BASF AG has made a $4.9 billion hostile, all-cash offer for U.S. pigment and chemicals maker Engelhard Corp., aiming to become the world’s leading producer of pollution control materials, the German chemicals company said on Tuesday.
BASF said its $37 a share offer — at nearly a 23 percent premium over Engelhard’s December 30 closing price — was unlikely to meet any significant regulatory hurdles.
A bellwether for the industry and the world’s top chemical company by sales, BASF said it had sufficient cash and financing flexibility to fund the acquisition.
However, BASF told an investors’ call that Engelhard has a poison pill plan that could allow the company to block the acquisition.
By acquiring the Iselin, New Jersey, company, BASF would gain a leader in the growing area of catalysts used to cut car emissions and help chemical plants and refineries run more efficiently.
Engelhard notched sales of $3.3 billion during the first nine months of 2005 and has a strong research pipeline, BASF said, adding that tightening pollution standards and a booming energy market could make Engelhard products very lucrative.
Attractive markets
“We view this market as being highly attractive, with significant growth potential,” BASF Chief Executive Juergen Hambrecht, told investors in a call following the announcement.
Automotive catalysts alone are a $2.5 billion global market with 4 percent annual growth over the last five years, BASF noted. In addition, it said taking over Engelhard would reduce the cyclical nature of BASF’s earnings.
Still, shares in BASF ended down 1.4 percent at 63.90 euros in Frankfurt compared with a 0.2 percent gain by the broader DAX index.
“It will be tough to explain the deal to investors,” a trader said. “The short-term share price reaction will be negative.”
BASF, which had a friendly offer rebuffed, said it was prepared to raise its bid if Engelhard could show that there was more value in the company’s business than was discernible from publicly available information.
“That might enable BASF to increase the price it proposes to pay for Engelhard by $1.00 per share,” BASF said.
“I think this is probably just the opening salvo in what could be a protracted acquisition battle,” said fund manager Steve Geist, who owns Engelhard shares in the FPA Paramount Fund and the FPA Perennial Fund.
Asked why Engelhard would appeal to one of the major chemical companies like BASF, Geist said: “I think Engelhard is very strong in the catalyst business. They have many different market opportunities, whether it be in the petroleum business or the appearance chemicals business.”
Appearance chemicals are cosmetics products and paint products.
Geist, who owns more than 100,000 shares in the two funds, said he has not yet made a decision on whether the BASF offer is an “appropriate” price. He said Engelhard “still has a lot of opportunities going forward.”
The company had announced in the past that it was looking for acquisitions and said in late October that U.S. expansion would come partly from bolt-on acquisitions.