The story begins in April 2006, when Access Industries, the private equity parent of Basell, made an unsolicited offer for Lyondell of $24-$27 per share, a premium of about 10 percent over the stock price at the time. But then-Lyondell CEO Dan Smith told Access it would have to offer at least 20 percent premium for the board to consider it a serious offer.
At Access' request, investment bank Merrill Lynch ran the numbers on a deal at $28 per share. It concluded the "timing was right" to acquire Lyondell -- code-named Hugo for the purpose of the study. The bullish view emboldened Access to act.
Concerns surface quickly
Almost immediately, however, the proposal met skepticism within Access.
CEO Lincoln Benet raised concerns to Blavatnik, the billionaire chairman, about the combined company's ability to fund operations and pay down merger-related debts if a downturn occurred in the refining and chemical businesses, a prospect then looking increasingly likely.
But Blavatnik pressed ahead. In August, Access made a formal offer of $26.50 to $28.50 per share, which Lyondell later rejected.
In early 2007, with Lyondell's stock over $30, Blavatnik tried again. He proposed buying Lyondell for $35 to $38 per share, which Merrill Lynch again supported, given the availability of credit for such deals at the time and the potential for big returns to Access in a few years.
An April 10, 2007, presentation by Merrill to Access asked, "Why Hugo?" The answer: "Because you can."
A Merrill Lynch spokesman declined to comment.
An Access spokesman declined to comment on specific charges in the lawsuit but in an e-mailed statement said the "economic environment and industry-specific dynamics in which the merger between Basell and Lyondell was completed was very different than today."
New round of doubts
Inside Access, doubts surfaced again about the wisdom of a Lyondell acquisition, particularly at $38 per share.
"We are putting a lot of debt on the combined entity just because the financial markets will let us," Ajay Patel, a vice president of mergers and acquisitions at Access, wrote in an e-mail at the time. "This may not be prudent in the long term."
Volker Trautz, then CEO of Basell, went so far as to ask Blavatnik to give executives a chance to pull out their stock holdings in Basell if he was going to gamble with Basell's equity and pursue Lyondell at such a high price.
But the price would go still higher. In June, Smith threw out $48 a share as a better asking price for Lyondell. And again Blavatnik agreed despite concerns by his team.
On July 17, Lyondell and Basell announced a merger agreement, with Merrill Lynch, Citibank and Goldman Sachs agreeing to fund the deal.
But things unraveled quickly. Rising crude prices boosted costs for the refining business, a weakening economy slowed demand for chemical products and the new company's earnings fell, giving heartburn to banks that had agreed to finance the transaction.
Projections off
The deal was given a final push by Lyondell's earnings projections for the rest of 2007 that later turned out to be much too high -- projections the creditors' suit called a "feat of reverse engineering." The merger closed in December. When it did, Blavatnik received more than $300 million. Dan Smith, meanwhile, took home more than $56 million.
Just one year later, LyondellBasell placed all of its U.S. operations and a European holding company in bankruptcy protection. A reorganization plan is expected later this summer.
brett.clanton@chron.com
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