Evonik Said to Focus on U.S. Deals Amid Acquisition Pressure

Updated on
  • Company has held talks with Air Products about materials unit
  • CEO has set 2016 deadine to make purchase or distribute cash

Evonik Industries AG has turned its attention to the U.S. in its search for a target after struggling to make a larger acquisition in Europe, according to people familiar with the matter.

Germany’s second-largest chemical maker has held talks with several U.S. companies including Air Products & Chemicals Inc.about buying its material technologies unit, which is scheduled to be spun off later this year, said three of the people, who asked not to be named because the discussions aren’t public. Evonik hasn’t made any final decision and is still scouting for targets, the people said.

Representatives for Evonik and Air Products declined to comment.

Time is running out for Evonik Chief Executive Officer Klaus Engel after he set a deadline of mid-2016 to either find a suitable acquisition or distribute Evonik’s burgeoning pile of cash to investors. A large acquisition has so far eluded the Essen, Germany-based company, even after it looked into buying Royal DSM NV, Clariant AG and Croda International Plc, people familiar with the matter have told Bloomberg.

Air Products’s materials technology unit had $2.09 billion in revenue in the 12 months ended in September. Evonik is most attracted to the part of the unit that supplies specialty additives and chemicals for adhesives and coatings, which would fit with existing operations, and is less interested in the side that makes chemicals for electronics, said one of the people. The Air Products business may also attract larger German rival BASF SE, two of the people said.

A BASF representative declined to comment on potential acquisition targets.

“I usually prefer organic growth, but in the current environment where interest rates are so low, we have a different situation,” said Stefan Breintner, a fund manager at DJE Kapital AG, which owns shares in Evonik according to data compiled by Bloomberg. “An acquisition is interesting for Evonik, and I would not be negative if they could do a value-accretive acquisition.”

Majority Investors

Evonik’s failure to find a bigger acquisition is also holding up plans for possible asset sales, two of the people said. The German company is considering carving out and potentially selling the business making methyl methacrylate and polymethyl methacrylate -- starting materials for products used in the automotive, construction and lighting industries. Still, an agreement with labor representatives not to sell any assets unless proceeds are needed for an acquisition would hinder a sale.

RAG Stiftung, which holds 68 percent of Evonik’s shares, would prefer the company spend cash on growth instead of distributing it to shareholders -- especially if an acquisition would boost the amount of less-cyclical, specialty chemicals the firm can sell, one of the people said.

Evonik on Monday said it plans to raise its 2015 dividend by 15 percent to 1.15 euros per share after the chemical maker met its target for profit last year. Shares of the company were up 1.8 percent at 28.16 euros as of 4:25 p.m. in Frankfurt. In the U.S., Air Products climbed 0.6 percent to $119.7.

If the company is able to pay for a deal in shares, an acquisition could also lead to a larger percentage of freely-traded shares, diluting RAG’s stake and helping the company get into Germany’s benchmark DAX Index. Evonik has a market capitalization of about 13 billion euros ($14 billion).