A BASF spokesperson said, “all three are important” in the acquisition that is expected to cost about €200-250m in integration costs and added: “BASF is already in nutrition but it is mainly animal nutrition – we are not so much in human nutrition.”
German-based market analyst, Nobert Bath, from West LB, said that the importance of the human nutrition division to BASF, “should not be neglected” along with the natural sourcing of some of its raw materials and its sustainability initiatives.
“This deal makes a lot of sense strategically and Cognis’ functional ingredients portfolio matches BASF’s interest in going higher up the value chain. The high-end nutritional ingredients of Cognis such as omega-3 and plant sterols are exactly in this mould.”
Paraag Amin, Credit Suisse chemical specialist stated: “The move to broaden its foothold in human nutrition also serves to compliment the company’s position in animal nutrition, where it is already one of the leading players in the world.”
Functional ingredients powerhouse
Bath said the merged group would move it from sixth to third biggest functional nutrition company in the world. DSM is the biggest.
BASF and Cognis earned €2.6bn and €2.58bn in revenues last year – giving the new company combined sales of €5.18bn for the year.
Bath said the fact Cognis had sold off low-margin businesses like textile chemicals in 2008 before the financial crisis, and its relatively strong performance during the crisis itself increased its attractiveness to BASF since a similar buy-out was mooted in 2008.
BASF may need to deleverage, he said, to maintain its A credit rating given the deal involved buying €2.4bn of Cognis debt which added to its existing debt of about €13bn.
But he observed that the acquisitions policy that had gathered speed since Dr Jürgen Hambrecht became chairman in 2004 was unlikely to change very much, although another major acquisition was unlikely in the “next 1-2 years.”
In a statement Hambrecht said: “With the acquisition of Cognis, we are strengthening our portfolio with cyclically robust and profitable businesses and further expanding our position as the world’s leading chemical company.”
Cognis spokesperson Susanne Sengel said it may be some months before integration plans become clear.
The deal is subject to anti-trust approval, but analysts expect few issues to arise.
Bath added:“I think the recession has helped this deal because it has reduced the number of potential buyers. I thought €3bn was a fair price so €3.1bnis no surprise although many were speculating that the strong performance of Cognis during the recession would lead to BASF overpaying.”
In Q1this year, Cognis’nutrition and health division turned in an EBITDA profit of €19m on €88m in sales.