A merger of equals: Capturing the full potential of Sipchem and Sahara
Saleh Bahamdan, CEO of Sahara International Petrochemical Company (Sipchem) and a speaker at the GPCA Annual Forum, talks about the merger of Sipchem and Sahara, the progress of integration so far, and what lies ahead for this new petrochemical powerhouse.
Can you remind our readers what the main reasons were behind the idea of the merger?
Bahamdan: The benefits of merging the operations of Sipchem and Sahara have always been very clear to the management teams at both companies. The merger will create an integrated petrochemical leader in Saudi Arabia that has a stronger operational, commercial, and financial position, increasing its ability to capture growth opportunities, leverage existing capabilities and ensure sustainable operations.
- Strengthening portfolio and value chain presence: the transaction will strengthen the merged entity’s portfolio and value chain presence by establishing a broader product portfolio in the attractive and fast-growing C1-C2-C3 segments, as well as through leveraging complementary local and global partnerships.
- Increasing scale and resilience of operations: the merger created the second-largest private sector chemicals company by market capitalization. Furthermore, resilience of operations is expected to improve through feedstock and product diversification which will, in turn, reduce earnings volatility.
- Building on competitive advantages and capabilities: building on the advantages and capabilities of the two organizations will enable the combined group to unlock synergy potential. For example, Sipchem’s marketing function can be further leveraged to sell Sahara’s products and realize value across the product chain.
- Driving efficiency and productivity: the closely located asset footprint in Jubail can be utilized to increase efficiency and productivity to drive synergies.
- Creating a platform for growth: the transaction has created a platform for future growth, through Sipchem’s enhanced financial position, complementary product portfolios, access to new markets as well as new technologies. Together, we are better equipped to serve existing and future customers, increasing our agility towards their needs in the Kingdom and internationally. This merger of equals will deliver long-term value not only for our shareholders, but also our employees, business partners, and customers.
Please outline the progress to date since the combination of Sipchem-Sahara, how the integration process is proceeding, and the main lessons learned so far.
Bahamdan: The integration is proceeding according to plan, with the unification of both companies largely completed. We are on track to sustain, change, and grow. We had appointed BCG early in the process to plan for integration with an Integration Steering Committee in place to oversee integration activities from day one. We also have a dedicated full-time Integration Management Office in place and operating with supporting integration teams. Being proactive in the process has helped us with clear and effective decision making, and transparency with stakeholders. For example, we announced the structure of our future leadership team three months prior to commencing the integration, which meant that key team members were already involved during the integration planning and preparation period. During this transition, we have learned several lessons. Focus on business continuity proved very important and led us to take certain decisions that maximized our ability to ensure the continuity of our business since day one. The integration has not had any impact on our ability to deliver on promises made to our customers. The fact that we took an agile approach also helped immensely. In some cases, it was important to take decisions and move forward, rather than investing a lot of time in analyzing problems and risking indecision. We needed to be pragmatic to leverage our existing capabilities and continue to deliver on our commitments. Last but certainly not least, one of the key takeaways from this transaction was that people are your most important asset. You can never overinvest in engaging with your employees. I believe that one of our core success factors was effective communication during the integration process.
When is the full integration process due for completion? What have been the biggest successes so far in realizing the companies’ complementary capabilities and synergies, improved operational/cost efficiencies, and increased scale?
Bahamdan: The integration process is expected to be fully completed by the first quarter of 2020. We are putting a lot of effort into combining the systems which is time-consuming, considering the size of both organizations. There are several important focus areas and we have prioritized our action plans. It usually takes time to realize full benefits of business combinations. In our case, we have already started to notice the immediate impacts – we have strengthened our sales and marketing capabilities and optimized our costs, by making effective use of our logistical capabilities and integrating infrastructure and procurement.
Please share your thoughts on the overall goal for Sipchem over the course of the next 1-2 years. Will that include potential acquisitions and joint ventures to achieve faster growth?
Bahamdan: For the next couple of years, our goals will be consistent with the logic of the merger, which is to build a leading petrochemical company that is well positioned to capture growth opportunities, leverage existing capabilities, and ensure sustainable operations. We intend to focus on completing the integration from a people, process, and systems perspective. I want to strengthen our operational performance and manufacturing capabilities as well as ensure safety and reliability of our operations.
My agenda for this year will focus on:
- Driving a manufacturing focus
- Safety enhancement
- Business excellence
- Performance management/reporting
- Integration delivery
Another important milestone will be the full delivery of our synergy commitment, which will, in turn, leverage our complementary capabilities and infrastructure to deep dive into the now-expanded asset portfolio to understand potential opportunities for further growth and securing sustainability.
What is your view of today’s complex market conditions, and the current emerging macroeconomic headwinds impacting the worldwide petrochemical sector?
Bahamdan: We recognize that our feedstock advantage will continue to be challenged by developments in the US shale gas industry, which continues to innovate and search for new competitive solutions in the manufacturing space. The vast new supplies of natural gas from largely untapped shale gas resources are leading to massive capital investments and expansion in the US chemical industry. Petrochemical companies worldwide have been showing resilient margins, driven by healthy demand, particularly from emerging markets. We see more competition on the horizon as many oil majors have begun to reinvest in or reconsider their strategy for petrochemicals.
Also, we should not forget that the ongoing trade wars amongst the world’s largest economies and rising protectionism may limit growth or create shifts in the flow of international demand and export outlets for petrochemical products. All these challenges serve as a validation of our efforts to merge Sipchem and Sahara to strengthen our resilience and position us for future success in this ever-evolving industry.
At Sipchem we believe our excellence can exist here, there, and everywhere. We look forward to sharing this journey with you.