July 17 (Bloomberg) -- BASF AG, the world's largest chemical company by sales, said it's in talks with a potential buyer of part of its plastics operation, a transaction that may carry a value of as much as 3.2 billion euros ($4.4 billion).

An initial offer for styrenics units, with combined annual revenue of 3.2 billion euros and factories in Belgium, Mexico, Brazil, South Korea and India, has already been received, Ludwigshafen-based BASF said today, without giving further details. BASF's total sales were 52.6 billion euros last year.

Disposal talks follow BASF's review of its styrenics division as Chief Executive Officer Juergen Hambrecht steers the company toward higher-margin plastics, away from materials such as polystyrene, used in packaging. Demand for insulation and foams, used in the automotive and construction industries, is expected to grow at an annual rate of 5 percent until 2015, BASF has said.

``It's very positive, the styrene business has been a stone around BASF's neck,'' said Michael Butscher, a Munich-based analyst at Bayerische Landesbank with a ``buy'' rating on the stock. The company may raise between 1.6 billion and 3.2 billion euros in the disposal.

Talks will now begin to explore the offer as well as consider other options, BASF's plastics head, John Feldmann, said in a statement.

Profitability Issues

Feldmann said styrenics earnings have improved ``considerably,'' following efficiency gains and cost savings, though further measures are needed to get profitability to appropriate levels. The units that may be sold employ 1,000 and make styrene, polystyrene, styrene-butadiene-block copolymer and acrylonitrile-butadiene-styrene.

BASF most likely won't get a premium on the price as it's the one seeking to sell the businesses, Independent Research GmbH analyst Bjoern Wolber said.

``It would make more sense for a chemical company to buy the operations than for private equity,'' Wolber said. ``A competitor just needs to integrate the businesses while an investor would have to build up an administrative structure -- unless it already owns chemicals companies.''

Wolber, based in Frankfurt, rates BASF stock ``accumulate.'' The company may raise between 2 billion euros and 2.9 billion euros in the disposal, he said.

Lazard Ltd. is acting as an adviser to BASF in connection with a potential transaction.

To contact the reporter on this story: Stefanie Haxel in Frankfurt at shaxel@bloomberg.net

Last Updated: July 17, 2007 09:30 EDT