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7/30/2014 @ 6:00AM |672 views
How One Billionaire's Bet On LyondellBasell Turned Into The Greatest Deal In Wall St. History
This story appears in the August 18, 2014 issue of Forbes.
Billionaire financier Len Blavatnik’s bet on LyondellBasell has netted him a personal profit of nearly $8 billion. He says there’s more to come.
http://www.forbes.com/sites/nathanvardi/2014/07/30/the-greatest-deal-of-all-time/?utm_campaign=forbestwittersf&utm_source=twitter&utm_medium=social
Confused Len Blavatnik (Warner Music guy) for the Black Wednesday guy that 'Broke the Bank of England' (George Soros) and I thought, no way, how could he have done it again.
If I've got this straight, some guys were selling stock in LyondellBasell; Blavatnik bought stock in LyondellBasell when everyone thought he shouldn't have and shares rose by over 50% since his last batch bought.
Since its bankruptcy - 4 years ago - shares in LyondellBasell have risen to return 500%.
Forbes says Blavatnik's investment ...
By 'mostly unrealised', I'm guessing they mean he hasn't cashed up what's due to him.
The transaction's described as 'historic'.
Here's some info about Blavatnik from Forbes:
A Ukrainian-born American citizen who grew up in Russia and immigrated to the U.S. in 1978 at the age of 21, he later got his M.B.A. at Harvard.
Blavatnik made his first fortune with a former classmate in Russia, Viktor Vekselberg, in oil and aluminum deals during the anything-goes post-Soviet days.
Blavatnik’s biggest scores in Russia were oil company TNK-BP, a joint venture with British Petroleum that was eventually bought by Rosneft for $55 billion, and Sual, an aluminum producer that merged with the larger Rusal.
Chemical companies that had nothing to do with Russia would be his next big thing. He paid full price, putting down $1.1 billion to purchase Basell in a $5 billion leveraged buyout in 2005. Then he tried, and failed, to buy other chemical companies, including Huntsman International.
The revolution that changed everything for Blavatnik ... and LyondellBasell originated in the thin fissures of shale rock filled with oil and natural gas reserves throughout the United States. Throughout the last decade drillers pioneered new techniques of exploiting rock formations with hydraulic fracturing and horizontal drilling to draw out the petrochemicals trapped within. As a result, the U.S. became one of the world’s largest sources of cheap natural gas almost overnight, with prices falling from highs of $13 per million British thermal units to a $3 to $4 range today. This dramatic drop in prices proved a huge boon to dozens of industries, none more so than the chemical business–and few more than LyondellBasell.
LyondellBasell is a top producer of ethylene, which it upgrades into the plastic known as polyethylene, used in everything from food packaging to trash bags and hard hats. The company operates six facilities (known as “crackers”) to produce ethylene in the U.S. and four in Europe. Profits from ethylene and its derivative chemicals and coproducts are the core of LyondellBasell’s earnings.
Ethane, refined from natural gas, and naphtha, a crude oil derivative, are the prime raw materials used to produce ethylene. Starting in 2007, U.S. drillers were finding natural gas everywhere. By 2012 the price of ethane had fallen from 90 cents per gallon to 30 cents, giving U.S. chemical producers a huge advantage over foreign competitors in Europe and Asia that are dependent on pricey oil-based naphtha as a feedstock. The gap between the two supercharged LyondellBasell’s profitability.
LyondellBasell’s decades-old crackers in Clinton, Iowa and Morris, Ill., for example, are the only ones in the Midwest–and are situated near natural gas liquid pipelines and a hub in Kansas, home of some of the cheapest ethane in America. Almost overnight they were transformed, churning out profit margins of 32 cents per pound compared to European naphtha-based ethylene, which is barely even profitable. “It’s improbable that anyone could have foreseen the full impact of the shale revolution,” says Blavatnik. “But Jim had some experience and insight through his work at ConocoPhillips that I think helped.”
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So the US presence in Ukraine isn't just about Ukraine. It's about supplying Europe with gas.
Although this was said in this or that blog or whatever I'd come across, it hadn't really sunk in properly.
Reading this, I got a really sick feeling in my stomach because the US need for a market is tangible -- it's not just someone speculating about US motives. It's real.
OMG! I feel like I've just discovered another planet!
