By the OGJ Online Staff
HOUSTON, Jan. 31 -- Lyondell Chemical Co. Thursday said it will buy Occidental Petroleum Corp.'s 29.5% share of Equistar Chemicals LP.
Occidental will take an equity investment position in Lyondell, the cash proceeds from which Lyondell will use to fund the purchase of Occidental's stake in Equistar. This would bring Lyondell's ownership interest in Equistar to 70.5%. Millennium Chemicals Inc. holds the rest.
Dan Smith, Lyondell's president and CEO, said, "These transactions are cash flow driven. The transaction allows Lyondell to conserve cash at the trough of the chemical cycle while significantly increasing our proportionate share of Equistar's cash distributions as the chemical cycle improves. We believe this will accelerate Lyondell's debt repayment capability and enables us to improve our balance sheet immediately."
Occidental will get 30-34 million shares of newly issued Series B Lyondell common, to be determined at closing. The shares will have the same rights as Lyondell's regular common with the exception of the dividend, which may be paid in stock or in cash. The Series B shares can be converted to regular common 3 years after issuance or earlier in certain circumstances. At yearend, Lyondell had 118 million shares outstanding.
Also, Oxy will get 5-year warrants to acquire 5 million shares of Lyondell regular common at $25/share. It will get a contingent payment equal to 7.38% of Equistar's cash distributions for 2002 and 2003, up to $35 million, payable in cash or common stock. And Ray Irani, Oxy chairman and CEO, and Stephen Chazen, Oxy CFO and executive vice-president, will join Lyondell's board.
Lyondell said with the chemical industry in the trough of the business cycle, the acquisition will be cash flow neutral and will not be accretive to earnings at this time.
Smith said, "On a normalized Equistar earnings level, which we believe to be approximately $1 billion/year of EBITDA [earnings before income taxes, depreciation, and amortization], we believe this transaction will add significant value for Lyondell shareholders and bondholders."
Under terms of the Equistar partnership, Millennium has the right to participate in the acquisition of Occidental's portion of Equistar on a ratable basis, if it elects to do so.
Equistar was formed in December 1997 with the combination of the olefins and polymers businesses of Lyondell and Millennium. Occidental joined the partnership in May 1998 with the contribution of the ethylene, propylene, ethylene oxide, and derivatives businesses of Occidental Chemical Corp.
Lyondell said the venture has achieved significant cost savings since its formation and has become one of the largest and most efficient commodity chemical producers in North America.
