THE WALL STREET JOURNAL: Shell's LPG Unit Draws Interest Beyond Private-Equity Firms: “The sale of Royal Dutch/Shell Group's liquefied petroleum-gas unit is attracting interest beyond private-equity firms, with Repsol YPF SA, BP PLC and Total SA looking at it, individuals familiar with the talks said. They said the asset is potentially valued at more than $3 billion” (ShellNews.net Posted 25 Jan 05

By BENOÎT FAUCON

DOW JONES NEWSWIRES

PARIS -- The sale of Royal Dutch/Shell Group's liquefied petroleum-gas unit is attracting interest beyond private-equity firms, with Repsol YPF SA, BP PLC and Total SA looking at it, individuals familiar with the talks said.

They said the asset is potentially valued at more than $3 billion, or about €2 billion.

In September, the Anglo-Dutch oil major disclosed it had received an unsolicited approach from a potential buyer. The move sparked the company to provide an open ear to any proposal from possible bidders, though a final decision to sell or not has yet to be made. The asset sale, if completed, would be part of a mammoth, $12 billion divestment program unveiled in September, as part of a larger overhaul of the business.

Shell is also in talks with potential buyers of its chemicals joint venture Basell NV, which it co-owns with its partner BASF AG of Germany.

The individuals said a formal bidding process will be launched toward the end of the first quarter. Private-equity interest already has been reported. But now oil companies have signaled they may be willing to bid, as they try to beef up their activities in the highly profitable business, one individual said.

The individual said Spanish-Argentine company Repsol YPF is the most interested in the asset among the industrial players because Shell 's LPG business fits well with its portfolio. Last year, Repsol YPF bought Shell 's Portugal LPG unit for an amount that wasn't disclosed.

LPG is a specialized business and Repsol believes it requires management from an industrial company, not an investment firm, the individual said.

But the unit carries a hefty price tag. The individuals involved in the deal said similar transactions in the industry value the subsidiary at six to eight times earnings before interest, taxes, depreciation and amortization, which was $400 million in 2003. That would imply a potential price of $2.4 billion to $3.2 billion.

But the Spanish company wouldn't be in a position to come up with such an amount in cash. As a result, it is looking for a private-equity firm to partner with and is set to propose to join the fund that will win the deal, that person said.

The interest from oil companies such as BP of the U.K. and Total of France is also part of a defensive strategy because they don't want rivals to seize too large a market share in the sector.

Total and BP, though, may face antitrust issues in the French market if they buy the asset, an individual familiar with the deal said. They may also have to team with funds considering the price tag, that person said.

Whether on their own or with industrial partners, private-equity firms still lead the game, one individual said. Goldman Sachs Inc., Kohlberg Kravis Roberts & Co. and Blackstone Group LP of the U.S. and Eurazeo and PAI Partners of France are among those who have expressed notable interest, that person said.

In 2001, PAI acquired a 70% stake in Antargaz, the French gas distributor, before selling in March 2004.

Shell, BP, Total, Repsol YPF, KKR and Eurazeo declined to comment. "We don't have any news," a spokesman for Repsol YPF said. Goldman Sachs didn't comment immediately, while Blackstone and PAI didn't return calls.

LPG is used as cooking and heating gas, both for domestic and industrial purposes. It has strong penetration in regions with a lack of gas infrastructure such as North Africa, where deposits on bottles provides a steady cash flow.

The business shows unspectacular revenue growth -- 2% a year to $2.6 billion in 2003 -- but high margins, the sort of model that fits the requirements of private-equity investment.

Write to Benoît Faucon at benoit.faucon@dowjones.com