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BLOOMBERG: BASF, Shell to Sell Basell to Access, Chatterjee

BLOOMBERG: BASF, Shell to Sell Basell to Access, Chatterjee

6 May 2005

(Bloomberg) — BASF AG and Royal Dutch/Shell Group agreed to sell their Basell NV plastics joint venture for 4.4 billion euros ($5.7 billion) to companies controlled by Russian- born billionaire Len Blavatnik and an Indian entrepreneur after bowing to U.S. pressure to reject Iranian offers.

Access Industries Inc., started by Blavatnik, who owns part of Russia’s third-biggest oil producer, and Chatterjee Group, whose founder also set up India’s Haldia Petrochemicals Ltd., will pay half the cost in cash and half in debt for Hoofdorpp, Netherlands-based Basell, BASF spokesman Michael Grabicki said.

The U.S. State Department pressured BASF and Shell to ignore interest from Iran, which the U.S. lists as a state sponsor of terrorism. By exiting the five-year-old Basell, Shell and BASF will reduce their exposure to low-margin commodity plastics. Basell is the world’s largest maker of polypropylene, which is used in bottle caps, grocery bags and packaging.

“If the Indians offer the same money as the Iranians and it gets you less grief with the U.S., then that’s a politically expedient thing to do,” said Richard Griffith, a London-based analyst at Williams de Broe.

Basell has annual sales of 6.7 billion euros, and 6,600 employees.

Shares of BASF, the world’s largest chemical maker, rose 25 cents, or 0.5 percent, to 51.91 euros at the close of trading in Frankfurt. They have slipped 2.1 percent this year. Shares of Shell, Europe’s No. 2 oil company, rose 71 cents, or 1.6 percent, to 46.07 euros in Amsterdam, bringing their gain this year to 8.8 percent.

U.S. Pressure

Iran’s state-owned National Petroleum Company wanted to purchase the plastics maker, and agreed to leave out U.S. assets to ease U.S. concerns. NPC Managing Director Mohammad Reza Nematzadeh said yesterday that the U.S. government was “using some illegal political pressure” to prevent a sale to Iran. On April 16, he said he expected to NPC to be the “winner” in the bidding.

The State Department pressured BASF and Shell over the Iranian offer, a State Department official said May 2. U.S. sanctions against Iran bar American firms from doing business with entities owned by that country.

The State Department declined to comment on the sale.

Representatives of the U.S. medical industry met late last month with U.S. officials to express concern about a possible sale to Iran. Basell provides 40 percent of medical-grade polypropylene sold in the U.S., according to AdvaMed, a 1,300-member association representing manufacturers of medical devices. The group welcomed today’s announcement.

Terms

The sale will be completed in the second half of the year. The transaction needs regulatory approval, the companies said today in an e-mailed statement. BASF and Shell each own 50 percent of Basell.

“There is probably just 1 billion euros left for each side,” said Colin Isaac, a chemical analyst at JP Morgan Securities in London, who has an “overweight” rating on BASF. “BASF could use some of the money for its share buy back or acquisitions. For Shell, it is really a drop in the ocean.”

Standard & Poor’s today cut Basell’s long-term debt rating to high-risk, high-yield status, citing the sale. The rating was cut one step to BB+ from BBB-. S&P also put the grade on review for a further downgrade.

Billionaire Owner

Blavatnik, 47, is a U.S. citizen and has lived there for more than 20 years. He founded Access in 1986. He also owns part of TNK- BP, BP Plc’s Russian venture and Russia’s third biggest-oil producer. BP owns 50 percent of TNK-BP.

John Stonborough, an Access spokesman in London, said that Access owns “significant” stakes in TNK-BP, in Siberian Urals Aluminum Company, Russia’s No. 2 aluminum company, and OAO Svyazinvest, Russia’s national telephone company. Blavatnik declined requests for an interview.

Shell and BASF said in July 2004 that they hired Credit Suisse First Boston and Lazard to advise them on a Basell sale.

BASF spokesman Grabicki declined to comment on whether BASF and Shell bowed to U.S. pressure, saying in a telephone interview that today’s sale “was the most reasonable solution” in terms of price and conditions.

Purnendu Chatterjee is a founding shareholder of Haldia Petrochemicals., an unlisted producer of polymers and chemicals, in which the provincial government of West Bengal also holds a stake.

Chatterjee

The company hasn’t published earnings figures. Chatterjee told reporters in the eastern Indian city of Kolkata on Jan. 13 that Haldia expects to report a profit this year and it may sell shares to the public. He didn’t return calls for comment.

Chatterjee is also a founder of the Chatterjee Group, according to the Web site of the Indian Institute of Technology. Chatterjee studied at the school for a degree in engineering.

BASF Chief Executive Juergen Hambrecht said April 28 that one of the reasons for divesting Basell is that it isn’t integrated into the so-called Verbund sites, in which BASF links the various production steps to save on energy, raw materials and logistics costs.

For BASF, the sale of Basell is the biggest divestment since it sold its Knoll drug unit to Abbott Laboratories in 2000. The company is planning to buy back shares this year and make “manageable” acquisitions, according to Hambrecht.

Asset Sales

“The strategic divestment will now create additional value for the BASF group as part of the company’s ongoing portfolio management,” BASF board member John Feldmann said in the statement.

Fran Keeth, executive vice president of Shell’s chemical unit, said that the sale will help the company to strengthen its core operations in Europe and North America and to grow in Asia and the Middle East.

Today’s decision means BASF and Shell also decided against an initial public offering for Basell, which BASF had previously said was an “option.”

Shell earlier this year boosted its potential sale of businesses in the two years through 2006 to $15 billion from $12 billion. Shell is increasing spending on exploration after it last year said it had misled investors on reserves for years.

Earlier this month, Shell and Bechtel Group agreed to sell a power-generating venture for $1.75 billion to an American International Group Inc. buyout fund and the Ontario Teachers’ Pension Plan.

In January, Shell agreed to sell its Bakersfield, California, oil refinery to closely held Flying J Inc., the largest U.S. diesel retailer. Terms weren’t disclosed.

To contact the reporters on this story: Sonja Franklin in Frankfurt at [email protected]

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