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Saudi International Petrochemical Company announces the signing of a non-binding Memorandum of Understanding in relation to a “Merger Of Equals” with Sahara Petrochemicals Company

Further to the announcement made on 13 March 2018 in relation to the intention of Saudi International Petrochemical Company (“Sipchem”) to resume negotiations with Sahara Petrochemicals Company (“Sahara”) regarding the potential merger of the two companies, Sipchem is pleased to announce that it has entered into a non-binding memorandum of understanding dated 23/1/1440H, corresponding to 3/10/2018G (the "MOU") with Sahara to effect a business combination in a transformative transaction in the petrochemicals sector in the Kingdom of Saudi Arabia (the “Kingdom”) (the "Proposed Transaction").

Pursuant to the terms of the MOU, Sipchem and Sahara have reached a preliminary, non-binding agreement on valuation, subject to completion of confirmatory due diligence, finalization of a binding implementation agreement including agreement on certain commercial issues.

Under the terms of the MOU and in order to implement the Proposed Transaction, Sipchem, following the execution of the binding implementation agreement, will make an offer to all Sahara shareholders to acquire all their shares in Sahara. Sipchem will issue, and each Sahara shareholder will receive, 0.8356 new Sipchem shares for each Sahara share held by them (the “Exchange Ratio”).

The Proposed Transaction will result in Sipchem having an increased share capital of 733,333,332 shares, of which 366,666,666 shares, representing 50.0% of the increased share capital, will be held by Sipchem shareholders and 366,666,666 shares, representing 50.0% of the increased share capital, will be held by Sahara shareholders. The Exchange Ratio and the resulting ownership split has been agreed as a result of an extensive mutual due diligence and valuation exercise.

Aligned with the goals of Saudi Vision 2030, which aims to create a thriving private sector in the Kingdom, the Proposed Transaction is expected to deliver multiple strategic benefits to the combined business, including:

  1. Strengthening the product portfolio, diversifying feedstock supply and building out presence along the value chain;
  2. Increasing scale and resilience in the evolving petrochemicals sector, both in the Kingdom and internationally;
  3. Building on the competitive advantages and complimentary capabilities of Sipchem and Sahara to provide benefits commercially, operationally and functionally;
  4. Driving efficiency and productivity of the closely situated industrial asset portfolios of each of Sipchem and Sahara in Jubail; and
  5. Creating a platform with improved financial resources, capital market access, and product and technological expertise to take advantage of local and international growth opportunities, both organic and inorganic.

The Proposed Transaction is expected to provide synergy potential, from both a revenue and cost perspective, which is expected to drive value for shareholders. It is also expected to deliver benefits to the combined workforce, and local and international business partners.

Pursuant to the MOU, Sipchem and Sahara will continue to advance discussions in relation to the Proposed Transaction and work towards entering into a binding implementation agreement no later than 28 February 2019 unless the parties agree to extend such period. Shareholders in each company are advised that there can be no assurance that at this stage these discussions will result in an agreement being reached or, that if reached, the Proposed Transaction will be consummated.

The entry into the MOU does not mean that the two companies have reached a final agreement in relation to the Proposed Transaction. The MOU does not constitute an offer by Sipchem to Sahara’s shareholders or its board of directors, nor does it constitute an announcement of a firm intention to make an offer. The MOU is a non-binding agreement for the purpose of cooperation between Sipchem and Sahara to complete confirmatory due diligence, finalize the implementation agreement and other commercial issues in relation to the Proposed Transaction.

Additionally, the Proposed Transaction is subject to several approvals, including but not limited to, the Capital Market Authority, the Extraordinary General Assemblies of Sipchem and Sahara, other applicable authorities and other consents.

The Proposed Transaction involves certain related parties, the details of which will be announced in due course.

Sipchem will continue to announce any material developments regarding the Proposed Transaction in accordance with the relevant laws and regulations.

For the purpose of the Proposed Transaction, Sipchem has appointed HSBC Saudi Arabia as its financial advisor and Khoshaim & Associates (K&A) and Allen & Overy LLP as its legal advisors. Sahara has appointed Morgan Stanley Saudi Arabia as its financial advisor and Abuhimed Alsheikh Alhagbani Law Firm (AS&H) in cooperation with Clifford Chance LLP as its legal advisor.