Whom to blame?

The recent statement by Mohamed Al-Mady, CEO and vice chairman of Saudi Arabia Basic Industries Corporation (SABIC) about the poor timing of GE Plastics acquisition poses a lot of questions, as the US$11.6bn paid for the deal is such a huge sum of money.

The acquisition of GE Plastics was not a mistake, rather a necessity and strategic move from SABIC, permitting organic growth for the company especially after reaching certain maturity in the local and regional market.

As we know, the petrochemical sector is a dynamic industry. Companies review their performance periodically and assess the market and competitors frequently. It is a world where there is no place for the small and the poor. A combination of cheap feedstock and technology put the company on top of the industry.

According to SABIC’s 2020 vision, the company has ambitions to become the number one player in the petrochemical industry, worldwide, and was on its way.

The acquisition of GE Plastics was in accordance with this vision, as it gives SABIC a foothold in the US along with an excellent existing marketing network. It also provides new technology permitting SABIC to enter new fields of business with specialised products such as polycarbonate to diversify its business portfolio.

Additionally, SABIC is no newcomer to merger and acquisition deals. It was through M&A that the company acquired DSM and Hentsman in the past. However, the acquisition of the GE unit differs from previous acquisitions, as it opened new technology opportunities, and much wider markets to the Saudi firm.

The announcement from Al Mady concerning the wrong timing of the deal certainly leads to questions about the role played by financial advisors. Clearly there were macroeconomic indicators which the company and its financial advisors should have taken into consideration before proceeding with the deal and parting with such an astronomic sum of money.

The GE plastic acquisition for SABIC is long term investment according to Mutlaq Al-Morished, the vice president of SABIC corporate finance, and this statement should be taken into consideration, as the yields of this deal won’t appear on the short or the medium term, but eventhough we should know who is behind this wrong timing.

Abdelghani Henni is the editor of Petrochemicals Middle East.

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