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Wed 8 Apr 2009 04:00 AM

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To be or not to be?

Now is the time to seize the initiative and gain a global footprint.

To be or not to be?
Investments from the Middle East are throwing a lifeline to overstretched and under-funded US companies.

Two months after the collapse of the joint venture project between Kuwait Petroleum Industries Company (PIC) and Dow Chemical to establish the K-Dow Company, a new acquisition deal has appeared on the scene.

Abu Dhabi's sovereign wealth fund, International Petroleum Investment Co (IPIC), has stepped up to the plate and is giving a message to the world that the region will continue on its march to pole position on the global petrochemical stage.

The IPIC acquisition of the Canadian NOVA Chemicals, estimated at around US$500 million, follows the famous $11.6bn acquisition deal of the GE Plastics business by SABIC back in 2007.

The acquisition would increase IPIC's footprint in North America, where it has only a marginal presence through its shareholding in Borealis - one of Europe's largest polyolefin producers.

Success in the petrochemical industry comes from balancing two principal factors. The first is the availability of feedstock, and the second is the acquisition and deployment of cutting-edge technology.

As the Middle East is blessed with an abundance of oil and gas, and controls more than 40% of proven oil reserves, matching this natural abundance with technology acquisitions will propel local industry players to the fore, in an area where European and American companies have been investing for years.

With the downturn hitting the industry, a lack of feedstock, and growing environmental pressures, western companies find themselves facing the question "to be or not to be?" To exist or to vanish?

Offers from the Middle East to take over these companies come as a saving grace for producers in the US and Europe. More so than ever, the industry can only support the strong and the rich, and is no place for the weak and troubled.

The show of mergers and acquisitions by regional producers will continue and may indeed intensify in the coming months, especially now that many companies in different parts of the world are facing a tough period, and are more willing for M&A deals than ever before. The climate might be rough, but now is the moment to seize the initiative and for regional producers to leave an indelible and very sizable footprint on the global industry.

Abdelghani Henni is the editor of Petrochemicals Middle East.

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