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US court ruling hits RIL plan to take over LyondellBasell

US court ruling hits RIL plan to take over LyondellBasell
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First Published: Wed, Jan 20 2010. 10 26 PM IST
Updated: Wed, Jan 20 2010. 10 26 PM IST
Mumbai: A bankruptcy court ruling in the US has closed an alternative and quicker route that could have hastened Reliance Industries Ltd’s (RIL) bid to buy Dutch petrochemicals company LyondellBasell Industries AF.
The US bankruptcy court in the southern district of New York, which has been overseeing the proceedings of the beleaguered chemicals maker, in a 19 January ruling extended the “exclusivity” to the existing LyondellBasell management to file a reorganization plan without competing plans from any other party till 15 April.
The development could swell valuations, analysts said.
The management’s monopoly was being challenged by the firm’s unsecured creditors who were asking the court’s permission to pitch alternative and competing proposals to be considered such as the one put by the Indian oil-to-yarn conglomerate—a plea quashed by judge Robert Gerber.
This shifts the balance of power in favour of the management, which has so far cold shouldered RIL and may push it to sweeten the bid further.
“Prima facie, it might be a negative for RIL. Unsecured creditors won’t have any significant say in the bankruptcy proceedings now or benefit RIL for the time being,” said Maulik Patel, head of research with Mumbai-based brokerage KR Choksey Shares and Securities Pvt. Ltd.
Another Mumbai-based sector analyst with a foreign brokerage seconded the view. “Now, RIL will just have to negotiate and persuade the LyondellBasell management harder, and to that extent, it is in a weaker position. The management will have larger bargaining power (as it gets to retain its exclusivity) and that might push up the valuations,” said the analyst, who did not want to be named. “There was an alternative available to RIL. For now, that’s gone.”
An email query sent to RIL’s spokesman remained unanswered.
RIL, in three tranches in the past four months, has sold a stack of its own shares, called treasury shares, worth Rs12,979 crore to bolster its war chest that is widely anticipated to be employed for this acquisition.
“The examiner previously concluded that we have acted fairly and in accordance with our fiduciary duties and this was again affirmed in court,” David Harpole, a spokesman for LyondellBasell told news agency Bloomberg. “We continue to work with all parties to design a confirmable plan of reorganization.”
A financial backer had been raising its offer for LyondellBasell, said Joseph Ryan, an attorney with Boston-based law firm Brown Rudnick Llp that is representing the creditors in court.
“We have another plan sponsor in the wings, who keeps increasing their offer, with a proposal that, in many ways, on its face is superior than the one being offered in our current plan,” Ryan said but didn’t specify if he was referring to RIL or any other suitor for the chemical firm.
On 23 November, the Mukesh Ambani-owned firm said it had submitted a preliminary, non-binding bid to acquire a controlling stake in LyondellBasell, but it has never given out a valuation for its target so far.
Street estimates initially pegged it between $10 billion (Rs46,000 crore) and $12 billion, but RIL has reportedly raised it to $13.5 billion but has not managed to woo the management so far.
The LyondellBasell management has consistently preferred its original plan of reorganization with creditors, led by investors Access Industries Holdings Llc, Apollo Management Lp and Ares Corporate Opportunity Fund III.
In the current outline, these entities will backstop a $2.5 billion rights offering, giving them equity in the new firm. RIL’s bid will rival this plan.
Bloomberg contributed to this story.
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First Published: Wed, Jan 20 2010. 10 26 PM IST