Sabic acquires GE Plastics for $11.6 billion

Almost certainly it will go down as the largest move in the industry this year. Sabic expects to complete its purchase of GE Plastics in the third quarter.
Automotive accounts for about two-thirds of GE Plastics’ revenue.

Abdullah Bazid, COO of Sabic Europe, Sabic CEO Mohamed Al-Mady, and GE CEO Jeff Immelt put their signatures on the purchase agreement.

Global petrochemicals supplier Saudi Basic Industries Corporation (Sabic; Riyadh) will acquire GE Plastics (Pittsfield, MA) for $11.6 billion in cash, a move that propels Sabic’s plastics business from the lower tier of the plastics pyramid, as a supplier of polyolefins, PVC and polyester, deep into the markets for engineering thermoplastics.
This is Sabic’s third large plastics acquisition, and certainly its boldest. In 2003 it acquired Dutch supplier DSM’s European polyolefins business, and late last year acquired Huntsman’s European commodity chemicals business. Sabic is the fourth-largest global supplier of polyolefins: #3 for polyethylene and #6 for polypropylene. Sabic was founded in 1976 by the Saudi Arabian government, which still owns 70% of Sabic shares with the remainder held by private investors in the Gulf region.
With GE Plastics, it grabs a much larger, and more global, supplier. Sabic’s purchase is a big bet on the automotive industry, from which GE Plastics derives some $4.4 billion of its sales. It’s also a huge bet on polycarbonate, which account for more than half of GE Plastics’ sales. GE Plastics had 2006 profit of $674 million on revenues of $6.645 billion. Mohamed Al-Mady, vice chairman / CEO of Sabic, in a statement, said, “This business is complementary to our existing business without any overlaps. Sabic’s intention is to grow the business globally.” He added, “Sabic is well-positioned to do this, while adding high-performance plastics to the product range Sabic currently offers to customers.” The acquisition, subject to regulatory approvals, should be complete by the third quarter of 2007. GE Plastics is closely identified with the firm’s Lexan polycarbonate (PC) but also supplies ABS, SAN, ASA, PPE, PC/ABS, PBT and PEI, as well as the LNP line of specialty compounds. 
The acquisition appears a good fit for Sabic; is it good news or bad for GE Plastics? Speaking during a press event in Antwerp in early June, Heiner Markhoff, president of GE Plastics Europe, opined that, “It was the best thing that could have happened to us,” from a strategic fit as well as when compared to GE Plastics’ possible future under a private-equity investor.
Naturally, some others were more critical. One of them, Uwe Wascher, former CEO of GE Plastics Europe, allowed that the Sabic purchase probably was the best outcome for GE Plastics under the circumstances, but was vehement in stating that the plastics business at GE had been poorly managed in the last years, with its poor results essentially forcing GE to sell it. He was especially critical of GE Plastics’ inactivity in China, where it has only a compounding plant acquired in the LNP purchase in 2002.
GE Plastics recently cancelled plans to build a PC plant in China, but Khaled Abdullah Al-Luhaidan, product manager, polycarbonate, at Sabic, told MPW in an interview at the Chinaplas show in May that his company still plans construction of a 260,000-tonnes/yr PC facility in Saudi Arabia with completion slated for 2009.
Bayer MaterialScience (Leverkusen, Germany), just ahead of GE Plastics as the world’s leader in PC supply, is doubling capacity at its 100,000-tonnes/yr PC plant in Shanghai next year and recently brought on line 7500 tonnes/yr of capacity for fiber-reinforced PC compounds, boosting capacity there to 45,000 tonnes/yr. Rainer Retting, head of the PC business unit at Bayer, says, “Globally the industry needs to add 200,000 tonnes/yr of additional PC capacity to keep pace with demand. We are currently evaluating our options for adding a further 200,000 tonnes/yr of capacity in the Asia Pacific by 2009–10.”
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