According to BASF the deal will give it a leading position in the higher margins personal care and home care markets, as well as boosting its position in human nutritional care, ultimately generating growth above that of the industry average.
“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,” said Dr. Jürgen Hambrecht.
Confirmation of the deal comes after months of speculation, during which BASF executives are said to have bargained hard over the price tag.
Although the acquisition will be subject to closing conditions that will also fulfill regulatory requirements, it is widely believed to be a secure deal and should be finalized by November of this year.
“Overall this is a very positive move for BASF,” said analyst Paraag Amin, a chemical specialist at Credit Suisse. “As well as providing significant financial synergies in terms of operations, most importantly it makes BASF the number one player in the personal care and home care chemicals markets.
BASF makes jump into naturally sourced chemicals
In 2009 Cognis generated sales of nearly €2.6bn derived from the more than 100 markets it is present in and registered an EBITDA that amounted to €322m, accounting for a profit margin of 12 per cent.
“The deal takes BASF from number three to number one in the personal care market. Cognis is also more about natural-sourced raw materials like palm oil whereas BASF is more acidic and chemical. BASF is interested in going higher up the value chain and this deal helps them achieve that goal.” said Nobert Barth, financial analyst from German West LB.
Currently Cognis is divided into three business segments – care chemicals, which represents the personal care market; together with nutrition & health and functional products.
Good position for further acquisitions
This more dominant position in the personal care field is also expected to put the company in a good position for further expansion within the market.
“The acquisition will provide a far stronger platform for BASF in the personal care field, which is likely to lead to further bolt-on acquisitions in the future,” said Amin.
Though the deal is not expected to be financially positive until 2012, the benefits to the cosmetic arm of the business are expected to be felt within the first six to 12 months of it going ahead.