Lubrizol Joins Cognis Sale Fray

FRANKFURT/LONDON (Reuters) – U.S specialty chemicals maker Lubrizol (LZ.N) has joined other potential bidders in talks to buy German additives group Cognis, a source close to the matter told Reuters.

The Financial Times paper had earlier reported that Lubrizol had approached Cognis for talks about a takeover that could value the target at around 3 billion euros ($4.10 billion).

The talks with Lubrizol are at an early stage and has not produced an offer yet, the source said on Wednesday.

Lubrizol did not immediately return a phone call to its European headquarters seeking comment.

The owners of Cognis, which makes additives for food and cosmetics, are in sale talks with several parties including German chemicals group BASF (BASF.DE), two people close to the negotiations told Reuters on Friday.

Permira [PERM.UL] and co-owner Goldman Sachs Capital Partners (GS.N), which turned down takeover offers for Cognis [COGNS.UL] as too low in 2006, aim to fetch a sale price of at least 3.5 billion euros, one of the people said.

None of the companies have commented on the transaction.

Talks with all parties are still at an early stage and could take months to complete, both of the sources said, without providing details on who the other potential buyers are.

Financial industry sources had told Reuters on March 16 that Permira and Goldman Sachs were hoping to woo specialty chemical makers such as Lanxess (LXSG.DE) and Evonik [EVON.UL] to end their troubled investment in Cognis.

Analysts view Belgium’s Solvay (SOLB.BR) and Dutch group DSM DSMLX.O as potential suitors as well.

Britain’s Croda (CRDA.L) declined to comment on whether it had expressed interest.

Cognis, the former unit of glues and detergent maker Henkel (HNKG_p.DE), specialises on products based on natural oils and fats, which have higher margins and are less cyclical than those based on volume chemicals.

But its negative equity and 1.9 billion euros in net debt at the end of last year could put off some potential buyers.

The move comes as several buyout firms try to float chemical-sector assets in Europe such as chemicals distributor Brenntag (BNRGn.DE), which raised 747.5 million euros in an IPO last month.

UniCredit analyst Jochen Schlachter valued Cognis at 7-8.5 times earnings before interest, tax, depreciation and amortisation (EBITDA).

“Assuming EBITDA rises to around 380 million euros this year you get a business value of around 3 billion euros,” he noted.

Cognis boosted 2009 EBITDA 4 percent to 364 million euros on sales of 2.6 billion.

Credit Suisse analysts said a buyer could reap synergies of 5-10 percent of Cognis sales, or 140-280 million euros.

Silvia Quandt Research analysts thought Cognis would be a good fit for BASF.

“We believe that Cognis would make lots of strategic sense for BASF,” with a purchase contributing to earnings in the second year after the deal closes.

But DZ Bank warned BASF against overpaying.

“We would have serious concerns about a purchase price of 3.5 billion euros or over as it would very probably lead to a two-year dilution,” it said in a research note.

“Moreover, unlike in the case of Lubrizol, we see a disadvantage for BASF in so far as 56 percent of Cognis sales are generated in Europe, and only 23 percent are generated in the growth markets of Asia and South America.”

(Reporting by Alexander Huebner and Frank Siebelt in Frankfurt and Victoria Howley and Caroline Copely in London; Writing by Michael Shields; Editing by Louise Heavens)