General Electric Co. is close to agreeing to sell its plastics division for almost $11 billion to Saudi Arabia's largest industrial company, Saudi Basic Industries Corp., according to people familiar with the matter.
If the deal is completed, the Saudi company known as Sabic, of Riyadh, will have bested Basell of Hoofddorp, Netherlands, after a long auction process, these people said. Basell is owned by Access Industries. Several private-equity firms were also interested at one time.
A sale price of $11 billion, as first reported yesterday on WSJ.com, would be more than many analysts had expected the plastics unit, which posted sales of $6.6 billion last year, to fetch. When the Fairfield, Conn., conglomerate officially started shopping the unit this year, industry experts estimated the unit would go for $8 billion to $10 billion.
With the plastics unit, Sabic will form a global giant in the production of materials used to make thousands of everyday items, including bottles, food and beverage packaging, grocery bags, toys and car parts.
Sabic is one of the largest non-oil companies in the Middle East. The company reported an 11% increase in revenue for 2006 to 86.5 billion riyals ($23.06 billion). It has manufacturing and research facilities around the world, including a large technology center in Sugar Land, Texas. Its European operation, one of Europe's largest petrochemical makers, is based in Geleen, Netherlands.
Some analysts expected Sabic to be the lead contender because of GE's close ties to the government, including billion-dollar contracts to sell gas turbines for new power plants in Saudi Arabia. GE is also opening a medical-equipment factory in Saudi Arabia and has announced a joint venture with a Saudi company to make specialty chemicals.
People familiar with the matter say they don't expect Sabic would run into political difficulties because the GE assets aren't involved with defense or security. Last year, Dubai Ports World failed in its bid last year to manage operations in several U.S. ports because of security concerns.
Basell is the world's largest maker of polypropylene. It is a former joint venture between Royal Dutch Shell PLC and BASF AG of Germany, and was purchased in 2005 by Access Industries, a holding company controlled by Len Blavatnik, a Russian-born billionaire who made his fortune in the oil industry.
GE spokesman Gary Sheffer declined to comment. A Basell spokesman declined to comment. A Sabic spokesman couldn't be reached.
The sale of the plastics unit is part of Chairman Jeffrey Immelt's overhaul of GE's portfolio. Since taking over in 2001, he has sold slow-growth and volatile business including GE's insurance units. In the fall, GE sold its silicone and quartz business for $3.4 billion to Apollo Management LP, a private-equity firm that also looked at the plastics unit, people familiar with the situation say. The advanced-materials business had sales of about $2.5 billion.
For GE, the sale will mark the exit from a business where former GE Chairman Jack Welch made his name. Mr. Immelt also worked in the plastics unit in the 1980s and 1990s as he rose through the conglomerate.
The unit has an important place in GE history for its many material inventions. One of the most widely known was by a GE scientist in the 1950s who discovered a hard plastic called Lexan, later used in the helmets worn by astronauts who walked on the moon.
But the unit's profit fell in recent years, as plastic became more of a commodity and the cost of raw materials rose. In 2006, operating profit at the plastics division fell 22% to $674 million. The unit has about 11,000 employees in 60 locations world-wide.
p.A3
General Electric Inc. has agreed to sell its plastics business to Saudi Arabia's largest industrial company, Saudi Basic Industries Corp., for $11.6 billion.
Sabic bested Basell of Hoofddorp, Netherlands, after a long auction process. Basell is owned by Access Industries. Several private-equity firms also had expressed interest.
The plastics unit posted sales of $6.65 billion last year. When the Connecticut conglomerate officially started shopping the unit this year, industry experts estimated the operation would go for $8 billion to $10 billion.
"This sale is the right move at the right time for GE shareowners," said Chairman and Chief Executive Jeff Immelt. "We received a good price from a respected global company in a highly competitive bidding process. We will use the proceeds to fund the stock buyback and strengthen the company through restructuring."
GE will receive after-tax proceeds of about $9 billion, which will principally be used to relaunch the company's stock-buyback effort and increase this year's planned purchase to as much as $8 billion from the planned $6 billion. The firm will record an approximate gain of $1.5 billion, which will be used to cover restructuring costs and the buyback.
The divestiture is part of Mr. Immelt's overhaul of the company's portfolio. Since taking over in 2001, he has sold slow-growth and volatile business. In the fall, GE sold its silicone-and-quartz business for $3.4 billion to Apollo Management LP, a private-equity firm that also looked at the plastics unit, said people familiar with the situation.
The plastics unit has an important place in GE history for its many inventions. One of the most widely known was by a GE scientist in the 1950s: a hard plastic called Lexan, later used in the helmets worn by astronauts who walked on the moon.
The unit's profit fell in recent years, as plastic became more of a commodity and the cost of raw materials rose. In 2006, operating profit at the plastics division fell 22% to $674 million. The unit has 10,300 employees in 60 locations world-wide.
With the plastics unit, Sabic will form a global giant in the production of materials used to make thousands of everyday items, including bottles, food-and-beverage packaging, grocery bags, toys and car parts.
Sabic has the biggest market capitalization of any Middle Eastern company at $80 billion. The firm reported an 11% increase in revenue for 2006 to 86.5 billion riyals ($23.06 billion). It has manufacturing-and-research facilities around the world. Its European operation, one of Europe's largest petrochemical makers, is based in Geleen, Netherlands.
Some analysts expected Sabic to be the lead contender because of GE's close ties to the government, including billion-dollar contracts to supply gas turbines for new power plants in Saudi Arabia. GE also is opening a medical-equipment factory in Saudi Arabia and has announced a venture with a Saudi company to make specialty chemicals.
People familiar with the matter told The Wall Street Journal they don't expect Sabic would run into political difficulties because the GE assets aren't involved with defense or security.
Brian Gladden, who currently serves as vice president of GE Plastics' resin business, will be president and CEO of the new business, which will be renamed upon completion of the transaction. Charlene Begley, currently president and CEO of GE Plastics, will move to a corporate role at GE.
Basell is the world's largest maker of polypropylene. It is a former joint venture between Royal Dutch Shell PLC and BASF AG of Germany, and was purchased in 2005 by Access Industries, a holding company controlled by Len Blavatnik, a Russian-born billionaire who made his fortune in the oil industry.
----Kevin Kingsbury of Dow Jones Newswires contributed to this story.
|
To
send Mindfully.org your comments, questions, and suggestions click
here |