September 10, 2007

Volume 85, Number 37

p. 11

Branching out

SABIC Has GE Plastics

Just three months after it was announced, the $11.6 billion deal is complete despite credit market turmoil

Alex Tullo

ONLY THREE MONTHS after first unveiling the deal, Saudi Basic Industries Corp. (SABIC) has completed its purchase of GE Plastics for $11.6 billion.

The business, renamed SABIC Innovative Plastics, makes engineering polymers such as polycarbonate, acrylonitrile-butadiene-styrene, polyphenylene oxide, and polybutylene terephthalate. It earned $674 million last year on sales of $6.7 billion.

The deal is a departure for SABIC, which traditionally focused on making commodity chemicals and fertilizers out of low-cost Saudi Arabian methane and ethane. In recent years, the company branched out geographically by acquiring European petrochemical businesses from DSM and Huntsman Corp. Today, SABIC is the 11th largest chemical company in the world, on the basis of 2006 chemical sales of $19.7 billion. It earned an operating profit of $8.4 billion during the same period, the chemical industry's largest.

Brian T. Gladden, the new CEO of SABIC Innovative Plastics, says the plastics unit and SABIC will enjoy synergies. For instance, SABIC is a merchant seller of benzene in Europe. Rising costs for this feedstock are among the reasons General Electric decided to sell the plastics unit.

Moreover, "SABIC is making investments in some of the key product lines that we are in," Gladden tells C&EN. SABIC owns a 35% stake in Saudi Kayan Petrochemical, a joint venture that is building a large polycarbonate plant in Saudi Arabia. SABIC Innovative Plastics will market the output of the plant, which Gladden claims will be the "lowest cost polycarbonate asset in the world."

Earlier this year, GE shelved plans to build a polycarbonate plant in China. "With Saudi Kayan coming, an asset in China becomes less important," Gladden says. GE also recently decided to close a small polycarbonate plant in Japan.

Gladden contends the new company will lose little by separating from GE. SABIC has signed a five-year contract to fund R&D projects at GE's corporate research center in Niskayuna, N.Y. "We will be a customer of the research center and will have research activity going on there in the future as part of SABIC," he says.

SABIC will be more open to acquisitions than was GE, which had not been in an expansive mood for some time, Gladden, who was a GE Plastics executive, notes. "We did not get a lot of support for inorganic growth opportunities," he says. Now, "we've already begun to look, and SABIC has encouraged us to look." In particular, he adds, the company is focused on acquiring high-performance engineering plastics lines. Tobias Mock, an analyst at debt-rating firm Standard & Poor's, says an increase in the share of specialty products in the firm's portfolio should boost profitability.

SABIC says it's pleased that it could finance the deal amid the subprime loan crisis, which has made capital scarce. The company was able to sell $1.5 billion in bonds at a 9.5% interest rate several weeks ago to help pay for the deal.

"We were able to secure the required financing due to recognition of SABIC in the global financial and capital markets, sound business profile of SABIC Innovative Plastics, and its world-class, diversified product portfolio," says Mohamed H. Al-Mady, SABIC's CEO.

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