Sipchem-Sahara $5.8 Billion Merger on Hold as Structure Elusive

Saudi International Petrochemical Co. and Sahara Petrochemicals Co. put on hold a planned merger that would have created a Saudi Arabian chemicals company with about $5.8 billion in market value. Their shares declined.

The companies said it would be difficult to proceed with the merger using a structure acceptable to both sides under the current regulatory framework, according to a statement yesterday. Saudi International Petrochemical, known as Sipchem, and Sahara may revive talks in the future, they said.

The proposed deal was a rare sign of merger and acquisition activity in the kingdom that has fallen 83 percent this year, according to data compiled by Bloomberg. Saudi Basic Industries Corp., the world’s biggest petrochemicals maker by market value, said in July it was seeking investment opportunities in the U.S. as sales in Europe and China slow.

“The possibility of merger talks restarting in the short-term seems unlikely,” Muhammad Faisal Potrik, senior research analyst at Riyad Capital, said by phone yesterday. “It’s taken them a year to get to this stage and I don’t see them being able to decide on a new structure for the merger quickly.”

Shares Decline

Shares in Sipchem fell as much as 3 percent yesterday, the most in two months, while Sahara dropped as much as 2.9 percent. The companies had a combined market value of 21.7 billion riyals ($5.8 billion) at the close of trading last week.

Sipchem and Sahara in December proposed a share-swap merger and expected to sign a deal in the first half. HSBC Saudi Arabia Ltd., Zeyad S. Khoshaim Law Firm, Allen & Overy LLP, Jacobs Consultancy and Nexant were advising Sipchem. Sahara appointed Morgan Stanley Saudi Arabia, Al-Jadaan & Partners Law Firm, Clifford Chance LLP and IHS Inc.

Sipchem and Sahara, in which state-run General Retirement Organization and Al Zamil Holding Group are both shareholders, said they plan to pursue their business and strategic objectives independently and without liaising. The decision to put the merger plan on hold isn’t expected to affect the companies’ operations, they said.