Blavatnik Says $22 Billion LyondellBasell Merger Was Worth It

(Bloomberg) -- If billionaire Len Blavatnik could go back to 2007, he would create LyondellBasell Industries NV all over again. 

“I would make the very same investment decision,” he said in a trial over whether the merger was overpriced to benefit him at the expense of creditors in the company’s 2009 bankruptcy. “Indeed, my faith in the combined company continues today,” according to his written testimony. 

The $22 billion deal that created the chemical giant almost a decade ago is being scrutinized in Manhattan bankruptcy court as creditors seek to recover more than $1.7 billion from Blavatnik, his firm Access Industries Holdings LLC and other affiliates. They’re also seeking about $2 billion more from Blavatnik and other executives for alleged mismanagement of LyondellBasell.

Access Industries continues to be the company’s largest shareholder, having invested $2.3 billion in equity since its bankruptcy.

The deal was worth the price Basell NV paid -- $48 a share -- because Lyondell was more attractive than other targets at the time, Huntsman Corp. and GE Plastics, Blavatnik said.

“This is why I believed it was a wise decision for Basell to pay a premium for Lyondell’s shares, which of course is typical when buying control of a public company,” he testified.

‘Blowout Price’

Creditors have assailed what they call the deal’s “blowout price,” considering Lyondell’s stock had seldom risen above $30 before then. They say Blavatnik extracted money by buying shares just before the offer and by collecting transaction fees. If the creditors can prove the money was improperly transferred away from the company, dooming it to fail, bankruptcy law could let them claw it back for sharing among all unsecured creditors.

Blavatnik, worth about $18.3 billion according to data compiled by Bloomberg, denies wrongdoing and says the suit is premised on the idea he could have seen the 2008 financial crisis coming. His lawyers said hurricanes, crane collapses and other events also contributed to the company’s bankruptcy, and would have been impossible to foresee.

During cross-examination Friday, creditors questioned to what extent Blavatnik pulled the strings on the merger and asked whether others at Basell had suggested a lower price, alleging that a former executive at Access Industries had said even $38 a share was too high.

Blavatnik said in court that he had conversations that authorized him to offer $48 share, despite creditors’ allegations that there were no formal documents to prove it.

“I don’t remember, but it’s customary that formal approvals have to be obtained,” he told U.S. Bankruptcy Judge Martin Glenn.

Highly Leveraged

A trust for unsecured creditors sued in 2009, saying the company’s highly leveraged capital structure and the cost of the deal left it unable to fund its capital-intensive business in a cyclical lull in the chemicals industry. They cite analysts who predicted an industry slowdown after 2007, as well as signals that a recession was brewing at the time of the merger.

Publicly available market data, along with analyst and credit-rating information at the time, projected an adequately funded company, Blavatnik’s lawyers counter. 

“To suggest LBI was foreseeably ‘doomed to fail’ in 2007 is, simply put, to rewrite history,” they said in court filings.

The trial is expected to continue for at least three weeks, with closing arguments sometime in December or January.

The case is Lyondell Litigation Trust, 09-01375, U.S. Bankruptcy Court Southern District of New York (Manhattan).

To contact the reporter on this story: Tiffany Kary in New York at tkary@bloomberg.net. To contact the editors responsible for this story: Andrew Dunn at adunn8@bloomberg.net, Dan Wilchins