Potential merger of Borealis and Borouge to create US$$20 billion chemicals giant

Austria's OMV Group announced in a public disclosure of inside information (14 July) that its Executive Board has decided to pursue negotiations with Abu Dhabi National Oil Company (ADNOC) on a potential cooperation with respect to their polyolefins businesses.

Such cooperation would include a combination of the Borealis and Borouge businesses as equal partners under a jointly controlled, listed platform for potential growth acquisitions to create a global polyolefin company with a material presence in key markets.

Borealis is owned 75% by OMV and 25% by ADNOC. Borouge is owned 54% by ADNOC and 36% by Borealis with the remainder listed on the Abu Dhabi Securities Exchange.

Alfred Stern, Chairman of the Board and CEO of OMV AG, said the potential transaction “would create a new global polyolefin powerhouse with significant organic and inorganic growth potential”.

He added that a number of transaction parameters would be subjected to mutual agreement during the negotiation, and “further announcement will be made as and when appropriate”.

Borealis is a provider of advanced polyolefins solutions and a front-runner in polyolefins recycling.

Borouge provides differentiated polyolefins solutions with access to attractive markets.

A stronger competitor to grow in scale

The potential tie-up would create a chemicals giant with combined annual sales of more than US$20 billion, according to Reuters, while Bloomberg reported that the overall valuation of the combined entity could ultimately exceed US$30 billion.

Goldman Sachs analysts were quoted by Reuters as saying “a combination of the two business would allow the new entity to grow in scale”. They note that Borouge's technological capabilities are enabled by Borealis's proprietary technology, while the latter distributes Borouge's volumes sold in Europe and the US.

Combining Borealis and Borouge is likely aimed at creating a stronger competitor to chemicals rivals like SABIC, Bloomberg Intelligence analysts Salih Yilmaz and Darja Lema wrote in a research note.

Citigroup analysts were cited by Bloomberg that they see ADNOC expanding its presence in the petrochemicals value-chain to “hedge against what may happen long-term in oil transport demand”.

Notably, it was reported earlier that ADNOC had approached German plastics and chemicals maker Covestro with a takeover proposal worth more than 10 billion euros, but was rejected.