Handelsblatt Exclusive

BASF Pursuing Acquisitions

BASF factory source Uwe Anspach dpa
If the conditions are right, BASF might become even become bigger and make a an acquisition.
  • Why it matters

    Why it matters

    BASF might make an acquisition in the chemicals industry if the conditions are right.

  • Facts

    Facts

    • The agrochemical industry is currently undergoing a new round of consolidation. Of the top five, BASF is the smallest.
    • Syngenta announced last month that it would accept a $43 billion offer by the state-owned Chinese company, ChemChina.
    • U.S. chemicals firms Dow Chemical and DuPont announced in December to merge, increasing competitive pressure on BASF.
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    Audio

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BASF has conducted serious takeover negotiations with Syngenta, the Swiss seed and chemical company, before Chinese state-owned chemicals firm ChemChina agreed to buy the Syngenta for $43 billion, Handelsblatt has learned from Swiss industry sources.

BASF’s failed bid to acquire Syngenta is proof that the world’s largest chemical company is still intent on the high-profit business of increasing farm yields.

Both BASF and Syngenta declined to comment, but Kurt Bock, BASF’s chief executive, last week told Bloomberg Television he has been looking at acquisitions in the agricultural-chemicals market but stopped short of concluding a deal as prices were too high.

“We have a clear strategy to grow the company; this includes M&A and portfolio management,” Mr. Bock said in the television interview.

Ludwigshafen-based BASF is a big player in agrochemicals, but it will become the smallest following a planned merger between U.S. firms Dow Chemical and DuPont – with the goal of creating a new company for seeds and plant protection.

Ludwigshafen-based BASF is a big player in agrochemicals, but it will become the smallest following a planned merger between U.S. firms Dow Chemical and DuPont – with the goal of creating a new company for seeds and plant protection.

In the future, only five leading agrochemical producers will remain, including Monsanto and Bayer.

BASF’s courtship of Syngenta shows that the company is ready to participate in the race toward consolidation, if conditions are favorable. But Mr. Bock wasn’t willing to risk as big a bet as the Chinese made.

According to Bloomberg, BASF was more interested in taking over only a majority share in Syngenta and integrating its own plant-protection division into the Swiss firm.

A large acquisition in the agrochemical sector would allow BASF to strengthen its position in agricultural chemicals and offset weaker growth in plastics and other chemical areas.

Last month, BASF said it plans to sell its industrial coatings business for $529 million to Dutch paints maker AkzoNobel, a deal which raises money for potential acquisitions.

A takeover might help offset weak earnings growth in BASF’s energy businesses. The company’s 2015 earnings last week showed a decline in operating profits of around 18 percent as lower oil and gas prices hurt its energy explorations operations.

For 2016 as well, chief executive Mr. Bock expects another slight downturn in profits because of weaker oil and gas revenues – in spite of increasing returns in the chemical sector.

 

BASF Bayer Syngenta Dow chemical dupont monsanto Big in Pesticides and Seeds-01

 

The challenge facing management is to bring promising possible involvements into harmony with the high demands of capital returns. Evidently that’s what thwarted the Syngenta deal.

Mr. Bock, who took over management of BASF in 2011, so far has been extremely cautious regarding acquisitions. All in all, he has brought in more money through divestitures than he has spent on acquisitions.

“Not everything that is big and attractive necessarily creates value,” he said last week, in response to a question about possible acquisitions.

He considers the agrochemical division of BASF to be in good shape for the future as well. “We have a strong pipeline and are quite successful in developing blockbusters.”

But read between the lines, statements by BASF management reveal a certain frustration and incredulity that Syngenta was ready to flee beneath the roof of a Chinese state-owned company, which isn’t obliged to give much concern to generating adequate capital returns.

Off the record, BASF insiders criticized ChemChina’s offer as exorbitant. When asked whether a Chinese-owned Syngenta might pursue market share over price, Mr. Bock said simply: “Syngenta management says nothing will change. So that will be the case.”

But the takeover by ChemChina is in no way a done deal. It could be blocked by objections from the inter-agency Committee on Foreign Investment in the United States, for example. In that event, BASF would be back in the running.

 

Holger Alich is Handelblatt’s Switzerland correspondent, covering the financial industry. Siegfried Hofmann is Handelsblatt’s chemical and pharmaceutical industries correspondent. To contact the authors: alich@handelsblatt.com and hofmann@handelsblatt.com

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