Saudi Sipchem Expects Share-Swap Merger With Sahara Next Year

Saudi International Petrochemical Co. expects to sign a share-swap merger agreement with Sahara Petrochemicals Co. in the first half of next year, seeking to create a company with about $5 billion in market value.

Saudi International Petrochemical, also known as Sipchem, will issue 0.685 new shares for every one of Sahara under the terms of the proposed merger, the companies said in a statement to the Saudi stock market. They signed a memorandum of understanding to start due diligence and continue the non-binding talks. Sipchem will issue 300.6 million new shares to Sahara shareholders.

The companies’ proposed merger comes as Saudi Basic Industries Corp., the world’s biggest petrochemicals maker by market value, seeks investment opportunities in the U.S. State-run General Retirement Organization and Al Zamil Holding Group are shareholders in both Sipchem and Sahara, according to data compiled by Bloomberg.

“The combined business is expected to result in significant synergies related to operational efficiencies and the combined company would become a stronger platform for further growth in the long-term,” according to the statement.

Sipchem shares have surged 51 percent this year, giving it a market capitalization of 10.6 billion riyals ($2.8 billion), while Sahara gained 41 percent, valuing it at 8.4 billion riyals. That compares with a 21 percent increase for the benchmark Tadawul All Share Index.

HSBC Saudi Arabia Ltd., Zeyad S. Khoshaim Law Firm, Allen & Overy LLP, Jacobs Consultancy, and Nexant are advising Sipchem on the proposed merger. Sahara has appointed Morgan Stanley Saudi Arabia, Al-Jadaan & Partners Law Firm, Clifford Chance LLP and IHS Inc.