conglomerate conundrum New BASF boss needs to find the right chemistry

The world’s biggest chemicals company continues to sell and buy businesses, hoping to benefit from divestments in the Bayer-Monsanto merger, but is unlikely to follow in DowDuPont’s footsteps and break itself up.
Quelle: dpa
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(Source: dpa)

What do mattresses, electric car batteries, pesticides and Nivea face cream have in common? They contain materials produced by BASF, the world’s biggest chemicals company that wants to stay on top with products like these and hundreds more.

It is a sprawling range for a giant conglomerate, but Kurt Bock, the chief executive of BASF, said that while the current structure wasn’t chiseled in stone, there were no plans to change it anytime soon. "We have a model that works," he said at an annual earnings conference on Tuesday.

The 59-year-old executive will resign in May and hand over to his deputy, Martin Brudermüller, who has worked at BASF for 30 years. Mr. Brudermüller, 56, is likely to continue the current strategy, given that Mr. Bock will take over as chairman in 2020, after a mandatory two-year cooling-off period.

Two BASF businesses, which have been a focus of expansion for years, delivered disappointing results last year.

Strategically, the 153-year old company is following a different path than DowDuPont, which merged last year but plans to separate into three businesses in 2019. German rival Bayer, a drug and pesticides maker, has also been spinning off assets, such as rubber-maker Lanxess and plastics-producer Covestro. But BASF, which has annual sales of €64.5 billion, is taking smaller steps by divesting and buying businesses.

Among them: The company plans to withdraw from its Wintershall oil and gas division by merging it with rival Deutsche Erdöl DEA, which is controlled by Russian billionaire Mikhail Fridman (a stock market listing is planned 18 months after the joint venture has been established). It has already divested some smaller operations, such as the production of certain pigments and coatings and its leather chemicals business. It has also announced purchases, including a coatings business from US rival Albemarle for $3.2 billion, a plastics company Solvay, and some seed and herbicides production from Bayer for €5.9 billion. And with Bayer selling some operations to win antitrust approval for its $63 billion takeover of US seed-maker Monsanto, BASF has an opportunity to expand its footprint in this market.

28 p14 BASF's record earnings-01

It will be up to Mr. Brudermüller, a chemist, to manage these changes, especially the integration of new businesses. The incoming boss, who currently carries the title chief technology officer, will also have to crank up the profitability of two business units, which make vitamins, pigments, paints and food additives. These operations, which BASF calls specialty chemicals, have been a focus of expansion for years but delivered disappointing results in 2017.

The two divisions – performance materials and functional materials and solutions – suffered combined earnings declines of 19 percent last year to €3.7 billion. The long-term comparison is especially discouraging; performance products last year earned €300 million less than in 2011 when Mr. Bock became CEO. BASF’s basic chemicals unit, by contrast, doubled its operating profit to €4.2 billion last year, accounting for half of total group profit, and the oil and gas business also rebounded from a weak 2016.

As DowDuPont splits up in three specialized businesses and Bayer becomes the world’s leading maker of seeds and pesticides, Mr. Brudermüller has to make sure BASF remains competitive with a plethora of businesses under one roof.

Gilbert Kreijger is an editor with Handelsblatt Global. Siegfried Hofmann is Handelsblatt's chemical and pharmaceutical industries correspondent. To contact the authors: [email protected] and [email protected]