BASF Snags Smaller Peer Cognis for €3.1 Billion

FRANKFURT (Reuters) – Chemical industry leader BASF (BASF.DE) said it had agreed to buy Cognis for 700 million euros ($939.2 million) and expects the household products additives maker to help it weather economic turbulence.

BASF will pay smaller peer Cognis’s private-equity owners Permira [PERM.UL] and Goldman Sachs Capital Partners (GS.N) 3.1 billion euros including debt, it said on Wednesday.

“We are strengthening our portfolio with cyclically robust and profitable businesses,” said BASF Chief Executive Juergen Hambrecht.

BASF’s core chemicals and plastics business currently relies on industries such as autos and construction, both of which were hit particularly hard by the economic crisis.

Describing the tie up as a “good deal”, DZ Bank analyst Peter Spengler kept a “buy” rating on BASF and said “the price seems reasonable. It is a fine art to catch hold of the few big interesting assets in the market. BASF has a good track record in adding new segments to become less cyclical and more focused on customer solutions.”

Hambrecht, due to step down next year, is said to have negotiated particularly hard over the price for Cognis, sources said, having been accused of overpaying for BASF’s previous 3.8 billion euro takeover of Ciba, announced in 2008.

Cognis finance chief Marco Panichi, citing prevailing core earnings multiples in the industry, indicated last month that a fair value for Cognis could be about 3.4 billion euros ($4.2 billion), according to Reuters calculations.

Cognis, a maker of additives for cosmetics and detergents, has made a specialty of using raw materials from palm trees, coconut and corn.

These products would sell well through BASF’s existing marketing channels and analysts have said a takeover would also be a timely bet on a recovery in consumer goods markets.

Cognis’s private equity owners had relaunched their campaign to sell the company outright even as it prepared to go public.

HOLDING OUT

Goldman and Permira abandoned plans to sell the group in 2006 and again in 2008, but remained eager to divest, having held on to the company for nine years, far longer than is customary among private equity firms.

They bought Cognis from glues and detergents maker Henkel (HNKG_p.DE) for 1.4 billion euros in 2001 and have since siphoned dividends worth about 500 million euros as well as undisclosed interest payments for loans made to Cognis.

While Hambrecht kept a more pessimistic stance about the chemical industry’s state than peers during the economic crisis, he made a point of showing confidence about BASF’s prospects.

In November 2008, shortly after BASF stock had hit four-year lows, Hambrecht and his four grown-up children between them bought shares for 140,000 euros, or 22 euros apiece. The family investment has now more than doubled in value.

BASF shares closed at 46.74 euros on Tuesday, up by nearly two-thirds over the past 12 months. The STOXX Europe 600 Chemicals .SX4P index, of which BASF is a member, was up nearly 40 percent over the same period. 

Sources had told Reuters over the weekend that Cognis’s owners had cold-shouldered a takeover offer from Lubrizol even though it stood at 3.2 billion euros, higher than that of favoured bidder BASF.

But doubts about Lubrizol’s ability to line up secure funding tipped the scales in BASF’s favour, sources also said.

Hambrecht said earlier this month that BASF’s annual sales should grow more than 75 percent to above 90 billion euros by 2020, helped by takeovers and expanding its core chemicals operations.

The Cognis deal is expected to close in November. ($1=.7453 Euro) (Additional reporting by Christoph Steitz; Editing by Knut Engelmann and Simon Jessop)