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When Reliance Industries announced a bonus share issue after its second quarter results this year, it came under fire from market analysts. This was a sign of weakness, said one. They are doing it merely to placate shareholders, was another’s opinion. In its usual style, Reliance Group did not bother to explain itself. Now it has made a play for LyondellBasell, the number one polypropylene (a thermoplastic polymer with a wide range of applications, from underwear to labs producer in the world.
The acquisition of the Dutch company, if it goes through, will catapult Reliance into the global big league. Revenues will more than double, from $32 billion that it notched up in 2009 by about $50 billion posted by LB in 2008. But the business benefits that will accrue from the expansion of its footprint into the US and European markets, are much more substantial.
RIL’s international distribution presence is currently limited to a little tankage (huge storage tanks for oil) and some trading. Buying LB, which has 50 manufacturing facilities across 19 countries, will take it to the top bracket in the refining and petrochemical heap.
LB’s research facilities too are cutting edge and can be the resource that RIL needs to cater to future developments in the business. The deal will break the popular perception that RIL can only succeed in India. Strategically too, RIL has to move decisively from the stasis that has set in after the completion of the second refinery and the gas production facilities on the east coast. The LB buy is one good opportunity.
