Sabic/Eni deal stumbles on regional pressures

17 April 2002 17:50  [Source: ICIS news]

Officials at Eni and its chemical subsidiary EniChem are far from happy. The Eni/Sabic deal looks really dead this time. There has been some talk of negotiations resuming later this year but it is difficult realistically to imagine Sabic closing an agreement in Europe of the scope talked about in recent months. Sabic has a lot of work to do absorbing its purchase of DSM Petrochemicals. It hardly has the management time let alone the desire to rapidly complete negotiations with the Italian energy company.

Eni still wants to get out of petrochemicals and is surely flexible on which businesses and plants it sells and at what price. It has indicated that the deal with Sabic – which was for a 51% stake in the petrochemicals assets put by EniChem recently into Polimeri Europa – has stumbled on concerns about environmental liabilities at the Gela refinery in Sicily yet the deal has looked shaky for some time.

Saudi Arabian government controlled Sabic has always been concerned about environmental liability at the former EniChem sites but reportedly had completed due diligence. Closure of the Gela refinery has been avoided but only after national government intervention. The refinery supplies feedstock for Gela’s 250 000 tonne/year ethylene cracker.

Sabic has to digest a lot with DSM Petrochemicals but on the face of it the DSM business looks much easier to absorb than even just the controlling interest in Polimeri Europa. The two deals were and are very different in size and scope. DSM Petrochemicals is focused in northwest Europe; the former EniChem petrochemical assets are much more widespread. The recent national strike in Italy and the Polimeri Europa strike in France indicate that Sabic could have found itself facing difficult employment issues had the deal gone through.

Following the asset transfer from EniChem, Polimeri Europa has olefins, aromatics, petrochemical intermediates, styrenics, elastomers and polyethylene (PE) assets; it is a big and broadly based petrochemicals producer. Sabic was not the only runner in the race to acquire the company but clearly well in front and widely expected to complete what have proved to be protracted talks sometime soon.

Nevertheless, the agreement with DSM, finalised earlier this month has overshadowed the talks and raised further questions about the likelihood of the deal going through.

In many respects Sabic/Polimeri Europa has stumbled on management and employment issues as much as it has on the relatively wide dispersion of the former EniChem petrochemicals assets and their local political sensitivity. But taken together, the issues have proved to be the deal breaker. Sabic has opportunities to pursue elsewhere in the world and, given the DSM deal, finalising negotiations with Eni have become less of a priority.

Where Eni goes now is a big question but the saving grace may be that as the petrochemicals business climate improves globally the Polimeri Europa assets become somewhat more attractive. Other purchasers have a chance now that Sabic has stepped out of the running.

By: Nigel Davis
+44 20 8652 3214

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