BASF’s Pronova Deal Faces Opposition From Shareholders

BASF SE’s takeover of Pronova BioPharma ASA is at risk of being blocked by minority shareholders unhappy with the $671 million price tag placed on the Norwegian drug-ingredient maker.

Investors controlling as much as 20 percent of the Lysaker-based company are disgruntled, according to Alexandra Morris, a fund manager at Odin Forvaltning AS who said she’s discussed the takeover with others. Odin has a 4.7 percent stake and BASF is seeking 90 percent to gain full control.

“We don’t understand why BASF aren’t willing to pay more than that,” Rolf Solgard, chief portfolio manager at Nykredit Asset Management, which has a 1 percent stake, said in an interview. “The premium they’re paying is much lower than what you see in other takeover cases.”

Pronova would give BASF access to the market for pharma-grade Omega 3, a top-purity fatty acid used in blockbuster heart drugs such as GlaxoSmithKline Plc’s Lovaza and Abbott Laboratories’ Omacor. The world’s biggest chemical maker in November agreed to buy the business for 12.50 kroner a share, though a fair price for it would be closer to 20 kroner than to 10 kroner, Solgard said.

Shares of Pronova rose as much as 1.2 percent to 12.65 kroner in Oslo trading today, highlighting that some investors are betting BASF will raise its 3.76 billion-krone offer. BASF dropped as much as 0.8 percent in Frankfurt trading.

Room to Maneuver

“This was an extremely low offer and they should be able to pay a lot more and still have an accretive deal,” said Odin’s Morris, who declined to name the investors who are also opposed.

BASF already extended its proposal by a month to Jan. 18 after getting about 67 percent support. Jennifer Moore-Braun, a spokeswoman for the Ludwigshafen, Germany-based chemical company, declined to comment.

“There is no chance that they will succeed with this bid unless they raise their offer,” Kristofer Liljeberg, an analyst at Carnegie Investment Bank AB in Stockholm, said today by telephone. “I would be very surprised if they just walked away without negotiating with minority owners.”

Under Norwegian law, 90 percent is the threshold BASF needs to squeeze out the remaining shareholders and get full ownership. Liljeberg, who has a buy rating on the stock and a target price of 16 kroner, said he thinks the deal would go through if BASF paid about 15 kroner.

Understanding CEO

Pronova Chief Executive Officer Morten Jurs said the price is fair considering the uncertainty of future profits because of rising competition and as governments cut subsidies for health supplements.

“If we succeed with all our initiatives going forward, I think the price is very cheap,” Jurs, who owns 530,000 shares of his own, said in an interview. “But if we see that we succeed with some of our initiatives but also see that some of challenges will be realized, I think the price is more balanced. I have noticed that many of our shareholders think the price is low and that is fair as well.”

It will be up to BASF to determine how to push the acceptance rate to 90 percent, Jurs said. The German company may decide to raise the price or close the deal with less than the 90 percent, Jurs said.

BASF said in November that the purchase price gives Pronova an enterprise value of 4.85 billion kroner, which is 5.7 times earnings before interest, tax, depreciation and amortization over the previous 12 months. Royal DSM NV paid about 9 times Ebitda for both Ocean Nutrition Canada in May and food-additive maker Fortitech in November.

Cash Purchase

BASF plans to finance the deal, supported by Pronova’s board, with cash on hand. Herkules Private Equity, Kistefos AS and Kistefos Investment AS, investors which own about 60 percent of Pronova’s stock total, have said they will accept the offer, BASF has said, adding the commitments are “irrevocable.”

CEO Kurt Bock is boosting the company’s share in nutrition and health, a market estimated to grow to 81 billion euros ($106 billion) by 2015 that is sought after by rivals such as DSM and Croda International Plc. Pronova has a production site in Denmark.

“The synergies for the acquirer would be huge,” Nykredit Asset Management’s Solgard said. “It makes sense.”

Before it's here, it's on the Bloomberg Terminal.