If recent media reports are accurate, the Saudis are coming to Pittsfield.
The Wall Street Journal and Bloomberg LP's news service each reported May 18 that Saudi Basic Industries Corp. - the petrochemicals firm majority-owned by the Saudi Arabian government - has beat out other bidders and will buy Pittsfield, Mass.-based GE Plastics for $11 billion.
Neither GE Plastics nor Sabic officials could be reached for comment. GE Plastics employs 11,000 worldwide and is a global leader in the production of polycarbonate, ABS and other engineering resins
The acquisition would be a big splash into North America for Sabic, which has acquired petrochemical businesses from Royal DSM NV and Huntsman Corp. in Europe and is planning a major site in China. The move also would represent a shift into higher-value plastic and chemical products for Sabic. The firm currently is a major producer of polyethylene, polypropylene and other commodity plastics, as well as feedstocks such as ethylene.
GE Plastics' parent firm - General Electric Co. of Fairfield, Conn. - put the unit up on the block earlier this year. GE Plastics generated sales of about $6.7 billion last year, but its profitability has been declining because of higher feedstock costs. The unit's 2006 profit of $674 million was down 22 percent from the prior year.
Industry insiders had expected GE Plastics to fetch a price of between $8 billion and $10 billion. According to published reports, other finalists in the bidding included plastics and chemicals firm Basell Polyolefins and private equity investment firm Apollo Management LP.
Sabic has been in an intensive growth mode for several years, as demand for its plastics and chemical products has soared in China and other parts of Asia. Saudi Arabia's massive oil and natural gas reserves give Sabic a major feedstock advantage vs. producers in other parts of the world. For example, its natural gas costs are under $1 per unit, while U.S. natural gas futures for July were near $8.40 per unit in early trading May 18.
In 2002, Sabic bought the European plastics business of DSM NV for $2 billion. Earlier this year, it bought a British plastics unit from Huntsman for almost $700 million. In China, Sabic is planning a $5 billion plastics and chemicals complex. Details of that project still are being worked out with the Chinese government.
Sabic's 2006 sales totaled about $23 billion - a jump of 11 percent vs. 2005. Its 2006 profit was up 6 percent to $5.2 billion, while its total production output climbed 5 percent to more than 108 billion pounds. Globally, Sabic ranks third in production of both high density and linear low density PE, with market shares of 5 percent and 7 percent. In ethylene, Sabic also ranks third globally with a 6 percent market share.
Higher prices for feedstocks such as benzene - a key precursor used in PC and ABS production - have hampered GE Plastics' profitability. Benzene prices were less than $1 per gallon for most of the 1990s, but rocketed up earlier this decade and remained above $3 in 2006. Benzene contract prices for May set a new record at $4.20 per gallon.
During its history, GE Plastics has had an impact on GE's leadership ranks. Superstar executive Jack Welch began his GE career in Pittsfield in 1960 and spent 11 years with the plastics business. He took over the top spot at the parent company in 1981.
Current GE CEO Jeff Immelt's stay in plastics also covered 11 years, spread out over two separate stints of a GE career that began in 1982. He took the helm at General Electric when Welch retired in 2001.
GE Plastics has remained active, even though its future has been unclear. The firm introduced a new product family of Extem-brand polyimides late last year. The high-performance materials are aimed at markets for defense, aerospace, automotive and other products.
In addition to being a major producer of specialty plastics, GE Plastics operates downstream plants producing plastic sheet and film. The facilities operate as GE Plastics Structured Products, which has estimated annual sales of $300 million. GE Plastics also includes GE Polymershapes, North America's largest distributor of plastic shape products such as rod, sheet and tubing.
The unit also is one of the 10 largest compounders in North America, according to industry estimates.
Overall, GE Plastics has production sites in Mount Vernon, Ind.; Burkville, Ala.; Parkersburg, W.Va.; Selkirk, N.Y.; Ottawa, Ill.; Bay St. Louis, Miss.; and Allentown, Pa.; and sites in Spain, the Netherlands, Brazil, Mexico, Japan, China and Thailand.