• A third offer emerges, underscoring the key role the company plays in Latin America’s petrochemicals market.

Cristiane Lucchesi, Mariana Durao and Vinicius Andrade, Bloomberg News

SAO PAULO
EnergiesNet.com 12 15 2022

A global bidding war for control of Brazilian petrochemicals behemoth Braskem SA is heating up as its top shareholder faces pressure to ditch its stake in a company that’s poised for explosive long-term growth.

Three competing offers from big-name buyers are on the table. Abu Dhabi National Oil Co. and Apollo Global Management made a joint 37.5 billion reais ($7.8 billion) bid to acquire all of the company’s shares in May; the following month, Brazilian chemical group Unipar Carbocloro SA offered to buy a 34.4% stake from shareholder Novonor SA for 10 billion reais ($2 billion). This week, a third bidder threw its hat in the ring, with J&F Investimentos SA, the holding company of the billionaire Batista family, making its own 10 billion reais offer for a Braskem stake.

The bidding frenzy underscores the key role Braskem plays in Latin America’s petrochemicals market. It’s the leader in thermoplastic resins in the Americas, with factories in Brazil and elsewhere that can be expanded as needed, making it a hugely attractive asset for companies looking to capitalize on growing demand for plastics, paints, car parts and other petrochemical products. As future demand for oil is set to decline during the coming energy transition, commodities companies are looking to diversify into new sectors, and for many of them, petrochemicals is at the top of the list.

“It’s a unique opportunity to gain a presence in a growing market such as Brazil,” said Citigroup Inc. analyst Gabriel Barra. “Building a company like Braskem from scratch is almost impossible.”

Despite the sector’s long-term bullish outlook, leading shareholder Novonor is under pressure to sell its Braskem stake as part of a divestment plan that’s been in the works for years. It used its Braskem shares as collateral for debts that went unpaid when it was embroiled in a widespread corruption scandal in the mid 2010s. In 2019, talks with LyondellBasell Industries NV ended without a transaction. A share offering was canceled in 2022.

Interest in Braskem took off after its shares fell in March to the lowest in three years. On Thursday, shares rose as much as 3% after Braskem confirmed Novonor received a proposal from J&F for the acquisition of financial creditors’ holdings. Novonor will evaluate the proposal, according to the statement.

Analysts say Braskem is attractive for a number of reasons. Its plants in Brazil, Mexico, the US and Europe help to shield it from localized inflationary spikes or demand slumps. Meanwhile, Latin America’s 660 million-strong population will likely see demand increase for petrochemicals in the long-run, while the region is a net importer, said Rina Quijada, an industry expert at S&P Global Commodity Insights.

For Adnoc, which pumps almost all the oil in OPEC-member United Arab Emirates, the purchase would help it expand beyond its main industry and enter new regions. For J&F, the top shareholder in the world’s largest meat supplier, Braskem would also be a diversification play, after the group entered the mining business by acquiring some of Vale SA’s assets. Unipar’s bid, meanwhile, would help it grow its existing market position.

Still, any deal may face obstacles. Legal disputes weigh heavy on Braskem, which has set aside 6.1 billion reais ($1.3 billion) to cover potential payouts tied to thousands of damaged homes in the Brazilian state of Alagoas, where authorities say the company’s salt mines destabilized the ground and cracked buildings. Last week, the company confirmed local news reports that it was still in talks with local government over the settlement.

Also potentially complicating the situation is Braskem’s second-biggest shareholder, state-controlled oil producer Petrobras. Since the government deems petrochemicals strategic, it could favor the bids from Unipar and J&F, both Brazilian companies themselves.

The Brazilian government wants Petrobras to remain a shareholder in Braskem, Energy Minister Alexandre Silveira recently said at an event in Rio de Janeiro, adding that Brazil needs to remain a leader in the industry. Petrobras on Monday requested access to the petrochemical firm’s virtual data room, starting its own due diligence process. Petrobras has rights of first refusal on Novonor’s stake.

“The petrochemicals industry is strategic, fundamental for the country’s growth,” Silveira said. Petrobras holds a 36.1% stake in Braskem, as well as 47% of its voting shares, compared with Novonor’s 38.3% and 50.1% stakes, respectively.

Creditors may also derail any deal. Some Novonor creditors, which currently hold its Braskem stake as collateral for more than 14 billion reais in unpaid loans, don’t like the Unipar proposal because it would imply a discount on the face value of the debt, people familiar with their thinking said. Unipar would also pay in installments, while creditors would prefer to receive payment upfront, according to the people who asked not to be identified. J&F’s bid, on the other hand, would be made in cash and paid upfront though would also imply a discount on the debt. The bid from Adnoc with Apollo also irks Novonor’s creditors, because only some of the deal would be in cash, with the rest in bonds and warrants, the people said.

While Novonor has responded positively to Unipar’s proposal, the competition is fierce. Unipar asked for a 180-day exclusivity period as it aims to start a due diligence process that it considers expensive, the people said. Some banks are mulling conceding 60 to 90 days, while others are simply refusing any, according to the people.

A three-way bidding war would “support an interesting upside risk,” Barra said in a report last month, when he downgraded the stock to neutral from buy. Still, it may be a long slog yet. “The M&A’s final chapter is still far from happening in the short term.”

— With Kamaron Leach

bloomberg.com 07 13 2023