BASF should take another crack at chemicals M&A

{"text":[[{"start":4.6,"text":"For companies in shrinking industries, the question isn’t whether to band together through mergers — but how to share the resulting gains. German chemicals group BASF, whose €10.3bn bid for rival Evonik was rebuffed despite being pitched at a sizeable 29 per cent premium, should consider trying again."}],[{"start":23.4,"text":"BASF was already making a big bet: including debt, the deal would have cost around €14bn. Evonik is undergoing its own cost cutting and restructuring programme. And BASF’s shareholders clearly aren’t thrilled by the prospect of a deal. Its shares fell 4 per cent on initial news of the approach last Friday."}],[{"start":42.6,"text":"But the benefits from putting together the two companies are such that BASF has room to push the price a bit higher. Overlapping areas — where either both companies make the same products, or one makes the raw materials that the other buys — represent about a third of BASF’s sales, and two-thirds of Evonik’s, according to Deutsche Bank analysts, leaving lots of room to combine plants and remove duplication."}],[{"start":66.64,"text":"And even assuming that BASF only managed to cut costs equivalent to 7.5 per cent of Evonik’s sales, which is typical for the sector according to Bernstein analysts, that would imply €1bn in annual savings for roughly €8bn of equity value today, Lex calculates. By comparison, the €2.3bn premium BASF offered on Friday looks positively meagre."}],[{"start":90.58,"text":"For its part, Evonik, governed by the RAG-Stiftung foundation, may find it hard to turn up its nose at a higher number: analysts are not expecting a rapid recovery in its prospects, and are pencilling in 2030 operating profit below that forecast for this year, according to Visible Alpha."}],[{"start":106.68,"text":"Meanwhile, both companies’ shareholders should bear in mind that consolidation, in Europe’s chemicals sector, is a strategic imperative. Amid rising competition from China, almost a tenth of production capacity has already been scheduled to close, according to consultancy firm Roland Berger. A less fragmented chemicals sector could find its return on capital improves through higher margins, or perhaps even growing sales if lower costs are passed on to struggling industrial customers."}],[{"start":null,"text":"

"}],[{"start":135.24,"text":"Having scale could also help beyond the factory gates. A large European chemicals champion would have more clout in Brussels as the industry lobbies for greater protection from cheap imports and looser environmental regulation."}],[{"start":148.82,"text":"And if Evonik proves too resistant, BASF need not abandon the hunt. Europe has no shortage of midsized chemicals companies, including Arkema, Syensqo and Lanxess. An ample supply of struggling rivals should provide BASF with the motivation to keep knocking on doors."}],[{"start":171.43,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1790646805_3824.mp3"}