Daily Telegraph: Shell's LPG auction fails to generate much heat: “Shell declined to comment that interest for the LPG business had been below the levels the firm was looking for.”: Monday 26 December 2005

By Christopher Hope, Industry Editor (Filed: 26/12/2005)

Royal Dutch Shell's attempt to auction its bottled gas business is hanging in the balance after bids came in at around €1billion (£685m) lower than the oil major expected.

Three bidders are left in the race for Shell's Liquefied Petroleum Gas (LPG) arm, which has been on the block for more than a year.

The slow pace of the auction has already caused at least one private equity house - Blackstone - to withdraw in search of more excitement elsewhere.

Last week, final bids came in from BC Capital, a consortium of Bain and PAI Partners, and Repsol, the Spanish oil company. Goldman Sachs and Kohlberg Kravis Roberts have pulled out. The bids are believed to have been under €1.5billion (£1.03billion), according to insiders. When Shell started the auction in September 2004, it wanted €2.5billion for the unit.

Since then there has been a sharp downturn in the LPG business and sources said that even €1.5billion may be too high a price. This year the unit is anticipated to have underlying earnings of €240m, which are expected to decline further in 2006.

"It is not an €2.5billion business, although Repsol have been known to overpay in the past. If Shell had the choice, they would probably not sell to a competitor," said a source close to the matter.

Last December, Repsol bought Shell's Portuguese LPG business for around €100m. That deal was cleared by the European Commission but a deal for the entire unit may be subject to competition scrutiny.

If Shell decides that the level of the bids is too low, it could decide to leave its LPG unit as a stand-alone business. It has spent the past year restructuring the business away from the main group. The LPG arm employs more than 3,000 people.

The bottled gas is used for heating and vehicle fuel. It is popular with farmers, who use the gas to warm pigsties or to dry grain, and people living in rural areas, who keep large outdoor gas tanks. It is also often used to fire outdoor heaters for bars and gardens.

Shell declined to comment that interest for the LPG business had been below the levels the firm was looking for.

A spokesman said: "The process is on track but we are not commenting on bidders or the process. We will take a decision if the values offered are sufficiently high in order to go ahead with this divestment." A decision is expected early next year.

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