Saudi Sipchem, Sahara Said to Weigh Reviving Merger Plan

  • Preliminary talks between board members have already occurred
  • Previous merger talks were put on hold two years ago

Saudi International Petrochemical Co. and Sahara Petrochemicals Co. have held early-stage talks on reviving a merger which stalled in 2014 and would create a Saudi Arabian chemicals company with a market value of about $2.7 billion, people with knowledge of the matter said.

Preliminary talks between board members of both companies have taken place, the people said, asking not to be identified as the information is private. No agreement has been reached and a deal may not occur, they said. HSBC Holdings Plc’s Saudi Arabia unit is advising Sipchem and Morgan Stanley is advising Sahara, the people said. Both banks were involved in the 2014 merger talks.

If the two companies proceed with a deal it would be the largest merger or acquisition in the country in at least the last 10 years, according to data compiled by Bloomberg. Talks between the two chemicals firms were put on hold in 2014 because of difficulties finding a way to proceed using a structure that was acceptable to both sides, the companies said at the time.

The value of the two firms has more than halved since the last time they were discussing a merger amid a slump in oil prices and slower economic growth that’s weighed on the Saudi stock market. The two companies are facing rising costs as the government looks to save money by reducing subsidies. Sipchem said earlier this year it expects cuts to have a 120 million-riyal financial impact in 2016, and Sahara said the subsidy reduction would increase its costs by 3 percent.

Spokesmen for HSBC Saudi Arabia Ltd. and Morgan Stanley declined to comment, and Sipchem and Sahara didn’t respond to calls and e-mails requesting comment.

Before it's here, it's on the Bloomberg Terminal.