Companies cite inadequate regulatory framework in Gulf kingdom for the collapse of merger
Saudi International Petrochemical Co (Sipchem) and Sahara Petrochemical called off their proposed merger on Sunday, citing an inadequate regulatory framework in the kingdom for the collapse.
The tie-up, which would have created a firm with a market capitalisation of $5.7 billion at current values, would have been only the second ever example of a merger between two listed Saudi companies.
Talks have been ongoing since June last year between the two firms, with an announcement in December that a share-swap agreement was likely to be agreed in the first half of 2014.
However, in bourse filings on Sunday, the companies said that while they still saw a merger as in the best interest of shareholders, it couldn't be achieved under the current regulatory regime.
"The companies reached a conclusion that it is difficult to implement this merger under the current regulatory framework using a structure acceptable to both companies where both companies will continue to exist whilst achieving operational integration," the statement said.
They added talks had been postponed but they may look at different structures in future to see if a tie-up was possible.
The Capital Market Authority couldn't immediately be reached for comment.
Saudi Arabia's existing regulation on mergers and acquisitions was brought in by the CMA in 2007. Since then, there has been only one tie-up between listed firms: the 2009 merger by food group Almarai and Hail Agriculture Development Company.
"There's limited precedent of such transactions between the two listed companies in Saudi Arabia... regulatory issues could have been a concern," said Ankit Gupta, assistant vice president of research at NBK Capital.
Mergers across the Gulf are rare as consolidation is often scuppered by major shareholders who are unwilling to cede control of businesses except for very high price tags.
However, both firms have The Zamil Holding Co Group, one of the kingdom's most prominent family businesses, as a significant shareholder and this was expected to help the process.