Will U.S. let this $11 billion come home via a buyout?

Saudi Company in Lead to Buy GE Plastics, Source Says

From Reuters
Friday, May 18, 2007

http://www.reuters.com/article/businessNews/idUSN1816946220070518

BOSTON -- Riyadh-based chemicals company Saudi Basic Industries Corp. is in the lead to buy General Electric Co.'s plastics business, a source familiar with the situation said on Friday.

The Wall Street Journal said bidding for the business was approaching $11 billion.

GE and Sabic declined to comment.

GE placed the Plastics unit on the block in January, after 2006 profit at the unit fell 22 percent to $674 million as the rising price of raw material benzene took a toll on margins.

In the first weeks after GE decided to sell the unit, analysts and investors had expected a price near $10 billion.

"They were thinking $10 billion optimistically," said Mike McGarr, portfolio manager at Becker Capital Management, a Portland, Oregon, firm with $2.5 billion under management, which owns GE shares. "We're happy to see them come in with another $1 billion. We'll see what they do with it."

GE shares rose 60 cents, or 1.6 percent, to $37.13 on the New York Stock Exchange.

According to sources, Dutch petrochemicals maker Basell and private-equity firm Apollo Management are also in the running for the business, which last year generated $6.65 billion in revenue.

Fairfield, Connecticut-based GE decided to sell the slow-growing plastics business as part of its effort to focus on faster-growth industries.

It put plastics up for sale after starting the year by negotiating $15 billion in takeovers, including parts of health-care company Abbott Laboratories Inc., the aerospace business of Britain's Smiths Group Plc, and privately held oil and gas field equipment maker Vetco Gray.

The main question surrounding the deal is how much GE would be able to raise through the sale of the unit, which makes resins used in everything from beverage bottles to automobiles.

"We believe that any deal with gross proceeds in excess of $10 billion would be positive for sentiment," wrote Deutsche Bank analyst Nigel Coe in a May 15 note to clients. He noted that a price above $10 billion would help ease some investor concerns that GE might have overpaid in some of the large deals it struck early this year.

The deal process has been unique in that Goldman Sachs Group Inc., which is managing the sale for GE, prohibited the private equity firms that were among the early bidders from teaming up with one another. That practice, though increasingly common in the private equity world, has drawn the fire of critics, who say it reduces competition.

GE, the world's second-largest company by market capitalization behind Exxon Mobil Corp., has close ties to the Saudi government. In December and January alone the company received about $2 billion in orders for Saudi infrastructure projects.

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