Plastic fantastic

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So I hear SABIC's finally sealed the General Electric (GE) deal...

Yes, the US$11.6bn acquisition of GE Plastics has finally been agreed. Why the interest?

Well it's been a while since they've decided to sell that division, hasn't it?

GE made the announcement in January 2007 to sell its plastics division, at a price between US$8bn and US$10bn.

Didn't SABIC also previously make a few acquisitions in Europe?

You're spot on. Its acquired DSM Petrochemicals in Europe and Huntsman Petrochemicals in the UK. The GE deal is another step in SABIC's growth and diversification plans to become one of the leading manufacturing companies in the world.

But why did GE go for SABIC's offer?

Well, according to GE chairman Jeffrey Immelt, SABIC offered the best price and is one of the world's fastest-growing companies, able to expand GE Plastics.

Now, after the acquisition, where's SABIC going to take the company?

SABIC has a long-term strategic interest in GE Plastic's employees, customers, plants and technology. It will retain local employees and will leave GE Plastic's US operations intact under Brian Gladden, the GE executive tasked with becoming its new CEO.

Funny question I know, but what does GE Plastics specialise in, exactly?

It's a US$6.6bn worldwide supplier of plastic resins used in automotive, healthcare, consumer electronics, transportation, performance packaging, building and construction, telecommunications, and optical media.

That's big...

It's huge. It's got 10,300 employees in 60 locations across the world.

And it's US-based?

Indeed it is. Its headquarters are in Plastics Avenue in Pittsfield, Massachusetts.

And it made a net profit of US$674m for the fourth quarter of 2006, which is not bad at all. So why's GE ditching it?

You know more than I thought. Well, I heard GE's trying to exit slow-growing volatile businesses, and that the company doesn't go hand in hand with Immelt's long-term plans.

Has the deal been finalised then?

Closing the deal is still underway as regulatory approval is involved. It's expected to be completed by the third quarter of this year.

And the proceeds of the sale? What does GE plan to do with those?

After GE gets its hands on the US$9bn net after-tax proceeds, it will pour them into re-launching its current stock buyback and increase its 2007 plans for share repurchase from US$6bn to US$8bn. As for the US$1.5bn after-tax gain generated by the deal, GE plans to use that for fund restructuring across the company's businesses as well as some key share repurchases.

What about GE Plastic's shares?

I never thought you'd ask. It looks quite good so far; after the deal was announced shares rose 14 cents to US$37.10 per share.

What happens next?

GE Plastic's going to be renamed and re-branded and SABIC's planning to integrate GE Plastic's technology and product line into its operations and markets.

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