General Electric Co said it would sell its GE Plastics business to chemicals company Saudi Basic Industries Corp in $11.6 billion cash deal.

The transaction, which GE expects to close in the third quarter, completes a significant portfolio reshuffling at the conglomerate this year. The company began 2007 with a $15 billion series of takeovers as part of an effort to focus on faster-growing industries.
In January, GE placed the Plastics unit on the block. In 2006, the division’s profit fell 22 per cent, to $674 million, on slightly higher revenue of $6.65 billion. The price being paid by Sabic was more than some had expected. Sabic will also be assuming some of the Plastics unit’s liabilities.
“The sales price of $11.6 (billion) is nicely above our initial expectations,” wrote J P Morgan Securities analyst Stephen Tusa, in a note to clients.
GE said it would receive net after-tax proceeds of about $9 billion, which would primarily be put toward its current stock buyback, upping its buyback target from $6 billion to a range of $8 billion to $9 billion.
With a $380.25 billion market capitalisation, GE is the world’s No 2 company by market value, behind ExxonMobil Corp.
“I’m glad to see that they’re not sitting on it thinking, ‘What should we do?’” said Peter Klein, senior portfolio manager at Fifth Third Asset Management, a Cleveland-based company that manages about $20 billion and holds GE shares. “If they need more they can always go out and raise some more.”
GE joins the ranks of fellow blue-chip industrials Honeywell International Inc, Caterpillar Inc and 3M Co, which have upped buyback plans this year.
GE’s business with Saudi Arabia has bee`n growing over the past year. In December and January alone, the company locked up almost $2 billion in orders for power-generating and water-processing infrastructure projects.
“Some of the Middle Eastern investment companies and some of their industrial companies just have an incredible amount of petrodollars to turn around and reinvest,” GE chairman and chief executive Jeff Immelt said in an interview on CNBC television, which GE owns.
“GE has big relationships in the Middle East; this only makes that better.”
GE Plastics, headquartered in Pittsfield, Massachusetts, employs 10,300 people in 60 countries and makes resins used on products ranging from health care equipment to packaging for consumer goods. It has major manufacturing plants in Indiana, New York, West Virginia and Alabama.
As a top-ranked maker of petrochemicals, Sabic will be in a position to lower the plastics business raw-materials costs. Sabic looks to borrow around $8.7 billion to pay for what is the largest acquisition ever made by a Gulf investor.
“About 75 per cent of the transaction’s cost will be funded through bond issues and loans,” Sabic Vice Chairman and CEO Mohamed Al-Mady said. “Our people are already working on this with banks but we have to wait for approval of US regulatory authorities.”
Saudi Aramco and Dow Chemical Co, the largest US chemical company, said they planned to build a plastics and chemicals plant in Saudi Arabia that is expected to be the largest foreign investment in Saudi Arabia’s energy sector.
GE decided to sell its plastics business as part of its effort to focus on faster-growth industries.
The company said it was putting plastics up for sale after starting the year by negotiating takeovers of 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.
GE shares have lagged the major US stock indexes for the past few years. They are flat for the year, at a time when the Dow Jones industrial average, of which GE is a component, is up 8.9 per cent, to a record high.