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Blavatnik Made $1.2 Billion in Lyondell LBO, Lawsuit Says

Blavatnik Made $1.2 Billion in Lyondell
Len Blavatnik, chairman and president of Access Industries Holdings LLC. Photographer: Rick Maiman/Bloomberg

The leveraged buyout of Lyondell Chemical Co. in 2007 benefited the company’s board as well as billionaire Len Blavatnik, who gained $1.2 billion, according to a revised lawsuit brought by the company’s creditors.

Lyondell Chairman Dan F. Smith netted more than $100 million from the $22 billion merger with a unit of Blavatnik’s Access Industries Holdings LLC, a deal that drove Lyondell into bankruptcy in 2009, according to the complaint filed in yesterday in U.S. Bankruptcy Court in Manhattan.

“Blavatnik was internally known at Access as the ‘King of Optionality,’” and turned to Lyondell after previously trying to buy Huntsman International LLC, a similar petrochemical company, trustee Edward Weisfelner said in the revised complaint, brought on behalf of creditors.

Blavatnik and Access took part in a private-equity boom during which companies were bought with borrowed money, then drained of cash or sold for a profit, according to the lawsuit. With interest rates low, lending standards loosened and tighter regulations on public companies following the Enron Corp. and WorldCom Inc. accounting frauds, investors and their bankers turned to companies with little debt and stable cash for highly leveraged acquisitions, and Blavatnik chose Lyondell, the trustee said.

‘Refreshed’ Projections

Blavatnik profited from stock bought just before the merger, and earnings projections were “refreshed” by Smith to make them high enough to justify the acquisition price of $48 a share, according to the lawsuit.

Richard Werder, a lawyer for Blavatnik, said the claim that his client netted more than $1.2 billion from Lyondell’s merger with Access’s Basell AF SCA unit is “preposterous.”

“It ignores the fact that he contributed his equity in Basell -- worth billions of dollars by anyone’s reckoning -- to the merged company and lost that value entirely when LBI filed for bankruptcy,” Werder said in a statement.

Creditors initially sued over the buyout during Houston-based Lyondell’s bankruptcy and settled with defendants including Merrill Lynch & Co. and Goldman Sachs Group Inc., recovering about $450 million for the estate.

Blavatnik is seeking to dismiss some accusations made in the initial complaint, and has said Luxembourg law can’t be used to sue over Netherlands-based Basell. U.S. Bankruptcy Judge Robert Gerber denied a request to dismiss charges based on Luxembourg law, saying Sept. 22 that Blavatnik could later file a motion to dismiss an amended complaint.

Transfers Sought

Creditors seek $300 million transferred by Lyondell to Access within 90 days before its bankruptcy and other payments to Blavatnik-controlled entities. The trustee claims that under Luxembourg law, Blavatnik and others, including his brother Alex Blavatnik, are personally liable for 100 million euros ($134 million) that Basell distributed to shareholders just before the merger was completed.

In March 2007, Merrill advised Access to buy Lyondell by first gaining a “toe-hold” position in its stock of as much as 14.9 percent, according to the complaint. Blavatnik then formed a new company, AI Chemical, to buy the shares at $32.11 each. the stock jumped 11 percent in May 2007, when he reported the purchase in a regulatory filing and said he might buy all Lyondell’s shares in a merger, the trustee said.

At about the same time, Smith rejected a proposal from Apollo Management LP for a management-led buyout, creditors said.

‘Interest Bill’

“If you do a leveraged buyout stand-alone and you try to finance this with the valuation you’ve got in earnings, there will come a year in the very near future that you won’t be able to pay the interest bill,” Smith said, according to the complaint.

Smith also said that bondholders might not be “enriched” by a leveraged buyout, because chemical markets could slow at the same time that the company took on more debt through the acquisition, the complaint said.

On June 7, 2007, Basell Chief Executive Officer Volker Trautz met with Smith at a private dinner in London at Blavatnik’s request, according to the complaint. Smith suggested a price of $48 a share for Lyondell if Blavatnik wanted to buy it, creditors alleged.

‘Inflated, Unreasonable’

“The ‘refreshed’ projections had changed so dramatically from the 2007 Long Range Plan, that the Lyondell Board knew or should have known that that the ‘refreshed’ numbers were inflated, unreasonable, and unachievable,” the trustee said in the complaint.

Blavatnik had fought a motion to unseal documents belonging to Access that were used in the revised complaint, saying that the trustee sought to “harass” him.

“With trial only months away, his goal is to litigate this case in the press rather than before this court,” Blavatnik said in court papers filed in July.

The bankruptcy case is In re Lyondell Chemical Co., 09-10023, and the adversary case is Official Committee of Unsecured Creditors v. Citibank NA, 09-01375, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

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