USA: Business Strategy Lyondell Basell, Sasol Form Joint Venture
Under the terms of the agreement, Lyondell Basell and Sasol will form a 50:50 JV through which Lyondell Basell will acquire 50 % of Sasol’s selected assets in Louisiana for 2 billion dollars. The new JV will be operational under the name Louisiana Integrated Polyethylene JV.
USA – Lyondell Basell and Sasol have recently announced that they have entered into a definitive agreement to form a 50/50 joint venture (JV) through which Lyondell Basell will acquire 50 per cent of Sasol’s 1.5 mm tonne ethane cracker, 0.9 mm tonne low and linear-low density polyethylene plants and associated infrastructure for a total consideration of 2 billion dollars. The agreement includes customary rights for each partner regarding the potential future sale of its ownership interest. The JV will operate under the name Louisiana Integrated Polyethylene JV.
“This investment represents a unique opportunity to bring together the best of both companies and create deep, long-term value while immediately realising the many benefits of new, strategically-located, world-scale assets,” said Bob Patel, CEO of Lyondell Basell. “This approach is consistent with our strategy of investing in high quality assets that meet our threshold for value creation, while also maintaining our investment grade rating and commitment to our dividend. The transaction is expected to be accretive to both cash flow and EPS within one year with significant upside as market conditions continue to improve.”
“We are very pleased to have Lyondell Basell join us as a key partner in our U.S. Base Chemicals Business in Lake Charles. Lyondell Basell is the ideal partner to ensure the success of these world-class assets with its deep expertise in commodity chemicals,” said Fleetwood Grobler, President and CEO, of Sasol. “This milestone coincides with our 70-year anniversary and represents a significant step in creating Future Sasol, which will be a more sustainable and resilient business for the long-term. We’re excited about this joint venture and look forward to building a mutually beneficial and successful partnership with Lyondell Basell.”
Strategic and Financial Benefits
The JV’s newly constructed assets are strategically located on the U.S. Gulf Coast, with access to low-cost feedstock, storage and logistics infrastructure. Lyondell Basell’s investment in the JV allows the company to expand in a core area of its business and leverages the company’s operational and commercial strengths. Additionally, by investing in these assets, the company will realise immediate returns and eliminate customary construction risks associated with new project execution.
This transaction represents a significant step for Sasol in achieving its financial and strategic objectives by reducing net debt and rapidly shifting the company’s portfolio towards specialty chemicals. Sasol undertook a process to determine the optimal partnership construct for its U.S. Base Chemicals Business. The Lyondell Basell proposal offered the best combination of upfront and long-term value, consistent with Sasol’s long-term strategic priorities.
Under the terms of the transaction agreements, each JV partner will provide pro-rata shares of ethane feedstocks and will offtake pro-rata shares of cracker and polyethylene (PE) products at cost. Lyondell Basell will operate the U.S. Base Chemicals assets on behalf of the JV.
Upon close of the transaction, some Sasol U.S. employees will become employees of Lyondell Basell. Sasol will retain full ownership and operational control of its Lake Charles Research and Development complex, Lake Charles East Plant ethane cracker and U.S. Performance Chemicals Business assets in Lake Charles, which produce Ziegler alcohols and alumina, ethoxylates, Guerbet alcohols, paraffins, comonomers, linear alkyl benzene, ethylene oxide and ethylene glycol. The U.S. Performance Chemicals Business is a key part of Future Sasol, consistent with the strategy to increase focus on specialty chemicals where Sasol enjoys differentiated capabilities and strong market positions. Sasol will also retain access to competitively priced onsite ethylene to ensure value chain integration.
The transaction is subject to customary regulatory approvals and approval by Sasol shareholders. The transaction is expected to close by the end of 2020.