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BASF, Engelhard Dispute Goes On

Even as it raises its bid for Engelhard, BASF agrees to buy Johnson Polymer

by Marc S. Reisch
May 8, 2006 | A version of this story appeared in Volume 84, Issue 19

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Credit: Photo By Marc Reisch
Perry
Credit: Photo By Marc Reisch
Perry

BASF advanced its acquisition drive on two fronts last week, raising its takeover offer for Engelhard and signing a separate agreement to buy Johnson Polymer, the water-based polymer-coatings subsidiary of JohnsonDiversey, for $470 million.

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Credit: BASF Photo
Hambrecht
Credit: BASF Photo
Hambrecht

The German firm officially raised its bid for Engelhard by $1.00 to $38 per share and extended its offer for the catalysts and specialty chemicals firm to June 5. In addition, BASF has named five people to serve as its nominees for seats now up for election on the Engelhard board of directors. Should the five nominees win board seats, they would constitute a majority of the nine-person board and would have the power to accept BASF's merger proposal and scuttle Engelhard's own offer to shareholders.

BASF Chairman J??rgen Hambrecht pledges that "if Engelhard's shareholders don't vote in favor of our nominees, we will allow our tender offer to expire on June 5 and turn our attention to other opportunities." Engelhard's annual meeting will be held on June 2.

In contrast to the months-long public tango between BASF and Engelhard, BASF's agreement to buy Johnson Polymer seems to have come out of the blue. According to BASF, acquisition of the water-based polymers firm will complement its existing strengths in high-solids solvent-borne polymers and ultraviolet-curable resins.

Johnson brings BASF two water-based resin plants in the U.S. and one in the Netherlands, along with 430 employees. BASF says the business' annual sales of $360 million, 60% of which is generated in North America, will strengthen its presence in the North American coatings market once the deal is completed at the end of June.

A European stock analyst, who did not want to be named, says the acquisition of Johnson Polymers is characteristic of the small, friendly takeovers BASF usually transacts. As for Engelhard, "it's time for the pursuit to end," the analyst says, not only because BASF would pay too high a price but also because Engelhard's own offer to shareholders is better.

Since January, BASF has argued that its $4.9 billion, $37-per-share bid to take over Engelhard is fair. At the end of April, Engelhard revealed that BASF had raised the offer by $1.00. Engelhard set up a showdown with BASF by offering instead to pay $45 each for up to 20% of its own shares and by increasing the size of its board from six to nine directors. It then proposed five directors to fill the three new seats and two that are to be vacated.

Engelhard argues that if its nominees win, it will be able "to pursue its strategic plan for two years without the distraction" of BASF's unwanted advances. However, Hambrecht contends that BASF's "offer for all of Engelhard's shares provides greater value and more certainty to Engelhard's shareholders."

"I get the impression that Engelhard is in the driver's seat," the stock analyst says, "and that BASF is always reacting to Engelhard." The analyst suggests that BASF has underestimated the resilience of Engelhard and its chief executive officer, Barry W. Perry.

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