Lyondell follows ARCO Chemical offer with definitive agreement

Lyondell Petrochemical Co. has signed a definitive agreement to acquire ARCO Chemical Co. in a cash tender offer valued at $5.6 billion.

Both are Houston companies that each had once been a separate subsidiary of Los Angeles major ARCO.

Lyondell made the tender earlier this month (OGJ, June 22, 1998, Newsletter).

ARCO Chemical is the world's largest producer of propylene oxide (PO).

The deal

Under the agreement, effective June 24, Lyondell was to tender for all outstanding shares of ARCO Chemical at $57.75/share.

In addition, Lyondell will assume ARCO Chemical debt totaling about $870 million.

ARCO, which owns 82.2% of ARCO Chemical, has agreed to tender its shares to Lyondell, and the deal is expected to close early in the third quarter.

Any shares not tendered will be acquired in a second-step merger for cash at the same price.

Strategy

Lyondell Pres. and CEO Dan F. Smith said the proposed combination "further reduces the effects of the business cycles on our earnings by expanding into more profitable derivatives for the products we produce through our other businesses.

"This transaction will be significantly accretive to Lyondell's earnings. It expands the company into important new product lines, adds a significant technology component, and provides us with a broader base for domestic and international growth."

Smith also noted that the acquisition complements other Lyondell businesses because ARCO Chemical is a major consumer of propylene, ethylene, and benzene-all produced by Lyondell affiliate Equistar Chemicals LP-and of methanol, produced by Lyondell Methanol Co.

Smith said his company can also capture added value through cost cutting via integration of ARCO Chemical operations with those of Lyondell and Equistar. The latter is a joint venture (JV) with Millennium Chemicals Inc.

The companies

Lyondell is also majority owner with a 58.75% stake in the Lyondell-Citgo Refining Co. JV with Citgo Petroleum Corp., Tulsa.

Lyondell is North America's biggest producer of ethylene, propylene, and polyethylene and a leading producer of high value-added polymers, color concentrates, and polymeric powder. It is also the third biggest methanol producer in the U.S.

In addition to being the world's biggest producer of PO, ARCO Chemical is the world's number two supplier of polyols and toluene diisocyanate, a leading producer of propylene glycol, a major producer of butanediol and propylene glycol ether, and a producer of sytrene monomer and methyl tertiary butyl ether. The two firms once were operated together as part of ARCO. Separated in 1985, each became a public company shortly thereafter, with major stakes retained by ARCO.