Cristal, which is 66% owned by Tasnee, announced on February 26 that it was to acquire Millennium Inorganic Chemicals TiO2 from Lyondell. The deal, worth $1.2 billion, is the biggest acquisition of a US company by a Saudi concern and is another example of the growing trend of emerging market companies buying rivals in the developed world. The Cristal deal includes a cash payment of $1.05 billion and estimated after-tax proceeds are $975 million. A mixture of equity and bank loan will raise the necessary funds.
Once the transaction has closed so Cristal’s global share of titanium dioxide production will increase to 15% from the previous 2% as it takes on facilities in Europe, Australia and in north and south America. The sale came after Lyondell completed a strategic business analysis that concluded that it should sell the inorganic branch of its chemical industry. “Several entities looked at the company and made bids. Once we had evaluated the bids we decided that Cristal’s was the best for us and so accepted it,” says David Harpole, a spokesman for Lyondell. The deal will enable Lyondell to accelerate debt repayments and focus on capturing synergies between the refinery and chemicals business.
The acquired business branch solely produces titanium dioxide, which is used to produce white pigment, and provides Cristal with an international, best-in-class infrastructure in terms of sales, marketing and research and development. This seems a natural extension of its global growth strategy and dovetails well with its aim of serving its clients with the top technologies and services.
As domestic merger opportunities are limited and as equity prices continue to wobble, Saudi companies are looking to the international markets to add value instead of putting capital into the local equity market. So far most of the activity has taken place in the petrochemicals industry. For example, Sabic, the world’s biggest chemicals company, is rumoured to be considering a $12 billion bid for GE’s plastics unit.
“M&A as a concept hasn’t been well known in Saudi. However it is now starting to kick off. As companies grow and mature so they are looking to leverage their business globally,” says Tim Gray, chief executive of HSBC Saudi Arabia, which was adviser to Cristal on its deal.
As this international advance evolves so the next step is evident. “This year a company in the Middle East will buy their way into a new market where they don’t already have the know-how or technology – it’s a similar trend to what we have seen already but maybe a bit more aggressive.” says a banker. “It hasn’t happened yet but is definitely coming.”
