Evonik rejects €10.3bn BASF bid to consolidate chemicals industry
Size of premium may increase pressure on management and biggest shareholder
Evonik has rejected a €10.3bn offer from its larger German rival BASF, sparking a potential takeover battle amid a push for mergers in Europe’s struggling chemicals industry.
Ludwigshafen-based BASF recently offered about €22.15 per share as an initial proposal, according to people familiar with the matter. But Evonik said the bid was too low to warrant formal negotiations or to allow its competitor to carry out due diligence, they added.
The bid would mark a nearly 29 per cent premium to Evonik’s share price last Monday before speculation about takeover interest became public. The offer would give Evonik an enterprise value of about €14.2bn, according to Bloomberg data.
The FT reported last week that BASF had approached Evonik about a possible takeover but details of the price offered have not previously been made public.
The size of the premium may increase pressure on Evonik’s management and its biggest shareholder, the RAG-Stiftung foundation, to justify their unwillingness to engage. Evonik’s shares were trading at €19.29 on Monday afternoon.
Investors in BASF, whose shares fell 3.6 per cent on Friday when the approach became public, are also likely to seek its explanation for pursuing a costly and complex merger that would expand its geographic and product mix.
A potential acquisition of Evonik would “strengthen and complement BASF’s core businesses and we would be disciplined in our approach”, the group said in a statement on Monday, adding that any synergies “can only be validated with the engagement of Evonik”.
Evonik confirmed last week that it had received a “nonbinding” takeover approach but that “currently there are no talks taking place”. BASF, which has a market value of about €44bn, said at the time it had held “exploratory talks” with the RAG-Stiftung foundation and Evonik, adding that the “course and outcome” of the discussions “remain open at this stage”.
A takeover would be a bold move by BASF chief executive Markus Kamieth to consolidate Europe’s fragmented chemicals industry and build a company that could better compete with Chinese rivals, including Sinopec, as well as American competitors such as Dow.
But any tie-up could also lead to job cuts and asset sales to remove overlaps between the two businesses. Shareholders, management and politicians will have to weigh the benefits of building a Germany-based champion with combined revenues of €74bn against the risks of a complex merger and associated cost cuts.
The position of RAG-Stiftung, which has a 44 per cent stake in Evonik, will be key to whether any deal is reached. The foundation was created in 2007 by the German government, states and trade unions to manage the costly phasing-out of the country’s hard coal mining industry.
RAG’s board of trustees includes Hendrik Wüst, premier of North Rhine-Westphalia who is seen as the country’s “chancellor-in-waiting”, German finance minister Lars Klingbeil and Katherina Reiche, the economy minister.
Michael Vassiliadis, head of the IGBCE chemicals and energy union, is also a member of RAG’s board of trustees as well as a supervisory board member at BASF.
Earlier this year, Vassiliadis called for “concerted consolidation” to support the sector in the long term. He has recused himself from decision-making about the potential takeover, said people familiar with the matter.
But Vassiliadis warned on Monday that a BASF-Evonik combination would not benefit workers and production sites simply by creating a larger company.
He called for commitments on investment and the future of German and European sites. “Both companies should be careful not to turn the screw too far,” he said.
Evonik is run by interim chief executive Claus Rettig, who took over after Christian Kullmann stepped aside in August due to illness. Kullmann predicted in May that the European chemical industry would see significant consolidation.
Germany launched a national strategy in March to help turn around the industry, which faces high energy costs, global overcapacity, weaker demand and rising overseas competition.
Both BASF and Evonik have been restructuring to focus on their core businesses. BASF, which has more than 100,000 employees in more than 90 countries, has been selling peripheral assets and cutting costs and jobs to boost profits.
Evonik, which operates in more than 100 countries with about 31,000 employees, is cutting jobs, closing plants and selling non-core assets.
Evonik and RAG declined to comment.