobras, have also been embroiled in Brazil’s “car wash” corruption scandal, which may have been another factor behind the failure to reach a deal.
The scandal erupted in 2014 but criminal investigations are still ongoing.
Throughout the discussion process, Petrobras, which said it had “preferred rights” to buy the Odebrecht share in Braskem, kept the other parties in the dark about its interest in selling its stake or buying more shares.
LyondellBasell said it now intends to expedite its share repurchase program, which currently allows for it to buy back up to 37 million outstanding shares. “Our strong cash flows, ample liquidity, and healthy balance sheet allow us to deliver a growing, top-quartile dividend, advance organic growth, and maintain optionality for M&A opportunities while executing these significant opportunistic share repurchases,” said CEO Patel.