BASF Inks Bid For Cognis

In a deal valued at $3.8 billion, BASF is buying personal care chemical maker Cognis from the private equity firms GS Capital Partners, Permira Funds, and SV Life Sciences.

The acquisition has been widely anticipated. Published reports have been circulating for months that BASF, the world’s largest chemical maker, was vying with the much smaller U.S. specialty chemical firm Lubrizol to purchase Cognis. In the end, BASF will pay $860 million in cash and assume about $2.9 billion of Cognis’ net debt and pension obligations.

Cognis, which has its headquarters in Monheim, Germany, had $3.2 billion in sales and $400 million in earnings before taxes in 2009. It was the chemical business of consumer products maker Henkel until the private equity firms purchased it in 2001.

With an emphasis on renewable raw materials, Cognis makes surfactants, emulsifiers, emollients, rheology modifiers, and active ingredients for the personal and home care sectors. It also produces nutritional ingredients such as sterols and vitamin E.

BASF says the acquisition will boost its position in the global personal care ingredients business from third to first, as well as solidify its leading position in home care.

“Our motto is to strengthen our strengths and eliminate our weaknesses,” BASF Chairman Jürgen Hambrecht told analysts. “We want to make our portfolio more competitive and cyclically resilient.”

The purchase extends a string of multi-billion-dollar mergers and acquisitions (M&A) for BASF. In 2006, it purchased Engelhard and acquired Degussa’s construction chemical business. Last year, it bought Ciba.

Analysts say Cognis is one of BASF’s better deals. “BASF’s acquisitions have yet to pay real dividends,” Morgan Stanley stock analyst Paul R. Walsh wrote in a note to clients, referring to the Degussa and Engelhard purchases. “As a result, there may be some skepticism surrounding yet more M&A for BASF.” But he argues that “Cognis represents a solid acquisition.”

Hambrecht told analysts that he now wants BASF to focus on improving cash flow, reducing debt, and maintaining a solid credit rating. “This means that there will be no further substantial acquisitions in the foreseeable future,” he said.