Ineos ABS investors eye gains from global restructuring

Ineos ABS investors eye gains from global restructuring

European chemical companies have gone through several rounds of restructuring over the decades. That invariably has repercussions in India, more so when the Indian subsidiaries are listed.

BASF SE had acquired Ciba worldwide, which led to a merger of Ciba India Ltd with BASF India Ltd.

Also See Integration Move (PDF)

Now, BASF and Ineos Industries Holdings Ltd are globally combining their styrenics business into a joint venture company Styrolution. The two companies will transfer their styrene portfolios, except for expandable polystyrene, to the joint venture.

The restructuring will happen in phases. BASF will transfer its global styrenics business, with some exceptions, to an independent entity. This will take effect from 1 January. It will transfer its Dahej plant to the venture but this will not affect its listed subsidiary, BASF India Ltd. The Dahej plant is run by BASF Styrenics Pvt. Ltd, a 100% subsidiary of the parent company.

At present, it does not appear that BASF India’s activities will be affected, though more clarity will emerge when the restructuring is given effect.

Ineos will transfer its global styrenics business to an independent entity, which includes its Indian operations at Vadodara, being run by Ineos Abs (India) Ltd, a listed company. The companies have said in a joint release that this will lead to an indirect change of control in Ineos ABS, which has seen its share price run up by nearly 9% since 30 November, when the announcement was made. A change of control would necessitate an open offer by Styrolution, which would explain the increase in its share price.

But the promoter stake in Ineos ABS is already 83.3%. Since it cannot exceed 90%, it will be able to make an open offer for only 6.7% of its equity capital, limiting the number of shares that can be accepted in an open offer. If a delisting is proposed, then the gains will be higher, but that is uncertain.

The announcement also clarifies that the change of control will happen when the deal is completed, after getting approval from anti-trust authorities, which is expected only in mid-2011. That is when the open offer will be announced, too.

Operationally, Ineos ABS and BASF’s styrenics businesses will attain some degree of integration in India. But if they remain separate legal entities (with BASF’s business privately held), it limits the benefits that could accrue to Ineos ABS.

With many months away for the open offer announcement, investors need to be cautious about letting expectations run too high.

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