Refining & Petrochemicals Middle East
ARAMCO TO BUY VALVOLINE’S GLOBAL PRODUCTS BUSINESS FOR $2.65 BILLION
The acquisition fits perfectly with Aramco’s growth strategy for lubricants as it will leverage its global base oils production
The Saudi Arabian Oil Company (Aramco) has signed an equity purchase agreement to acquire the Us-based lubricant maker and automotive service provider Valvoline’s global products business for $2.65 billion.
“The transaction is subject to certain customary adjustments set forth in the equity purchase agreement,” Aramco said in a statement posted on its website.
Valvoline Global Products (VGP) is a leading worldwide independent producer and distributor of premium branded automotive, commercial and industrial lubricants, and automotive chemicals, the statement noted.
Saudi energy giant explained it will benefit from VGP’S robust manufacturing and distribution network, significant R&D capabilities, strong partnerships with major OEMS, and a 150-year legacy of global brand recognition as it pursues opportunities to extend the brand globally.
“The strategic acquisition will complement Aramco’s line of premium branded lubricant products, optimize its global base oils production capabilities, and expand Aramco’s own R&D activities and partnerships with OEMS,” the energy giant said.
Commenting on the development, Mohammed Y Al Qahtani, Aramco senior vice president of downstream said: “Valvoline’s global products business fits perfectly with Aramco’s growth strategy for lubricants as it will leverage our global base oils production, contribute to our R&D capabilities and strengthen our existing relationships with OEMS.
“Valvoline’s brand strength and global recognition will continue to be developed and extended under Aramco’s stewardship. We are also very excited to have the outstanding people of VGP join the Aramco family as we continue to execute on our ambitious strategy.”
Following the transaction, Valvoline will focus on its market-leading retail services business, including enhancing its growth trajectory and world-class service model.
Valvoline said the transaction will separate its global products from its retail services businesses, transforming it into a purely automotive service provider. The more than 150-year-old company operates and franchises around 1,700 service centres, with stores across the United States offering oil changes and other quick services. Valvoline noted the deal will also help it to accelerate its focus on servicing electric vehicle cars. It is already a key supplier of battery fluids to electric vehicle manufacturers.
Valvoline said it expects to use the estimated $2.25 billion in net cash proceeds to return capital to shareholders through share repurchases, reduce debt and invest in its retail services business. The agreement is subject to regulatory approval, expected by the end of 2022 or early next year.
The US firm expects its retail services to benefit from a strong balance sheet and a clear strategy for value creation, including extending its world-class preventive auto maintenance service model to EV owners, and fleet.
“The sale of Global Products represents the successful outcome of our strategy
to unlock the full, long-term value of our strong but differentiated Retail Services and Global Products businesses,” Valvoline CEO Sam Mitchell said.
He explained, “We have built two leading businesses that are well-positioned for continued success as they pursue their individual strategic priorities. We are pleased that our Global Products team will have a strategic new home with Aramco to further grow the business while developing the brand into a global lubricants leader.”
Upon completion of the sale, Valvoline expects to use the majority of the anticipated net after-tax cash proceeds of approximately $2.25 billion to accelerate the return of capital to shareholders through share repurchases, with the remaining portion used for debt reduction and to invest in attractive growth opportunities in the Retail Services business.
Following the closing of the transaction, Valvoline will own the Valvoline brand for all retail services purposes globally, excluding China and certain countries in the Middle East and North Africa, while Aramco will own the Valvoline brand for all products uses globally.
Valvoline and Aramco will expand their existing partnership to ensure that Valvoline’s iconic brand is managed in a consistent and holistic manner. In addition, Valvoline will procure motor oil and related products from the Global Products business through a long-term supply agreement.
Aramco is raking in major profits amid historically high oil prices this year. The oil company registered nearly $88 billion as net profit for first half of the current year and that is highest ever profit announced by any listed company globally.
The oil major has been using its profits to invest in futuristic technology in tune with the country’s economic diversification efforts. In April, Aramco announced plans to build a centre for artificial intelligence.
The company operates the largest oil fields in the world and is the largest producer of crude oil. It has the ninth-largest reserves and eighth-largest production of natural gas, much of it associated with its crude oil production. However, it does not export or import any gas, nor does it use large volumes of gas for downstream production activities.
Until now, the natural gas produced has been gathered and processed in large plants and then sold to utility companies for water desalination and electricity production, or to a lesser extent to SABIC for transformation into chemicals and fertilisers. In the downstream segment, Aramco is the fourthlargest refiner in the world, with a stated intent to increase its capacity to 10 mn barrels per day (b/d) from 4.9 mn b/d. It has also made investments in chemicals, but it is still relatively small in this segment.
The state-owned firm has formed joint ventures with number of foreign companies for making plastic and other products. It has also purchased 70% stake in SABIC, and that makes it a major downstram player not only in the kingdom, but worldwide.