LyondellBasell announced a shareholder-friendly $2.6B special dividend ($4.50/share). I believe this reflects management’s confidence in the company’s financial condition and substantial free cash flow in the medium and long term. Management indicated in its filing the intent to seek an investment grade rating over time. These actions demonstrate why the shares deserve to trade at a higher valuation. At present there is extreme value with the shares trading at sub-4x EBITDA. The company has substantially deleveraged and the risks are nowhere near the same as during the financial crisis.
The cash tender offer is for $2.8B of secured notes which are due out in 2017. Lyondell has improved its near-term liquidity by growing cash balances and paying down credit lines. The company will be able to pay special dividends and have a sustainably better financial condition going forward. Total debt was abouot $6B in the recent quarter.
Using a normalized 5.5x EBITDA multiple – these shares will trade up to $40.