Saudi energy giant Saudi Aramco has signed a share purchase agreement to acquire a 70 percent majority stake in petrochemicals and chemicals company Saudi Basic Industries Corp. for $69.1 billion.
The shares are being purchased from the Public Investment Fund of Saudi Arabia in a private transaction, Saudi Aramco said in a March 27 statement, adding that it did not intend to purchase the remaining 30 percent publicly traded shares in Sabic.
The transaction is subject to certain closing conditions, including regulatory approvals.
Headquartered in Riyadh, Sabic reported a net profit of $5.7 billion in 2018, on $45 billion sales.
The transaction has been described by Saudi Armco President and CEO Amin Nasser as "a major step" in Aramco's downstream growth strategy of integrated refining and petrochemicals.
"Together we will create a stronger, more robust business to enhance competitiveness," he added.
"Sabic is a good strategic fit and a solid platform to support our continued investment for future growth in petrochemicals," said Abdulaziz Al-Judaimi, senior vice president, downstream, for Saudi Aramco.
Aramco, he said, "is pursuing partnerships and acquisitions to we create long-term value, and develop ground-breaking crude-oil-to-chemicals technologies."
In an analysis of the move, London-based Wood Mackenzie consulting firm said the combined entity would allow "truly global reach and market-leading positions across a strong vertically integrated portfolio of oil-to-chemicals."
Wood Mackenzie sees three pillars supporting the deal for both companies: vertical integration, geographical expansion and technology transfer.
The acquisition will help achieve Aramco's long-term strategy to convert 2 million to 3 million barrels per day of oil into petrochemical products by 2030.
The takeover, said the analysis, will make a wider collaboration possible while avoiding competition between the two companies, particularly where petrochemicals are concerned.
"The portfolio of the two companies aligns well," the London consulting firm added. "Expansion for Saudi Aramco into further downstream exposure offers protection in a lower oil demand outlook."
The combined entity, suggested Wood Mackenzie, could for instance work more efficiently on projects such as Saudi Arabia's crude oil-to-chemicals (COTC).
"Sabic has a strong and highly profitable base chemical production footprint in Saudi Arabia, based around several large ethane-based petrochemical projects. Saudi Aramco's activity in paraxylene investments is a chain where Sabic is largely absent. The resulting co-product benzene production will fit well with Sabic's engineering plastics business," the Wood Mackenzie analysis added.
Additionally, with its strong chemicals marketing in all major regions, Sabic can give heightened market access for new products developed under Saudi Aramco, or joint projects. These markets include Europe and China, where the company has carried out acquisitions and expansion projects.
"A combined Saudi Aramco/Sabic entity allows truly global reach and market-leading positions across a strong vertically integrated portfolio of oil-to-chemicals. Synergies and optimization across the combined global footprint are undoubtedly possible," the analysts pointed out.
The third key point of the deal, according to Wood Mackenzie, concerns Sabic's "very strong" petrochemical assets and technologies.
Formed in 1976, Sabic holds strong market positions in key petrochemical products such as polyethylene, polypropylene and ethylene glycol. The company is also a strong market player in the fertilizer and metals industries.
On the engineering plastics side, in September Sabic bought a 24.99 percent stake in Swiss chemical company Clariant International Ltd. The two companies currently are in the process of merging Sabic's specialties operations with Clariant's additives and masterbatches businesses.