Austria’s OMV AG is entering talks with Abu Dhabi National Oil Co. about combining some of their assets to create a chemicals and plastics giant.
(Bloomberg) — Austria’s OMV AG is entering talks with Abu Dhabi National Oil Co. about combining some of their assets to create a chemicals and plastics giant.
OMV’s executive board decided to pursue negotiations with state-owned Adnoc about a potential merger of Borouge Plc and Borealis AG, it said in a statement Friday, confirming a Bloomberg News report. They would combine the operations to become equal partners in a listed entity that will be a global player in the market for polyolefins — widely used in packaging — according to the statement.
Vienna-headquartered Borealis is 75% owned by OMV, with the remainder held by Adnoc. Abu Dhabi-listed Borouge is itself a partnership between Adnoc and Borealis and has a market value of about $22 billion.
Bloomberg News reported earlier this month that OMV and Adnoc were discussing the valuation and ownership structure for the potential deal and could reach the broad outlines for formal negotiations in the coming weeks. The combined company may be worth more than $30 billion, people with knowledge of the matter said at the time.
The merged entity may provide a platform for further acquisitions, according to Friday’s statement. OMV sees a “strong and compelling industrial logic” in a potential deal, Chief Executive Officer Alfred Stern said.
Combining the two businesses would let Borealis tap cheap feedstock and new growth markets, while bringing Borouge technical expertise, he said. Any deal would be subject to reaching an agreement on valuations of the various businesses.
OMV was down 1.8% at 4:33 p.m. in Vienna. Borouge closed Friday 2.7% higher, before OMV’s announcement, bringing its year-to-date gain to 7%.
Refining, Chemicals Hub
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. 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.
For OMV, it could accelerate 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. The company has faced mounting criticism over its historical connection with Russia and its long-term gas supply contract with Gazprom PJSC, which continues to cover more than half of Austria’s demand for the fuel.
Adnoc has been busy hunting for deals in this space. Chief Executive Officer Sultan Al Jaber last month made a preliminary $12 billion takeover approach for German polymers producer Covestro AG, Bloomberg News has reported. Even though the target’s management rejected the initial proposal as too low, the Mideast firm is continuing its pursuit of a potential takeover, people familiar with the matter said previously.
Adnoc, which pumps almost all the oil in OPEC member UAE, plans to invest $150 billion to expand production capacity for crude, natural gas and chemicals. It’s also investing in low-carbon energy.
Combining Borealis and Borouge would simplify the ownership structure and is likely aimed at creating a stronger competitor to chemical rivals like Saudi Arabia’s Sabic, Bloomberg Intelligence analysts Salih Yilmaz and Darja Lema wrote earlier this month.
A merger could also 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.
–With assistance from Jonathan Tirone.
(Adds share prices in the seventh, company details from ninth paragraph.)
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.