INSIGHT: M&A activity set for bigger role in Asia

15 April 2008 17:01  [Source: ICIS news]

By John Baker

 

LONDON (ICIS news)--The main arena for chemical merger and acquisition (M&A) activity over recent decades has been the west, with the vast majority of deals being done in North America and Europe.

 

And largely, it must be said, within and not between these two regions.

 

Indeed, it is virtually received wisdom that Europeans find it particularly difficult to buy successfully in the US, given recent reverses in the food, retail and automotive sectors.

 

BP’s purchases of Amoco and Sohio are an exception to the rule in the oil and chemicals sector, but European chemical players have struggled over the years with ill-judged or ill-timed moves. Take ICI’s acquisition of Glidden as a case in point.

 

But the last few years have seen increasing activity and interest in M&A by Asian companies, both intra-regionally and into the west.

 

India’s Reliance Industries, Iran’s National Petrochemical Co (NPC), China’s Sinopec and China National Chemical/BlueStar have all been active participants in M&A bidding in recent years, for the likes of Basell, Innovene and GE Plastics.

 

Indeed, BlueStar has made some successful moves, for the likes of Qenos in Australia and Adisseo and Rhodia’s silicones unit in Europe.

 

The role model, in chemicals at least, is inevitably Saudi Basic Industries Corp (SABIC), with its forays into the west to pick up the petrochemical and polymer assets of DSM, Huntsman and GE. Its name is even now being touted as a bidder for BASF’s commodity styrenics business and Lucite, the methyl methacrylate (MMA) specialist.

 

The one country that has proved less active, surprisingly so given its relative size and strength in petrochemicals, is Japan.

 

A recent report* on global chemical M&A from Mitsubishi Chemical’s research department explains why, but at the same time concludes that inevitably M&A will play a role in consolidating the Asian chemicals market.

 

Report author Masaru Kani says that cultural differences still play a role in how M&A is perceived in Japan.

 

In recent years, Japanese firms have engaged in an increasing number of M&A deals in the domestic arena. In 2006, there were 2,775 deals reported across all industries, worth some yen (Y) 3,700bn ($37bn), he says.

 

But these were largely made between small and middle-sized companies or among the operating subsidiaries belonging to a business group.

 

This could be, he explains, because of the belief still prevailing in Japan’s public society that a business firm is not necessarily just a sort of commodity to be freely bought or sold by stockholders at their sole discretion.

 

He contrasts this with the so-called Anglo-Saxon model that holds in the UK and US, noting that “this belief is a decisive factor making, thus far, differences, in industrial reorganisations between Japan and the US”.

 

But, he adds that the upwards trend in Japanese M&A “clearly indicates that Japanese firms have also begun to regard M&A as a legitimate tool for restructuring themselves”.

 

The report, however, does not see this as likely extended outside Japan to any great extent in the chemical sector. The major Japanese petrochemical majors have all developed their own distinctive strategies - which do not rely on M&A to any great extent.

 

Thus in Asian petrochemicals, at least, the Chinese players, notably Sinopec and PetroChina, will emerge as dominant producers of basic feedstocks such as ethylene, propylene and butadiene by 2013, with Reliance and Taiwan’s Formosa Plastics Corp (FPC) some way back in third and fourth place (with Japan’s replacing Reliance in the top four for butadiene).

 

The two Chinese producers will also lead the way in benzene and paraxylene, again with FPC and Reliance well placed but well behind.

 

The rankings, given for a series of petrochemicals, both globally and regionally for Asia, for the years 1997, 2001, 2006 and 2013, show a significant effect of M&A activity in the period 1997-2001.

 

They also reveal just how big an effect future M&A could have on market shares in Asia going forward. The big question is, who is going to swallow whom, if the Japanese players are not hungry?

 

 * Mergers, Acquisitions and Alliances in the Global Chemical Industry by Mitsubishi Chemical Techno-Research.

By: John Baker
+44 20 8652 3214

For the latest chemical news, data and analysis that directly impacts your business sign up for a free trial to ICIS news - the breaking online news service for the global chemical industry.

Get the facts and analysis behind the headlines from our market leading weekly magazine: sign up to a free trial to ICIS Chemical Business.

Printer Friendly