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Financial Times: Financial buyers circle as Shell puts up 'for sale' signs on businesses: “Shell has put two main businesses on the block besides Basell: InterGen, its US power generating business, and its Liquefied Petroleum Gas business.” (


By James Boxell and Lina Saigol

Published: October 21 2004


When Shell puts its Basell plastics business up for sale last week, it marked the start of a $10bn to $12bn (£5.5bn to £6.6bn) disposal programme designed to help fund its £25bn investment in its oil reserves.


Shell has put two main businesses on the block besides Basell: InterGen, its US power generating business, and its Liquefied Petroleum Gas business.


The businesses are expected to attract a range of financial buyers as the stable cash flow of the assets lend themselves to high levels of gearing.


First up is Basell, which Shell jointly owns with BASF, the German chemicals group.


CSFB and Lazard, which have been mandated to run the process, had received two firm bids for the first round of the auction last Monday.


Blackstone, the US private equity group, has teamed up with Apollo Management, a rival buy-out firm to bid for Basell. It is competing with Bain, which has joined forces with Kohlberg, Kravis Roberts.


JJ Traynor, analyst at Deutsche Bank, said Basell had reached the "peak of retained earnings" following the merger of Shell and BASF's plastics businesses in 1999 and that now was a sensible time to sell out.


"They took lots of costs out through the merger but because chemicals is a commodity business, those cost advantages go away quite quickly," he said. "They are at the point of maximum synergy."


Shell is taking advantage of expanding margins during the current cyclical upswing to dispose of the businesses. Financial buyers could boost cash generation from higher margins and look for further consolidation in the sector and cost-cutting.


Basell had sales last year of €5.7bn (£3.95bn) and earnings before interest, tax, depreciation and amortisation of €300m. Deutsche estimated that it could be worth up to €4bn.


Other financial buyers are looking at bidding for InterGen, Shell's US-based power generating business.


This asset, valued at more than $3bn, is also expected to attract a host of financial buyers as the business lends itself to gearing.


Investors and Shell executives believe now is a good time to sell the Intergen power generating business - in which Shell owns a 68 per cent stake and Bechtel owns the remainder - because this has never become core to Shell's operations.


The original idea was that Shell would create power stations that would use its own "stranded" gas resources in areas that were difficult to reach.


The third asset on the block is Shell's Liquefied Petroleum Gas (LPG), which is worth an estimated £2.4bn.


Shell has mandated Citigroup to sell the business and an information memorandum is expected to be sent out to prospective bidders in January with access to the data room being granted in February.


Shell decided to put the LPG business up for full auction after receiving an approach for it earlier this year.


Goldman Sachs has already teamed up with Kohlberg Kravis Roberts to make a bid for LPG.


PAI, the French private equity firm that bought and recently sold a 70 per cent stake in Antargaz, the French Gas distributor, is also expected to be interested. Candover, which joined forces with JP Morgan Partners last year to bid for ABB's upstream Oil, Gas and Petrochemicals division, will also ask for a key to the data room.


LPG is usually bottled and used in cooking and heating gas, both domestically and industrially and has growth in areas such as Asia, which has a lack of gas infrastructure.


Shell has 3 per cent of a global market that is expanding at about 2 per cent a year.


But in spite of such modest growth, the business is a strong cash generator and well-managed and looks ideal for a financial buyer, which could increase gearing further than Shell's 20-30 per cent band.


The business had $2.6bn of sales last year and ebitda of $400m.


Richard Rose, at Oriel Securities, said it made sense for Shell to "clean up the edge of its portfolio and focus on refining and marketing in its downstream business. If they can get the right prices, then that's good. But are they just looking for cash to bolster the upstream [exploration and production] business? It doesn't seem to be going back to shareholders. What will be more interesting is when they begin rationalising the upstream business."

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