Reliance Industries' offer for LyondellBasell Industries is a serious one and should be closely considered by the bankrupt petrochemicals maker, a lawyer representing unsecured creditors said.
The Indian energy company made a cash offer for Lyondell reportedly worth $10 billion to $12 billion over the weekend.
Since filing for bankruptcy protection last January, LyondellBasell has been trying to reorganize its operations and also assuage unsecured creditors, who are suing the banks and other creditors who put together the company's 2007 leveraged buyout in a trial slated to start next month.
"The (creditors') committee believes that Reliance's reported interest is at a level sufficient to warrant very serious consideration from the debtor," said Ed Weisfelner, an attorney at Brown Rudnick who represents unsecured creditors.
Lyondell's current bankruptcy plan involves converting debt to equity and raising funds to exit bankruptcy protection, but the creditors' litigation could potentially derail that.
LyondellBasell said it would consider the Reliance offer as a "potential alternative" to maximize investor return.
A cash offer could ease the way for the company to exit bankruptcy, even if the litigation continues afterward. Lyondell needs a way out of bankruptcy as its debtor-in-possession funding is set to mature in early 2010.
However, the company said it would focus on resolving its creditors' disputes before altering its reorganization plan.
Lyondell filed for Chapter 11 protection largely due to the debt amassed as part of Basell's buyout of Lyondell in 2007. That deal, led by billionaire Len Blavatnik's Access Industries, was worth about $12.7 billion, just above Reliance's reported offer.
If Reliance is successful, it would gain greater access to the 19 countries where Lyondell currently operates and instantly make it one of the world's largest chemical makers.
Luxembourg-based LyondellBasell filed for bankruptcy after it was unable to meet its debt obligation as the recession cut demand for petrochemicals.
Reliance has been looking to take advantage of low valuations to expand internationally and analysts said the company has enough firepower to finance the deal.
It has $4 billion of cash, $8 billion of treasury stock, and if it doubled its current net debt-to-equity, it could borrow another $10 billion, Macquarie Research said in a note ahead of the bid.
The proposed deal would also give Reliance greater bargaining power in sourcing, and technology patents, analysts said.
LyondellBasell generates about 34 percent of its revenue from fuels, 30 percent from chemicals and 35 percent from plastics.
The petrochemical company has $27.1 billion of assets and $19.3 billion of debt, according to its bankruptcy filing.
The American Chemistry Council -- the chemical industry's trade group -- BASF and Dow Chemical declined to discuss Reliance's offer. DuPont could not immediately be reached for comment.
Bank of America is among the advisers for Reliance, sources told Reuters.
Shares of Reliance Industries rose 3.3 percent in Mumbai trading on Monday.