Super Giant Chemical Companies: BASF Acquires Ciba
May 1, 2009
BASF has announced plans to acquire Ciba Holdings AG, the latest in a series of large acquisitions in the chemical industry over the past two years. BASF has offered 50 Swiss francs ($44.96) in cash for each Ciba share, for a total deal value of about CHF 6.1 billion ($5.5 billion). Ciba’s board of directors has approved the deal and advised Ciba shareholders to accept the offer.
Super Giant Chemical Companies - A Key Market TrendA number of high-profile acquisitions have taken place in the chemical industry in the last few years. BASF and Dow both acquired large companies in 2008, the acquisitions arising from cash-rich positions as a result of windfalls. Smaller acquisitions and mergers have taken place out of a need to control escalating feedstock and energy costs. Table 1 shows details of key recent acquisitions.
Other companies are also looking to sell their businesses. Cognis has been up for sale twice in recent years, as has Huntsman, which was targeted first by Basell and then Apollo Management.
Chemical companies will continue to get bigger as total integrated solutions, logistics and reduced scale play an increasingly important role in a very competitive industry. By 2020, there will just be a handful of key market players in the chemical industry; the trick will be backing the right one.
What Does this Mean for BASF?BASF is a strong player in all parts of the Ciba product portfolio; thus, Ciba can be regarded as an excellent strategic fit. Table 2 highlights the key industry synergies.
Ciba makes additives for many of the lubricant and plastic markets that BASF is active in, thus enabling BASF to provide a value-added solution to the market. The acquisition of Ciba will expand BASF’s product portfolio and market share, as well as increase its leading position in the plastic and coatings markets. Ciba has approximately 30% of its products still on patent and is the market leader in special-effect pigments and coatings additives. BASF has a strong portfolio of green and blue pigments, while Ciba is a leader in red pigments. Together, the companies will have a complete portfolio and a powerful offering. The acquisition will also make BASF the largest supplier of paper-chemical chemicals and will increase its water-treatment portfolio (Ciba makes corrosion inhibitors for water-treatment applications).
What Does this Mean for the Rest of the Industry?BASF will become the biggest player in the color-chemicals and plastic-additives industries. Clariant’s position looks increasingly weak and, like Ciba, the company is suffering from a low share price. It would thus come as no surprise if Clariant were purchased in the coming months. It is unlikely that BASF will acquire Clariant; problems with monopolies in the market would arise and the strategic fit is not as compelling as Ciba’s. Sun Chemical (a subsidiary of Dainippon Ink and Chemicals Inc.) would be a likely buyer, having previously acquired Bayer’s pigment business in 2003. Bayer has over 50% of the plastic-dyes market and could likely be a buyer of Clariant’s dye business.
BASF’s acquisition of Ciba is certain to send shockwaves out in the industry. Mergers and acquisitions are likely, in a reactive measure to combat BASF’s increasing market dominance and buying power. Collaborations could also be a fruitful strategic move between remaining players.
ConclusionCiba is a chemical company with a lot to offer to the industry with its product selection. Ciba’s current financial performance may not be a fair reflection of the company’s potential; in fact, it may have arisen due to problematic investment and economic climates, rather than any major shortcomings of the company. One must then conclude that BASF has capitalized on the low share price position and has snapped up a bargain. BASF is undeniably a powerhouse in the chemical industry, and its implementation strategy and assimilation of companies into its Verbund structure is among the best in the industry.
Nevertheless, there are still plenty of opportunities in the chemicals sector, with good growth on the horizon for other market players. Excellent business planning and strategy should see a number of players enjoy success, although many will doubtlessly have to re-evaluate their strategy and approach to the market.
Any views or opinions expressed in this article are those of the author and do not represent those of Adhesives & Sealants Industry, its staff, Editorial Advisory Board or BNP Media.