BASF’s Verbund-Locked CEO Hunts Savings Not DuPont-Style Exits
Stock Chart for BASF SE (BAS)
While DuPont Co. (DD) and Dow Chemical Co. (DOW) make hasty retreats from commodity products, BASF SE (BAS) Chief Executive Officer Kurt Bock is locked into the company’s 148-year-old all-encompassing approach of extracting the gas to the ingredients used in nutritional supplements.
DuPont late yesterday announced a spinoff of its performance chemicals division with $7.2 billion in sales, and Dow said it would divest as much as $4 billion in assets, with more likely to follow. Though Ludwigshafen, Germany-based BASF views bundling its styrene into a joint venture in 2011 as a success, it isn’t planning measures as drastic as its U.S. peers, Bock said today.
North American shale gas, expansion by lower-cost producers in Asia and the Middle East are helping redefine Europe’s role in the $4 trillion industry by intensifying competition in export markets. Bock’s near-term hopes lie in the further fine-tuning of BASF’s so-called Verbund systems, chemical sites bound together by a web of pipes that both deliver feedstock and whisk byproducts off to adjoining plants that need them, so as little is wasted.
“Following Dow and DuPont would destroy value rather than create it,” said Heiko Feber, a Bielefeld, Germany-based Bankhaus Lampe analyst who has a hold rating on BASF stock. “If you look at the facilities in Ludwigshafen, you see how one upstream product flows straight into the next factory and is then worked upon down the pipeline. I don’t know how you could ever manage to carve anything out from that.”
Having aborted an earlier attempt to exit a textile-chemicals business, Bock is reviewing under-performing businesses to find further steps that can be taken to enhance their profitability.
BASF has the potential to exceed its aim of improving profit by 1 billion euros ($1.4 billion) by extending and accelerating the savings plan that helped third-quarter earnings beat analysts’ estimates, Bock said in a Bloomberg Television interview today.
The company is on track to meet its goal of realizing 300 million euros in savings this year and is evaluating further measures, he said. The performance products division is a focus, with restructuring planned in the stagnant market of paper chemicals.
“I do think we have the opportunity to improve further,” said Bock, who became CEO in May 2011. “We are in the midst of our budgeting discussions right now and we have to wait for the outcome, but I’m quite confident that we have additional ideas of what to do.”
BASF, Dow and DuPont have common goals, to remove those commodity chemicals that cause volatility in earnings as they move in tandem with economies and focus on the more value-added segments of the chemical industry, such as nutritional supplements and crop protection, where the latest technology and innovation is paramount to success.
For BASF, that need not exclude investing in the raw materials needed to create those products.
BASF is in talks with fertilizer maker Yara International ASA (YAR) about building a worldscale ammonia plant on the U.S. Gulf Coast. Such a plant would be backward integration for BASF, securing the raw materials it needs for polyurethane foams, resins and crop-protection sprays.
BASF is also expanding its oil-and-gas exploration and production business Wintershall, that’s helped buoy earnings during times of high crude prices as well as given security in the supply of raw materials.
Bock said today he’s evaluating further options related to the shale gas boom in the U.S.
Dow yesterday raised its disposal target to $3 billion to $4 billion, with CEO Andrew Liveris pledging that more is to come. It’s earmarked a chlorine business for a sale or a joint venture that would end Dow’s 117-year presence in that market.
“We consider it a valuable asset, but no longer maybe valuable to us because of the other criteria, which is to de-commoditize our earnings and really invest in IP and the value-add,” the Dow CEO said yesterday.
DuPont’s decision to separate its performance chemicals division -- which makes materials such as the white TiO2 pigment used in paints and toothpaste -- could be the start of a “long metamorphosis” against a backdrop of pressure from activist shareholder Nelson Peltz to maximise returns for investors, according to a Citi research report.
BASF was founded in Ludwigshafen in 1865 after the planned acquisition of a site in Mannheim fell through, and within seven years started building 400 houses for its employees. The company now has 33,300 employees in or around the city of about 160,000 people. That’s almost half of the 71,144 employees it has in Europe and little under a third of the 113,000 global total.
BASF says it saves about one billion euros annually through its Verbund structure. It has six sites globally which operate the structure, of which its home Ludwigshafen location is the biggest. The other locations are Geismar, Louisiana and Freeport, Texas in North America, Singapore, Sao Paulo and Nanjing, China.
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