(Bloomberg) – Abu Dhabi and Austria’s OMV AG are exploring a merger of Borouge Plc and Borealis AG to create a chemicals and plastics company worth more than $30 billion, according to people familiar with the matter. .
The owners are discussing the potential valuation and ownership structure of the combined entity and could agree on the general framework for formal merger talks in the coming weeks, the people said. Talks have been going on and off for months but could still be delayed or collapse, they said. They requested anonymity because the deliberations are private.
Vienna-based Borealis is 75 percent owned by OMV and the remainder by ADNOC. Abu Dhabi-listed Borouge, itself a partnership between Adnoc and Borealis, has a market capitalization of about $22 billion.
The two sides are discussing a valuation of about $10 billion for Borealis, including its Borouge stake, the people said. Taking into account potential synergies, the combined entity could be valued at more than $30 billion overall, the people said. The exact value and ownership structure remain two key hurdles to any deal and are still subject to change, they said.
OMV shares rose 7.4% in Vienna as of Tuesday’s close, their biggest one-day gain since October 2022. The stock was up 9.1% in the early afternoon.
The proposed deal would dovetail with the United Arab Emirates’ broader plans to attract investment and technology and build new industries and manufacturing capabilities. State-owned ADNOC has been expanding Abu Dhabi’s refining and chemicals hub, finding more exports for its oil and gas production and producing plastics for consumer goods.
A Borealis-Borouge merger would simplify the ownership structure and could be aimed at creating a stronger rival to chemical rivals such as Saudi Basic Industries Corp (Sabic), according to Bloomberg Intelligence analysts Salih Yilmaz and Darja Lema.
“A potential transaction combining the two companies could result in significant synergies,” they wrote in a research note on Tuesday.
Abu Dhabi Energy Group and OMV are still discussing whether to take equal stakes in the combined entity, though they expect both to have equal control and decision-making power over the board, according to some of the people familiar with the matter. In one scenario, Middle Eastern investors and Austrians would both end up with similar stakes, but both below 50 percent, with the rest made up by free float on the stock exchange, though ADNOC, they said. The company may end up with a slightly larger stake.
The Austrian side would also prefer to be based in Europe, where most of the business is located, even if the combined entity would be listed in Abu Dhabi, the people said. Representatives for Adnoc and OMV declined to comment. Spokespeople for Borealis and Borouge questioned its owners.
Borouge went public last year in a $2 billion initial public offering. The company, which produces specialty plastics used in manufacturing and consumer goods, has 2022 sales of $6.7 billion. Borealis has around 7,600 employees and produces plastics, chemicals and fertilizers. The company’s total sales and other income were 12.2 billion euros ($13.3 billion) last year, according to the Borealis website.
The merger would give the two companies enormous competitive scale, simplify the ownership structure and create greater flexibility to invest and expand in Asia, where demand for chemicals and plastics continues to grow. Still, a final deal cannot be assured given the various stakeholders, including the government.
The possible deal comes at a critical time for OMV, whose largest shareholder is the Austrian government, followed by the Abu Dhabi government. OMV announced plans last year to transform from one of Eastern Europe’s largest fossil fuel companies into an integrated green business built around chemicals, recycling and electric vehicle infrastructure. In February, the company confirmed a Bloomberg News report that it was considering selling some exploration and production assets as part of the shift.
Adnoc has been busy finding deals in this space. Chief Executive Sultan Al Jaber last month made an initial $12 billion bid for German polymer maker Covestro, according to Bloomberg. The target’s management rejected the offer, citing the price as too low, but offered to discuss the deal on better terms.
The Abu Dhabi company is continuing to pursue a potential acquisition by Covestro and has been studying its next move, according to people familiar with the matter. ADNOC could decide whether to raise its offer for Covestro as soon as in the next few weeks, the people said. A Covestro spokesman declined to comment.
Adnoc, which produces nearly all of its oil in the OPEC member United Arab Emirates, plans to invest $150 billion to expand capacity for crude, gas and chemicals. It also invests in low-carbon energy.
(Updated analyst quote in seventh paragraph.)