Strategic bids for GE plastics unlikely - HSBC

22 January 2007 14:42  [Source: ICIS news]

TORONTO (ICIS news)--GE Plastics is most likely to go to a private equity bidder while strategic bids from the chemicals sector are less likely, analysts at Hong Kong and Shanghai Bank (HSBC) said on Monday.

 

HSBC looked at a large number of US and international chemical firms that might be interested in GE’s plastics operation following General Electric’s (GE) confirmation on Friday that it was looking to sell the business.

 

The very size of the potential transaction, $9-10bn (€7-8bn), should rule out most small- and mid-cap strategic buyers from the chemicals industry, the analysts said.

 

Importantly, the two potential mid-cap buyers that appear to have the best fit with GE Plastics – Lanxess and Celanese – are highly levered at the moment, they added.

 

Among the large-cap majors, DuPont and Bayer would be able to get synergies from GE Plastics. However, both are not likely to be interested, HSBC said.

 

Bayer is diversifying away from chemicals and DuPont seems to be committed to avoiding larger acquisitions.

 

A bid by Dow Chemical would likely meet with anti-trust issues in the US, the analysts said.

 

HSBC also looked at the possibility of bids from Saudi Arabia’s SABIC and India’s Reliance Industries, but said a bid by either company was unlikely, adding: “We believe these companies would have only a minimal strategic fit with GE Plastics.”

 

The analysts did not entirely rule out a bid by BASF, which has stated its willingness to pursue a large acquisition and would not have Dow’s anti-trust issues in the US.

 

But overall, HSBC’s analysts concluded that private equity firms are the most likely bidders for GE Plastics.

 

HSBC said that private equity firms accounted for more than $370bn, or 26%, of the US merger deals announced in 2006 and added that firms like Apollo and Blackstone have extensive experience in deals in the chemical industry.

 

In a separate research note on Monday, Merrill Lynch cautioned again that it was unlikely that GE would achieve the targeted $10bn sales prices for the plastics business.

 

“We caution that if GE Plastics profitability continues to erode over the course of the year – fourth quarter 2006 plastics earnings before interest and tax (EBIT) was reportedly $100m below the company’s expectations […] - the business could fetch a lower price than the $10bn,” Merrill said.

 

($1 = €0.77)

By: Stefan Baumgarten
+1 713 525 2653

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