UAE-Austria Deal for $32 Billion Giant Faces Election Delay

(Bloomberg) -- A planned deal by state-owned energy producers in the United Arab Emirates and Austria to create a global chemicals giant faces months of additional delays as upcoming elections in the European nation complicate decision-making.

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Talks between Abu Dhabi National Oil Co. and OMV AG over the merger of their chemicals units have been bogged down for months, primarily over valuations, according to several people with knowledge of the situation. It’s now reaching a stage where any agreement could be pushed back until after Austrian national elections expected in the fall, some of the people said.

Internal teams are still working on details, but work by external advisers has been slowing significantly in recent months, people familiar said, asking not to be identified discussing private information. Negotiations are “ongoing and open-ended,” an OMV spokesperson said. Adnoc declined to comment.

The merger of European chemicals producer Borealis AG and Abu Dhabi-listed Borouge Plc had been building as one of the industry’s biggest deals this year. The transaction would create a €30 billion ($32 billion) global chemicals and plastics giant with access to technology and cheap feedstock.

Adnoc’s head Sultan Al Jaber and OMV Chief Executive Officer Alfred Stern met in Vienna on Thursday as part of a ceremony commemorating UAE’s long-standing investment in OMV. No substantial talks over the merger of the units took place, three people with knowledge of the proceedings said.

Patent Contributions

Part of the delay is also OMV resisting Adnoc’s demand for a €1.7 billion cash payment to maintain an equal stake in the merged business, some of the people said.

They also point to the technology contribution Borealis will bring to the merged entity. Data compiled by Alphabet Inc. shows Borealis has more than 20,000 patent filings while Borouge returns just 500.

The UAE is questioning whether that’s enough since the value of unlisted Borealis is perceived to have declined amid high energy costs that hurt profitability at European chemicals firms. Abu Dhabi is also bristling at Austrian demands that the merged company be listed on a second exchange, potentially in Vienna, some of the people said.

The proposed merger has also been impacted by the resignation of Borealis CEO Thomas Gangl, an advocate of the deal who’s leaving the OMV group for Liberty Steel. The Austrian company also began looking for a new M&A deal lead and valuation experts to assess potential transactions.

With Austrian national elections set for September or October, the deal is running into a political buzz saw. OMV is the country’s biggest industrial employer and politicians want to avoid costly missteps. Still, people familiar with Abu Dhabi’s thinking said both sides ultimately want the transaction despite the issues.

Read More: UAE Chemical Maker Borouge Pursues Target in Asia in Growth Push

Deal’s Critics

The proposed deal is key to both Adnoc and OMV’s plans to develop a global chemicals business and diversify beyond crude oil and refined products. Adnoc is also chasing a range of other acquisitions including a multibillion-dollar pursuit of German chemicals group Covestro AG and a stake in Brazil’s Braskem SA. It’s formed a joint venture with BP Plc to develop natural gas fields in Egypt and has increased its holding in fertilizer company Fertiglobe Plc.

The Austrian merger plan, however, has its share of critics. Former OMV CEO Gerhard Roiss favors a standalone listing of Borealis in Vienna. “There is no need for Borealis to grow in size through such a merger,” said Roiss, who still occasionally advises the Austrian government on energy policy.

Borealis and Borouge are linked through a complex structure and held together by a syndicated ownership agreement that their parent companies struck four years ago. Adnoc owns 25% in Borealis and a 24.9% share in OMV. OMV holds 75% of Borealis, which owns 36% of Borouge.

Adnoc this year completed the purchase of a stake in OMV from Abu Dhabi’s sovereign fund Mubadala Investments Co. The transaction removed one hurdle in the talks, allowing Adnoc to hold negotiations around a company in which it owned a direct stake.

A deal will come down to an agreement between governments. That’s been complicated by war in the Middle East and the election campaign in Austria, meaning Adnoc and OMV may have to wait until longer to see who’s sitting on the Austrian side of the table before they can announce a deal.

--With assistance from Dinesh Nair and Eyk Henning.

(Updates with Adnoc’s other deals in the 11th paragraph.)

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