BASF sticks to Engelhard bid terms despite snub
Tue Jan 24, 2006 01:00 PM ET
FRANKFURT, Jan 24 (Reuters) - BASF, the world's top chemical company by sales, stuck to its $4.9 billion takeover offer for U.S. firm Engelhard on Tuesday despite being rebuffed by the Engelhard board.
"BASF continues to believe its all-cash offer of $37 per share is fair and compelling," it said, adding that Engelhard's stance deprived stockholders of a chance at significant returns.
Late on Monday, Engelhard rejected BASF's unsolicited offer as inadequate, saying it would explore various options including a possible sale.
The bid is the biggest takeover attempt by BASF in its history of more than 140 years. The German chemical company wants the deal in order to enter new, growing markets and to reduce the cyclical nature of its businesses.
BASF said it was still prepared to raise its offer by as much as $1 a share should Engelhard provide additional information that justified the increase. It said Engelhard had not provided such data.
"It's clearly BASF's strategic thinking not to give in and raise the price unless they get some information that justifies it," said Landesbank Rheinland-Pfalz analyst Silke Stegemann.
"They are hoping that shareholders will help push the deal through," she added. BASF can also attempt to get the Engelhard board enlarged by canvassing with shareholders, and get its nominees on to the board.
Engelhard Chief Executive Barry Perry told Reuters on Monday the company would consider a higher offer from BASF, although he did not put a figure on any such potential offer.
BASF shares ended down 0.3 percent at 61.95 euros, while Engelhard stock was up 1.5 percent at $40.32 in New York.
On Jan. 3, BASF made its bid for Engelhard, a maker of catalysts and pigments, aiming to become a leading producer of pollution-control materials. It said the offer represented a 23 percent premium to the stock's Dec. 30 closing price.
Engelhard, in presenting its rationale, said it expected its free cash flow to exceed $100 million this year. Longer-term, it forecast earnings per share growth of 16.5 percent through 2010, part of its justification for seeking a higher offer.
ANALYSTS EYE $40
Analysts expect behind-the-scenes haggling over price between BASF and Engelhard, with the U.S. firm raising the ante by saying it had received enquiries from third parties about a possible deal.
"We think that BASF might be prepared to pay $1 to $2 more than the $37 per share offer if BASF gets indications from an inside view of Engelhard that the growth opportunities or the synergies might be higher than expected," said HVB analyst Andreas Heine in a note.
MM Warburg analyst Sven Dopke added: "The management tries to increase the bid but does not fully block the initiative.
"Although BASF's very solid financial muscle could allow for a significantly higher offer, we do not expect the company to go above and beyond approximately $40."
The acquisition of Engelhard would soak up some of the excess cash that BASF generates.
BASF, a bellwether for the European chemicals industry that makes a range of chemicals from plastics to pesticides, had until now stayed away from big acquisitions since Juergen Hambrecht took over as chief executive in May 2003.
It has preferred to focus on smaller buys such as the electronic chemicals business of Germany's Merck KGaA, which it bought for 270 million euros, and Swiss fine chemical maker Orgamol, a company with sales of around 100 million euros.
The first indications that this strategy might change came two weeks ahead of the Engelhard bid when BASF said it was interested in buying the construction chemicals business of German peer Degussa, a deal analysts expect could cost it as much as 2.5 billion euros. (Additional reporting by Ben Berkowitz in New York)
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