Tuesday, January 6, 2009 0 comments ++[ CLICK TO COMMENT ]++

Another big M&A deal blows up

Well, the biggest M&A blow-up has to be the unravelling of ABN Amro takeover, but another one is running into problems. This time, it's LyondellBasell, a chemical giant, that is on the verge of bankruptcy:

LyondellBasell remains in talks with creditors, a spokeswoman for the chemical giant said Tuesday, amid fresh reports that a Chapter 11 bankruptcy filing may be in the offing.

The Houston Chronicle reported Tuesday that a company filing seeking bankruptcy protection from creditors is imminent, with LyondellBasell poised to list assets of more than $33 billion and liabilities of nearly $30 billion.

Although Rotterdam-based LyondellBasell is a private company, some of its debt instruments trade in the credit market.

The company's credit default swaps continued to widen to extremely distressed levels on Tuesday, while bond and loan prices held steady amid speculation of a possible Chapter 11 filing, Dow Jones Newswires reported.

The company owes debt holders $160 million in fees related to an $8 billion bridge loan as well as $120 million of interest due on that debt. These payments were deferred on Dec. 19 and again on Dec. 29.

...

The company was created last year when Dutch chemicals giant Basell International Holdings BV paid $12.7 billion to buy Houston-based Lyondell Chemical Co. in a deal crafted by billionaire Len Blavatnik.

It came in the wake of a dizzying spike in petroleum prices, an investment craze that spilled over commodities in general and major tie-ups throughout the chemical sector seen in 2007 in a race to enter emerging markets.


Commodities + Emerging Markets = DEATH! Well, at least I think so. Marrying the two biggest themes (bubbles?) of the last decade was bound to blow up. To be sure, good lesson for newbies and investors everyone. This was a private company that I never heard of before but the situation can apply to almost any company cutting deals during the peak. The most vulnerable are commodity companies, some of which took on huge debts to buy out competitors at cyclically peak prices.

Dow Chemical is another giant who is having trouble closing a couple of deals--one a joint venture; the other a takeout of a competitor, which was supposed to be financed by the former. Fortunately, Dow is much stronger and doesn't have the problems of many others.

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