Abu Dhabi, Austria’s OMV in talks to form US$30bil chemicals giant

The owners are discussing the potential valuation and ownership structure of a combined entity and may reach the broad outlines for formal merger negotiations in the coming weeks, sources said. — Bloomberg

DOHA: Abu Dhabi and Austria’s OMV AG are exploring a combination of Borouge Plc and Borealis AG to create a chemicals and plastics company worth more than US$30bil (RM139.57bil), people familiar with the matter say.

The owners are discussing the potential valuation and ownership structure of a combined entity and may reach the broad outlines for formal merger negotiations in the coming weeks, according to the sources.

Talks have been on-and-off for several months and could still be delayed or fall apart, they said, asking not to be identified because deliberations are private.

Vienna-based Borealis is 75% owned by OMV, with the remainder held by Abu Dhabi National Oil Co (Adnoc).

Abu Dhabi-listed Borouge is itself a partnership between Adnoc and Borealis, and has a market value of about US$22bil (RM102bil).

The two parties are discussing a possible valuation of about US$10bil (RM46.52bil) for Borealis, including its Borouge stake, the people said.

After taking into account potential synergies, the overall valuation of the combined entity could exceed US$30bil (RM139.57bil), the people said.

The exact value and ownership structure remain the two key hurdles for any agreement and may still change, they added.

The mooted transaction would dovetail with a wider plan by the United Arab Emirates to attract investment and technology as well as build new industries and manufacturing capabilities.

State-owned Adnoc has been expanding a refining and chemicals hub in Abu Dhabi to find additional outlets for its oil and natural gas production and make the plastics that go into consumer goods.

Combining Borealis and Borouge would simplify the ownership structure and is likely aimed at creating a stronger competitor to chemical rivals like Sabic, according to Bloomberg Intelligence analysts Salih Yilmaz and Darja Lema.

“The potential deal to combine the two companies could bring notable synergies,” they wrote in a research note.

The Abu Dhabi energy group and OMV are still discussing whether they would have the same stake in the merged entity, though they envision the two parties having equal control of the board and decision-making capabilities, according to some of the people.

Under one scenario, both the Mideast investor and Austrians would eventually hold similar stakes that are less than 50%, with free float on the stock exchange making up the rest, though Adnoc could end up with a slightly larger share, they said.

The Austrian side would also prefer to have the headquarters in Europe, where most of the operations are, even if the combined entity was listed in Abu Dhabi, the people said.

Representatives for Adnoc and OMV declined to comment. Spokespeople for Borealis and Borouge referred queries to their owners.

Borouge went public last year in a US$2bil (RM9.30bil) initial public offering. The company, which makes specialty plastics for manufacturing and consumer goods, reported US$6.7bil (RM31.17bil) in sales in 2022. Borealis employs about 7,600 people and makes plastics, chemicals and fertilisers.

It had total sales and other income of €12.2bil (US$13.3bil or RM61.88bil) last year, according to the Borealis website.

A combination would give the companies significant scale to compete, simplify the ownership structure and create more flexibility to invest and expand in Asia, where demand for chemicals and plastics continues to rise.

Still, given the various stakeholders, including governments, reaching a final agreement is not ensured.

The possible deal comes at a pivotal time for OMV, whose biggest shareholders are the Austrian government followed by Abu Dhabi.

OMV last year announced plans to transform itself from one of eastern Europe’s biggest fossil-fuel companies to an integrated green enterprise built around chemicals, recycling and electric vehicle infrastructure.

This February, it confirmed a Bloomberg News report that it’s considering selling some exploration and production assets as part of that shift.

Adnoc has been busy hunting for deals in this space. Chief executive officer Sultan Al Jaber last month made a preliminary US$12bil (RM55.83bil) takeover approach for German polymers producer Covestro AG.

The target’s management rejected the proposal as too low, though signalled it’s open to discussing the deal at better terms.

The Abu Dhabi firm is continuing its pursuit of a potential Covestro takeover and has been studying its next steps, according to people with knowledge of the matter.

Adnoc is likely to decide as soon as the next couple weeks whether to increase its offer for Covestro, the people said. A spokesperson for Covestro declined to comment.

Adnoc plans to invest US$150bil (RM697.88bil) to expand production capacity for crude, natural gas and chemicals. It’s also investing in low-carbon energy. — Bloomberg

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