(March 4): The United Arab Emirates’ (UAE) and Austria’s top oil companies agreed on terms to create a chemicals giant worth more than US$60 billion (RM267.7 billion), enhancing their positions in an industry they expect will continue to grow in the energy transition.

Abu Dhabi National Oil Co (Adnoc) and OMV AG will merge their units Borealis AG with Abu Dhabi-listed Borouge Plc, capping almost two years of negotiations. The deal, one of the biggest globally in the past few years, will also include the joint purchase of Nova Chemicals from Abu Dhabi sovereign fund Mubadala Investment Co for US$13.4 billion, including debt, Adnoc said in a statement.

The agreement is Adnoc’s latest big-ticket push into chemicals after it agreed to buy Germany’s Covestro AG last year for nearly US$13 billion, the largest Middle Eastern acquisition of a European firm at the time. While owning a slice of the industry would ensure ready customers for Adnoc’s crude and natural gas, the company also sees demand for chemical products such as plastics continuing to expand even as climate change risks slow the growth of other fuels such as gasoline.

“We will create a new industry powerhouse,” Adnoc chief executive officer Sultan Al Jaber said in the statement. With the new business, the partners will “seek to meet the growing global demand for chemicals, while driving value creation.”

Bloomberg first reported in July 2023 that Austria-based OMV and Abu Dhabi’s Adnoc were in talks about merging the units. But wrangling over cash contributions and where the company would be based had stalled an agreement.

Meanwhile, political inertia in Austria added to the uncertainty, with the government in Vienna reluctant to sign off on a major transaction before federal elections. Christian Stocker was sworn in as chancellor on Monday after five months of coalition negotiations.

The deal was welcomed by Austria’s state-asset agency OeBAG, which holds two seats on OMV’s supervisory board as the manager of the state’s 31.5% shareholding. The merger is “very good news for Austria’s economy,” said OeBAG managing director Edith Hlawati.

“This is a strategic move that positions us as a truly global polyolefin powerhouse,” OMV CEO Alfred Stern said. The merger gives the company access to cheaper feedstock and higher growth markets while reducing OMV’s emissions footprint, he said.

The company’s shares gave up early gains, dropping as much as 1% in Vienna trading. 

Adnoc and OMV will each hold 47% of the new company, which will be called Borouge Group International. The free float may potentially rise further from 6% with a US$4 billion equity increase intended to finance the Nova Chemicals purchase, in which neither OMV nor Adnoc will participate. 

Upon completion of the deal, Adnoc will transfer its holding to its new international investment unit, XRG.

The merged entity will be listed in Abu Dhabi and headquartered in Austria. OMV said in a separate statement that it will make a €1.6 billion (RM7.46 billion) capital injection into the venture, and there are plans for a future listing in Vienna.

The combined entity is pledging pay out 90% of earnings to investors, with Stern expecting at least US$1 billion a year flowing towards OMV investors. That payout is critical for Austria’s new government, which is looking for new sources of revenue to plug its budget deficit.

OMV’s Stern said the venture will “pursue significant organic growth opportunities.” Statements from both companies didn’t give further details on potential acquisitions beyond the Nova Chemicals deal.

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