BASF SE (BAS) Chief Executive Officer Kurt Bock pushed through a bid for Pronova BioPharma ASA (PRON) by boosting his offer by 8 percent. He has the backing of investors as the extra cost is a fraction of the $10.5 billion in cash probably generated by BASF last year.
The $900 million deal is Bock’s second-largest purchase since he took over in May 2011 and will give the world’s biggest chemicals maker a leading position in pharma-grade Omega 3, a top-purity fatty acid used in heart drugs such as GlaxoSmithKline Plc (GSK)’s Lovaza. Bock’s penchant for smaller technology-driven deals over riskier big-ticket purchases is winning investor accolades.
“I don’t mind bolt ons,” said Stephan Thomas, who helps manage 16 billion euros ($21.3 billion) including shares of BASF at Frankfurt Trust. “It’s a better strategy than buying something big with integration costing a lot, lay-offs and probably bad press.”
Bock is so far showing less appetite for multi-billion dollar deals than his predecessor Juergen Hambrecht, who bought Swiss additives and dye maker Ciba for $5 billion in 2009 and cosmetics ingredient maker Cognis for $3.8 billion a year later. By contrast, Bock has bought 12 companies in areas such as battery materials and biological crop-care and spending of Ludwigshafen, Germany-based BASF on takeovers still dropped to $2 billion in 2012 compared with an average of $3.5 billion in the prior six years, according to Bloomberg data.
“If you look at this strategy, you aren’t just being careful, you are more definite in your decisions because you are making very specific investments,” said Boris Boehm, a fund manager at Aramea Asset Management in Hamburg, who holds BASF shares. “There are a host of smaller companies under the radar. I wouldn’t call targeting them conservative because that sounds so unexciting. It’s entrepreneurial.”
Still, BASF’s cash generation would allow Bock, 54, to spend big. The company, which is scheduled to report full-year earnings on Feb. 26, probably generated cash of almost 7.9 billion euros in 2012 as sales may have increased 5.9 percent to 77.8 billion euros, according to a survey of analysts compiled by Bloomberg.
BASF shares declined as much as 2 percent to 72.32 euros in Frankfurt trading and were down 1.4 percent at 72.80 euros as of 10:12 a.m. local time. The stock has gained 29 percent in the past six months, boosting the company’s market value to 66.9 billion euros.
Last year’s largest purchase was the $1.02 billion acquisition of seed-treatment supplier Becker Underwood Inc. Becker supplies bacteria and microscopic worms that feed on soil-dwelling fungus gnats, an alternative to traditional fungicides and pesticides.
Pronova, based in Lysaker, Norway, adds a pharma-grade fatty acid used in blockbuster heart drugs to BASF’s sprawling portfolio of materials and chemicals spanning skin-care ingredients and lightweight plastics used in electric vehicles.
BASF, founded 147 years ago, raised its offer to 13.50 kroner a share on Jan. 15, valuing Pronova at almost 5 billion kroner ($900 million) after minority shareholders balked at a previous 12.50 kroner a share bid. The company yesterday said it won almost 98 percent support from the Norwegian drug-ingredient maker’s shareholders, enough for the acquisition to go through.
All Pronova shareholders except Herkules Private Equity, which held half of the stock, will get the higher price. That means that the German company, which is paying in cash for Pronova, will only have to pay an additional $27 million for the higher bid.
“While Bock could buy a larger company if available at the right price, he’d probably lend more weight to the financial side of a deal and may therefore be more cautious,” said Frankfurt Trust’s Thomas, whose fund has a bigger block of BASF shares than any other equity.
Bock, who climbed BASF’s corporate ladder through a career in finance, founded a new unit to provide a home for the four battery-material makers purchased. At its headquarters on the Rhine river, laboratories form pockets of innovation in BASF’s sprawling headquarters, where steam crackers split naphtha into chemical building blocks at the 3.86 square-mile site.
BASF has also teamed up with universities, research institutes and partners such as Robert Bosch GmbH and Volkswagen AG (VOW) to develop new lithium-ion batteries. The goal is to boost the range of electric cars while lowering battery prices and BASF has earmarked a three-digit-million euro investment in that segment by 2016.
“It’s a strategic focus of going into certain areas,” Thorsten Strauss, an analyst at NordLB, said. “It’s also about using opportunities. Still, if something bigger was to come onto the market, they would probably jump at the opportunity.”
Frankfurt Trust’s Thomas said he wouldn’t mind a “mega deal” at BASF as long as the company doesn’t overpay, the integration goes quickly and the deal is accretive in a relatively short time. Of the bigger deals that BASF has done, the integration of Ciba probably took longer than management had budgeted, he said.
BASF has also taken a deeper look at Cognis to harness more growth and synergies.
As well as batteries, BASF is building up its water technology business. Its venture capital arm in May invested in NanoH2O Inc., a U.S. company that makes membranes for seawater desalination. That followed the purchase of a startup called Inge Watertechnologies AG in 2011.
BASF shares rose 32 percent in 2012 in Frankfurt, beating the 29 percent gain of Germany’s benchmark DAX index. Aramea Asset Management’s Boehm said investors wouldn’t mind if Bock continued to add key technology assets at a low price.
“It’s a careful approach and in my opinion that’s the charm of it,” he said. “The share price hasn’t suffered under this strategy. I can imagine that they will continue because they’ve had a good experience with it.”
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