DSM wants to focus on specialty chemicals, using the proceeds of the sale to fund acquisitions in that sector - so the higher than expected price will serve it well. Meanwhile, petrochemicals giant Sabic seems to be planning a major assault on Europe. It is likely to continue its M&A activity, perhaps with a bid for Eni's petrochemicals operations.
Dutch chemicals firm DSM on Wednesday agreed to sell its petrochemicals division to Saudi conglomerate Sabic, for E2.25 billion. The deal will make Sabic into the world's 11th largest petrochemicals firm, boosting it from 22nd place, while allowing DSM to focus on higher-margin operations.
DSM had put the unit up for sale last year, after deciding to concentrate on specialty chemicals. After widespread interest from players including ExxonMobil and Chevron Texaco, the unit is commanding a good price, almost equal to its E2.4 billion annual sales. This is higher than the industry had expected.
It leaves DSM with a E3 billion cash pile to go shopping for specialty chemicals companies - it wants specialty revenues to hit E8 billion a year by 2005, representing 80% of its planned total sales. If it can find the right acquisition targets, this sale should pay off.
The deal could also pay off for Sabic. The group has already stated its plans to become a worldwide leader in the petrochemicals sector - and the high price paid for the DSM unit implies that part of this strategy will be a determined foray into Europe. It would be hard for Sabic to justify paying a premium if it did not plan to expand further into Europe, exploiting synergies and building a strong regional position.
With strong backing from its 70% shareholder, the Saudi government, Sabic is in a strong position to make further acquisitions. In particular, Italian oil group Eni is considering selling its petrochemicals businesses. These would fit well with the DSM unit.