A record deal.. Saudi Industrial Investment and Petrochem on the road to merger

The Saudi Industrial Investment Group and the National Petrochemical Company (Petrochem) have signed a non-binding agreement regarding a proposed merger.

The two Saudi companies said in separate statements to the stock exchange that the deal would consist of a share swap offer by the Saudi group to acquire the remaining 50 percent of Petrochem, which the Saudi group does not already own.

In return, the Saudi group will issue new shares to Petrochem shareholders, which will result in the cancellation of the listing of Petrochem’s shares.

Petrochem shareholders will receive 1.27 shares in the Saudi group for each share they own in Petrochem.

Arqaam Capital said in a note that at a market price of 39.9 riyals for the Saudi group share and 49.7 riyals for Petrochem, the swap rate implies a premium of 2% for Petrochem shareholders.

She said the potential merger would simplify the shareholding structure and increase the focus on capital spending growth.

Saudi Group has appointed HSBC Saudi Arabia as its financial advisor, while Petrochem is working with GIB Capital.

The Memorandum of Understanding is a non-binding agreement and is subject to the two companies agreeing to a final, binding agreement setting out the terms and conditions of the transaction.

The two companies began talks last year about a merger, which would constitute further consolidation of the Saudi petrochemical sector, after oil giant Saudi Aramco bought 70 percent of Saudi Basic Industries Corporation last year.

Petrochem’s market value is about $6.3 billion, and the Saudi group is about $4.8 billion.

The Saudi government owns a 13.1% stake in the Saudi group and 25% in Petrochem, according to Refinitiv data.

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