Petrochemicals giant Saudi Basic Industries (Sabic) is to acquire General Electric’s plastics unit for $11.6 billion, the company announced on Monday.
The deal is one of the largest the Gulf region has ever seen and will significantly increase Sabic’s presence in the US, the biggest market in the world for petrochemicals, as well as boosting its numbers in Europe and Asia.
The company currently has more than 17,000 employees worldwide. With the acquisition of GE Plastics, its workforce will swell to almost 30,000 people.
The agreement will give Sabic considerable marketing expertise and access to technology. GE Plastics makes resins used in industries such as automotive, healthcare, consumer electronics and transportation.
“As a global operating company, Sabic has a long-term, strategic interest in the people, communities, customers, products, plants and technology of GE Plastics,” Mohamed Al-Mady, Sabic vice chairman and CEO, said in a statement announcing the deal.
“This acquisition represents another important step in Sabic growth and diversification to become one of the world’s leading manufacturing companies,” he added.
Jeff Immelt, chairman and CEO of GE, said: “GE selected Sabic as the winner of this auction both for price as well as the company’s premier position as one the world’s fastest growing, innovative companies.”
The $11.6 billion price tag is higher than the $8-10 billion some analysts had estimated, with Sabic also agreeing to take on GE Plastics liabilities.
GE announced it was going to sell its poor performing plastics unit in January as part of efforts to focus on faster-growth industries. GE Plastics profits dropped 22% year-on-year in 2006 to $674 million.
GE will receive net after-tax proceeds from the sale of approximately $9 billion. The proceeds will be used to re-launch its current stock buyback, increasing this year’s planned share repurchase from $6 billion to $7-8 billion.
The sale will generate an approximate after-tax gain of $1.5 billion for GE, which will be used to fund restructuring across its businesses and the share repurchase.
The closing of the transaction is subject to customary conditions, including the receipt of regulatory approvals, and is targeted for the third quarter.
The deal follows Sabic’s purchase last year of the UK’s Huntsman Petrochemicals for $700 million and the 2002 acquisition of European firm DSM for $2 billion.
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