GE said it would use the proceeds from the sale of Pittsfield, Mass.-based GE Plastics to petrochemicals manufacturer Saudi Basic Industries Corp. primarily to increase GE’s planned 2007 stock buyback program. It now expects to buy back $7 billion to $8 billion in stock, up from the previous plan of $6 billion.
The deal is expected to create a net gain, after taxes, of $1.5 billion for the Fairfield, Conn.-based conglomerate.
Saudi Basic, or Sabic, the world’s biggest chemical company by market value, will pay cash in the
The purchase will boost Sabic’s sales 29 percent, from $23 billion in 2006, and give it GE’s proprietary Lexan plastic used in roofs and lighting. Sabic, based in
GE chairman and chief executive officer Jeff Immelt called the long-expected divestiture “another important step” in the company’s strategy to sell slower-growth businesses, such as insurance, so that it can invest in high-growth, high-technology businesses, such as health care and water-processing technology.
“We’ve exited businesses that are volatile, like plastics, and we’ve got a good run ahead of us,” Immelt said yesterday on cable channel MSNBC, which is operated by GE subsidiary NBC Universal.
GE’s shares rose 14 cents to $37.10. The stock has traded between $32.06 and $38.49 over the past year.
Mark Demos, portfolio manager for Fifth Third Asset Management in
“I think it’s a very good price for that asset,” Demos said.
Robert Schenosky, an industrial analyst with Jefferies & Co. in
“I think Mr. Immelt fully understands what he needs to do to try to reaccelerate the growth of the portfolio,” Schenosky said.
GE’s plastics division dates to 1930, resulting directly from Thomas Edison’s experiments with plastic filaments for light bulbs in the 1890s. It grew into a significant GE venture, where Immelt once worked.
GE Plastics supplies plastic resins to the automotive, health care and consumer electronics industries. It employs 10,300 people and GE values the business at about $6.65 billion.
The division has struggled since 2004 due to rising costs of natural gas and raw materials. Profits for the division fell by 22 percent in 2006, to $674 million.
SABIC intends to grow the business globally and is not planning work force reductions, company officials said.
“This business is complementary to our existing business without any overlaps,” said Mohamed Al-Mady, vice chairman and chief executive of SABIC.
“We buy companies for the quality of people and operations, and we plan to utilize these people,” Al-Mady said.
Sabic’s advantage will stem from its access to abundant sources of feedstock from state-owned Saudi Aramco, the world’s biggest oil company. The chemical-maker exploits the natural gas released during oil extraction and once burned at the wellhead to achieve costs lower than at
The late King Khalid bin Abdulaziz established Sabic in 1976 with the aim of making
Al-Mady declined to comment on potential regulatory hurdles
The deal is expected to close in the third quarter. Afterward, Brian Gladden, who serves as vice president of GE Plastics’ resin business, will become president and chief executive of the new business, which Saudi Basic Industries will rename.
Charlene Begley, the current president in chief executive of GE Plastics, will move to a corporate role focused on closing the deal and will report to Immelt.
PIN/AP
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