Mulling Counterbid Report: BASF Angles for DuPont

BASF, the world's largest chemicals firm, is looking into making a counterbid to buy U.S. rival DuPont, a $55-billion move which would torpedo DuPont's merger with Dow Chemical, news agency Bloomberg reported, citing sources.
Is the light yellow or red for BASF's takeover plans?

There are rumors of a coup in the global chemicals industry. German giant BASF is discussing options with bankers and advisers to submit a counterbid for U.S. rival DuPont, news agency Bloomberg reported on Monday, citing people familiar with the matter.

If successful, the bid would scupper Dow Chemical's plans to merge with DuPont, which has a market value of around $55 billion, or €50.2 billion.

Although BASF is open to takeovers, company insiders and industry experts view a merger of Ludwigshafen-based BASF and DuPont, headquartered in Wilmington, Delaware, as unlikely.

"The deal ran its course," a BASF insider told Handelsblatt. A company spokesman declined to comment on the speculation.

BASF shares were down 2 percent at €62.04 at the end of the morning in Frankfurt, trailing the German blue-chip DAX index, which fell 1.1 percent.

We will remain very focused in our M&A strategy Kurt Bock, chief executive, BASF

BASF held talks with DuPont about buying the U.S. rival, but then DuPont decided to merge with Midland, Michigan-based Dow Chemical, Bloomberg reported.

Currently, BASF has not yet made a decision about making a counteroffer nor has it formally approached DuPont, the sources told Bloomberg.

In December, the two largest chemicals companies in the United States agreed to a merger of equals under the name DowDuPont. Plans call for the merged entity to be divided into three publicly listed companies respectively specializing in plastics, special chemicals and agricultural chemicals.

Analysts have questioned BASF's ability to compete with a consolidated American chemicals industry at time when the German giant's growth and earnings are already suffering from a collapse in oil prices.

Buying DuPont would be a heavy lift for BASF. The merger would cost an estimated €60 billion ($66 billion), equivalent to the company's own market value. BASF would either have to finance the deal through debt or raise extensive capital.

 

BASF and U.S.Rivals 1-01 DuPont Dow Chemical market cap operating profit

 

A merger with DuPont would strengthen BASF in the areas of special and agriculture chemicals. Integrating the two companies, however, would be extremely complex and expensive.

Contradicting the speculation in the press, BASF chief executive Kurt Bock has erred on the side of caution - at least in public - when it comes to risky mergers.

"We will remain very focused in our M&A strategy," Mr. Bock said at a recent earnings presentation.

According to Handelsblatt's sources in the industry, however, BASF explored the possibility of a deal with DuPont at the same time it was considering a merger with the Swiss agrochemical company Syngenta last fall. Ultimately, BASF lost out to Chinese state company ChemChina in the Syngenta deal last month.

Documents submitted by DuPont to the U.S. Securities and Exchange Commission seem to confirm negotiations with BASF at least took place. The documents describe discussions with "company two" running parallel to the negotiations with Dow. Company two is described as a "large, public company in the chemicals industry."

More than two centuries old, DuPont is an icon of American industry and was the world's leading chemicals company for many years. Originally a gunpowder manufacturer, DuPont is responsible for a number of chemical innovations in the 20th century, including Nylon, Teflon and Neoprene.

 

BASF and U.S.Rivals 2-01 Dow Chemical DuPont chemicals revenue profit equity

 

Up until the early 1990s, DuPont was considerably more profitable and valuable than BASF. But the U.S. company has hardly grown since and has had to repeatedly sell or spin off divisions with weak prospects.

DuPont sold its fibers division to Koch Industries in 2004; its lacquer and paint division went to private equity firm Carlyle; and it spun off its performance chemicals division into an independent, publicly listed company named Chemours in 2015.

Although DuPont acquired the seed company Pioneer in 1999 and the Danish enzyme specialists Danisco in 2011, those purchases haven't been enough to put the U.S. company on a path to growth.

Forty percent of DuPont's earnings are now related to agriculture, primarily seeds and pesticides. The rest of its business encompasses a broad range of chemicals for the electronic and solar industries, food additives, packaging materials, special plastics, as well as enzymes and other biotech products for the food industry and industrial applications.

Many of these activities - particularly seeds, enzymes, special plastics and electronic chemicals - would nicely complement what BASF is already working on. But a merger would come at a very high price. And when measured by profits and cashflow, DuPont still has a higher value than its German competitor.

 

Siegfried Hofmann is Handelsblatt's chemical and pharmaceutical industries correspondent. To contact the author: [email protected]