Shrinking BASF Is Pruned for Deals as Chemical Makers Mergeby
German plastics, pesticides maker has been shedding assets
Analysts say company likely to make acquisitions this year
BASF SE is opting to sell businesses at a time when rivals push ahead with mega-deals.
The world’s biggest chemicals company said Thursday it’s in talks with Akzo Nobel NV on the sale of a metals-coatings business. Chief Executive Officer Kurt Bock also has plans this year to carve out its pigment business, which has about 1 billion euros ($1.1 billion) in revenue. These come after an asset swap with Russia’s Gazprom PAO led to 12 billion euros in lost sales.
During Bock’s almost five years at the helm, the net total of revenues lost from businesses sold comes to 18.1 billion euros. With asset prices coming down and deals by competitors opening up opportunities to snap up units they may have to sell, BASF could finally push ahead with acquisitions, said Markus Mayer, an analyst at Baader Bank AG.
“I think you can count on BASF buying something bigger and I’m pretty sure that it will come this year,” said Mayer, who has a ‘sell’ rating on the stock.
BASF’s slimming down comes amid a chemical industry merger and acquisition frenzy, which has seen $125 billion in deals announced in the last three months alone, including China National Chemical Corp buying Syngenta AG and a merger between Dow Chemical Co. and DuPont Co.. This is more than the value of deals done during the previous year, according to data compiled by Bloomberg.
The German maker of chemicals ranging from plastics for sports shoes to pesticides has been reticent about making acquisitions because targets are so expensive, Bock said during an investor day in September. A company spokeswoman declined to comment Thursday on future acquisitions.
Low-Hanging Fruit Gone
“Since 2010, 2011, we have done a few acquisitions; some people might even say we didn’t do enough,” Bock said in September. “Keep in mind that since 2010 the multiples -- valuation multiples in the chemical industry -- have gone up by 40 percent. So the low hanging fruit -- something which is a good strategic fit and financially very, very attractive -- the low hanging fruit are gone.”
With 8.5 billion euros of cash generated in the nine months through September, the question is what BASF will do with its money. The company has splurged on new factories, taking capital expenditures to a peak of 5.5 billion euros in 2014, although the CEO has said spending will fall in subsequent years.
“I can’t imagine that BASF will sit around and twiddle their thumbs and watch how the cake is being divided up and won’t take part at all in that,” said Oliver Schwarz, an analyst at MM Warburg. “I think that they must have enough targets in the drawer and when the price is right they will open the drawer and buy.”
‘The Year For BASF’
Anti-trust considerations surrounding the Dow-DuPont combination will likely put assets on the market and BASF will probably take a look at those, Schwarz said. The company’s best bet is to buy cheaply in the trough of the cycle even if the assets don’t seem attractive at the time.
“Prices have come down since December so 2016 could potentially be the year for BASF,” MM Warburg’s Schwarz said.
Mayer pointed to Clariant AG’s spin off of a plastics and coatings unit or Airgas Inc.’s specialty chemicals business as potential targets for BASF. Less likely would be U.S. agrochemical maker Monsanto Co., a good fit to BASF’s portfolio, but potentially too big, he said.
During Bock’s tenure, BASF’s annual revenue and profit have dropped and the share price has fallen 17 percent. Last month, the company warned 2015 earnings before interest and tax fell a more-than-forecast 18 percent due to an impairment on the oil-and-gas division, hurt by the collapse in crude prices.