Saudi Basic Industries Corporation (Sabic) is considering making another major acquisition five years after its takeover of the US’ GE Plastics for $11.6bn, according to market sources.
No details regarding potential targets are available, but sources say that if Sabic decides to pursue a company, it is likely to go after one with a large amount of its own licensed technology, especially in the speciality plastics sector.
“Many senior Sabic executives feel it is time for the company to make the next step if it is serious about becoming the largest chemicals producer in the world,” says one Middle East-based chemicals executive. “To do that, it will need a lot more of its own technology and making an acquisition of a company that has it already in place is the easiest way of achieving that goal.”
Unlike its global competitors, Sabic is 70 per cent state-owned and therefore has domestic responsibilities others do not have. Riyadh has directed Sabic to take the lead on its industrial diversification programme and the company is pushing ahead with several ambitious schemes in the speciality plastics sector, including the $3.4bn elastomers joint venture with the US’ ExxonMobil Chemical.
The establishment of facilities that produce speciality chemicals will in turn create opportunities for conversion industries to cluster around each new plant so it is this area where most industry executives believe Sabic will look for possible acquisitions.
“Most of the [speciality chemicals] companies that might be available for acquisition are in Europe or the US,” says the chemicals executive. “Both of these markets are not high growth, so any move by Sabic would be seen as a way to get hold of the technology and export that expertise to the kingdom and then, maybe in the future, to other markets in Asia with high growth potential, such as India or China. An acquisition would make sense from that perspective.”
Any potential acquisition will be different to Sabic’s deal in 2007 to buy GE Plastics. That deal was done with the intention of establishing Sabic as a global operator and was similar, albeit much larger in scale, to previous acquisitions. These include the purchase of the Dutch DSM’s petrochemicals business in 2002 and the $700m agreement to buy the US’ Huntsman’s UK operations in 2006.
Sabic has secured licensing arrangements with technology providers recently that indicate that it is trying to lock-in as much of its own expertise as possible. Deals, including the one signed in February 2012 with Japan’s Mitsui, will see Sabic licence technology to produce toluene diisocyanate (TDI) and methylene diphenyl diisocyanate (MDI), as well as work on developing the technology in the future. Others include one signed with Germany’s Linde to develop linear alpha olefins.
“You are going to see more of these deals being signed by Sabic in the future,” says a source working in the kingdom’s petrochemicals industry. “Sabic have been in discussions with numerous technology providers about licensing and could use it to plug the gaps in regards to any future technology.”
Which company could be subject to an acquisition bid by Sabic is speculation, but there are a few speciality chemicals producers that fall within the budget range of what Sabic is prepared to pay.
The US’ Huntsman and Celanese, Germany’s Lanxess and France’s Arkema, would all be on Sabic’s radar if it was to decide on making an acquisition. The US’ Bank of America Merrill Lynch is presently courting potential suitors for Huntsman, while Celanese is seen by market observers in the US as a potential cheap takeover target.
Arkema was cited in 2011 as a potential target for both Sabic and the US’ Du Pont and recent media reports in Europe have said the company could be sold for a fee of about $6.8bn, with DuPont and Germany’s BASF said to be interested.
Laxness seems to be more of an outside bid and has itself been eyeing potential acquisition targets over the past two years.
Sabic was not available for comment when contacted by MEED.