By Jaylan Boyle, Contributing Reporter
RIO DE JANEIRO – Braskem, the largest petrochemical company in Latin America and the third largest in the Americas behind ExxonMobil and Dow Chemical, is in talks with rival company Quattor in order to identify ‘opportunities for a strategic alliance’. The news sent Braskem shares skyward, with an increase of R$0.27.
São Paulo-based Braskem is controlled by construction conglomerate Odebrecht, while Quattor is run by Unipar Participações, a Brazilian petrochemical producer, and by state-owned Petrobras.
Any eventual deal between the two giants will rely on the resolution of differences between prominent shareholders, a source close to the deal has told Reuters. Early sticking points in the deal could include an agreement on how much of the newly-combined company will be retained in ownership by Quattor.
Quattor was formed in June 2008 when Petrobras and Unipar, along with three other companies, decided to pool their respective stakes in Brazilian plastic and chemcal plants into a single company. This consolidation process has been complicated by differences in opinion among the Gayer family, the controlling shareholders of Unipar. While some members of the family have welcomed a union with Petrobras, others have been less enthusiastic.
Analysts at Credit Suisse, led by Emerson Leite, said in a note to clients recently that, if confirmed, the Braskem/Quattor deal “would be the last step in the consolidation of the Brazilian petrochemical industry.” They added that the combined companies would have “virtually 100 percent of the Brazilian resin production capacity and some 80 percent market share in this country.”
Many have predicted that the resulting merged company will face severe tests from antitrust legislation, given that it would create a monopoly in Brazil’s market for polyethylene and polypropylene, used to make everything from textiles to banknotes.
Petrobras has reportedly expressed reservations concerning what it perceives as a relatively high and dangerous level of debt. Analysts have placed Quattor’s debt at the equivalent of 15.5 times its cash flow generation, as measured by earnings before interest, tax, depreciation and amortization.
A press release from Braskem dated August 24 was quick to dampen speculation, confirming that it is conducting talks with Quattor while stressing that so far the two are not even close to a commitment or even preliminary result, and that a timeline is thus far not in place.
Braskem controls the two largest petrochemical complexes in Brazil, located in the cities of Camaçari and Triunfo. The main output of these factories is in the form of basic petrochemical building blocks, and is sold to offshore interests such as Dow Chemical.
Although these plants are mainly fed by naptha, a distillation of coal oil, the company is involved in an initiative to create a ‘green ethylene’ plant which derives ethanol from sugarcane as its main energy source.