Short Shots: From the industry floor 20758

GE–Plastics purchased by Saudi Basic

On May 21, General Electric chairman and CEO Jeff Immelt announced that GE–Plastics will be purchased by Sabic (Saudi Basic Industries Corp.) for $11.6 billion. Sabic, the fourth-largest polyolefin producer worldwide, last year purchased the basic chemicals units of both Huntsman UK and DSM Europe, and operates Sabic Americas in Houston. Regulatory approval of the GE–Plastics sale is expected by Q3 this year.

Sabic is often listed as the world’s largest chemical company by market value. While the company doesn’t supply its own petroleum or natural gas, it is vertically integrated with energy producer Saudi Aramco, a former U.S.-Saudi joint venture that became 100% Saudi government-owned in 1980. From this source, it is able to buy inexpensive feedstocks to produce ethylene, butadiene, and benzene.

Rising costs for benzene were mentioned by General Electric CEO Immelt last year as being responsible for GE–Plastics’ lackluster performance. At a mere $674 million, 2006 profits at GEP were down 22% from 2005.

Most analysts (and other potential buyers) estimated that GE–Plastics would be sold for $8 billion-$10 billion, making the actual purchase price something of a premium. Together, the two companies employ 30,000 people worldwide.

As to whether there will be large-scale changes once the Saudis take ownership, sources at GE–Plastics note that in the deals previously made to acquire both DSM and Huntsman, Sabic has continued to rely on existing management teams to run the business. Brian Gladden, who currently serves as vice president for Lexan and global products, will become president and chief executive of the new business, which Saudi Basic Industries will rename. The same sources say it is too early to conjecture about the name of the new entity. Charlene Begley, currently chief executive of GE–Plastics, will assist in the transition but will remain with GE after the sale, reporting to Jeff Immelt.

Saudi Basic Industries describes itself as a public company based in Riyadh; however, the Saudi Arabian government owns 70% of its shares with the remaining 30% held by private investors in Saudi Arabia and other countries in the Persian Gulf.—MM