Petronas Acquires Italys FL Selenia

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Malaysias Petronas has signed an agreement to acquire Italian automotive lubricant manufacturer and marketer FL Selenia for 1 billion (U.S. $1.4 billion) from affiliates of U.S. investment firm Kohlberg Kravis Roberts and Co. L.P., which gives Petronas a major internal customer for the API Group III base oil plant it expects to open in Melaka, Malaysia, next year.

FL would consume quite a significant quantity of Melaka G3 base oil, Baharin Raoh, general manager of lubricants business for Petronas, told Lube Report. Melaka G3 base oil production would cater for other blenders as well.

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While FL Selenias most recent owners were private equity firms specializing in management buyouts, Raoh said its acquisition by Petronas is more of a long-term one. We have looked at various factors, and the deal is attractive, Raoh said.

The 1 billionprice tagannounced Thursday is almost20 percent more thanKKRpaid when it bought FL Selenia in 2005 from U.S.-based private equity group Vestar Capital Partners for 835 million. In October 2003, Vestar Capital Partners acquired FL Selenia for 670 million from private equity firm Doughty Hanson and Co. In 2000, Doughty Hanson bought it from Magneti Marelli, a Fiat joint venture auto components supplier, for 428 million British pounds (U.S. $498 million at the time of the acquisition).

FL Selenia markets lubricants for passenger cars, trucks, farm equipment and motorcycles, often through tie-ins with original equipment manufacturers. Based in Italy, the company has operations across Europe, South America and the United States. The entire management and staff of FL Selenia will remain with the company, according to Petronas. The transaction is subject to regulatory clearances.

In 2005, FL Selenia recorded 515 million (U.S. $725.6 million at todays exchange rates) in total revenue, including 271 million in Italy, 113 million in the rest of Europe, 64 million in South America, and 67 million in North America. Total volume in 2005 reached 405.4 metric tons per year, including 193.1 mt/y in Italy, 63.2 mt/y in the rest of Europe, 79.5 mt/y in South America and 69.6 mt/y in North America.

Petronas is Malaysias national oil company. In 2008 the company expects to bring online in Melaka a base oil refinery with capacity to produce 5,100 barrels per day of API Group III base oils and another 1,300 b/d of Group II.

Now Petronas can also find a home for its Group II/III base oils in FL branded lubricant products, Geeta Agashe, director of the petroleum and energy practice at Little Falls, N.J.-based consultant Kline and Co., told Lube Report. FL branded products backed by their technology can and will be introduced by Petronas in Asia.

The acquisition is a good way for Petronas to realize the global aspirations of its lubes business, Agashe said, explaining that it adds FL Selenias special expertise and geographic strength in Europe, South America and the United States to Petronas existing lubricants business in Malaysia, China, Thailand, Japan, Indonesia, Switzerland and South Africa.

We believe that this acquisition will add critical mass to Petronas lubricant business plus provide Petronas with inroads at some leading OEMs such as Fiat, Iveco, New Holland and Piaggio, on both the commercial automotive – primarily agriculture – and consumer automotive side of the business, she said.

Petronas had an existing agreement under which FL Selenia markets Petronas fully synthetic Syntium in some parts of Europe, while Petronas markets FL Selenias products to some OEMs in China. This will take the Syntium brand and make it more global, Agashe added.

Petronas said the acquisition provides it with a better position to further penetrate high-growth Asian lubricants markets.

FL Selenia was originally established in 1912 as part of Fiats lubricant division with the aim of manufacturing first fill lubricants for all Fiat vehicles. It entered the Italian market in 1929. In 1976, the company became independent and autonomously managed. Although it left the Fiat Group when it was sold to Doughty Hanson in 2000, it continued to derive a large amount of its revenue from factory-fill and aftermarket sales for the Italian carmaker.

Companies acquired by FL Selenia over the years included, in 2000, U.S.-based Viscosity Oil, supplier of hydraulic transmission fluid for agricultural equipment, from Pennzoil-Quaker State; in 2003, Rondine Azienda Petrolchimica, an Italian toll blender of base oils, industrial oils, lubricating greases and a wide range of petroleum specialties; and in 2005, Misal Arexons, an Italian company producing chemical products for the automotive sector.

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