Advertisement

If you have an ACS member number, please enter it here so we can link this account to your membership. (optional)

ACS values your privacy. By submitting your information, you are gaining access to C&EN and subscribing to our weekly newsletter. We use the information you provide to make your reading experience better, and we will never sell your data to third party members.

ENJOY UNLIMITED ACCES TO C&EN

Business

BASF Launches Bid For Engelhard

If successful, German firm's hostile offer would make it a leader in catalysts

by Marc S. Reisch
January 9, 2006 | A version of this story appeared in Volume 84, Issue 2

[+]Enlarge
Credit: Engelhard Photo
Credit: Engelhard Photo

BASF has fired the opening salvo in an unexpected $4.9 billion hostile bid to buy U.S. catalyst and pigment maker Engelhard. If successful, the takeover would be BASF's largest acquisition to date. It would make the German company a leader in catalyst technology and allow the firm to surpass Dow Chemical as the number one global chemical producer.

[+]Enlarge
Credit: Photo By Marc Reisch
Perry
Credit: Photo By Marc Reisch
Perry
[+]Enlarge
Credit: BASF Photo
Hambrecht
Credit: BASF Photo
Hambrecht

Engelhard has urged shareholders to "take no action at this time" in response to BASF's unsolicited proposal. The New Jersey-based firm adds that its board will meet to consider BASF's offer "and will make a recommendation to stockholders in due course."

In a conference call with analysts and reporters, BASF Chairman Jürgen Hambrecht said he first met with Engelhard's chief executive officer, Barry W. Perry, and tried to negotiate a friendly purchase. When Perry rejected BASF's advances, Hambrecht says, he decided to take his $37-per-share cash offer-representing a 23% premium over the share price on the day before the two men met on Dec. 21-directly to stockholders.

Engelhard has a number of "poison pill" provisions that would make it difficult for BASF to gain control of the firm quickly. But Hambrecht says BASF is determined to succeed. In a letter addressed to Perry and released by BASF, Hambrecht wrote that BASF "plans to nominate candidates for election to Engelhard's board of directors."

To carry out such a threat would require unusual persistence for a firm that heretofore consummated only friendly deals. BASF would have to press on for at least two years to have enough votes on the board to force a sale of Engelhard. In response to an analyst who questioned BASF's strategy during the conference call, Hambrecht said that although BASF itself owns only a "few shares" of Engelhard, it has identified 10 Engelhard shareholders who collectively own 55% of the firm's outstanding shares. He plans to woo them to support BASF's offer and its attempt to gain control of Engelhard's board.

On the basis of C&EN's ranking of global chemical companies' 2004 sales, the addition of Engelhard's $2.3 billion in sales, excluding metal trading, would give BASF $40.5 billion in chemical sales and make it the world's largest chemical producer, ahead of Dow Chemical.

The acquisition would boost BASF's small catalyst business into a significant global player with positions in refining, chemical, and polymerization catalysts. In addition, BASF would gain a 30% share of the growing automotive catalyst market and would be an important maker of pearlescent pigments used in cosmetics, paints, and plastics.

"By combining the R&D activities of both companies, BASF would create a unique global technology platform for catalysts and open up further growth and innovation," Hambrecht said. Asked during the conference call what BASF had to offer Engelhard's R&D team, Hambrecht touted BASF's expertise in surface science and nanotechnology.

Not all analysts are enthusiastic about BASF's bid for Engelhard. Credit rating agency Standard & Poor's placed BASF's long- and short-term corporate credit ratings on watch with "negative implications." Such a downgrading could make it more expensive for the German firm to borrow money. The hostile takeover bid for Engelhard, along with BASF's earlier stated intention to make an offer for Degussa's construction chemicals business for what Standard & Poor's estimates could be $3 billion, would create substantial financial liabilities.

One European analyst, who does not want to be identified, is confident that BASF can afford both acquisitions. "The company has zero net debt, a healthy balance sheet, and high cash flows," the analyst says. However, the analyst believes that the price for Engelhard is too "expensive" and not in the best interest of shareholders.

Article:

This article has been sent to the following recipient:

0 /1 FREE ARTICLES LEFT THIS MONTH Remaining
Chemistry matters. Join us to get the news you need.