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Bock Discusses BASF M&A

BASF Chairman Warns: Companies Should not Pursue M & A only Tempted by Cheap Financing6a00e553931c4c883301b7c7559f77970b-pi
2016-11-09    [Source:The Wall Street Journal]

Access to cheap financing should not be the reason for firms to pursue M&A deals, said Kurt Bock, chairman of the board of executive directors of BASF SE.

Global deal activity reached a new high in October. According to data from Dealogic, the combined value for announced M&A transactions in October was $502.8 billion, one of the highest on record.

“There is certainly a tendency in today’s markets [that] because financing is so cheap (…) you feel (…) you need to do something,” said the head of the German chemicals giant in London. But one “cannot overcome operational weaknesses” by acquisitions, the executive said.

His comments come amid an acquisition wave that has seen competitor Bayer AG in September agree to buy U.S. seed firm Monsanto Co. in a deal valued at $66 billion. A large proportion of the deal will be financed by debt.

BASF recently issued two bonds at less than 1% interest, Mr. Bock said, one of them a ten-year corporate bond. “This is unbelievable,” he said.

Despite his more cautious attitude towards acquisitions, Mr. Bock said BASF would be looking at opportunities once they come long. “Would we have liked to make the business bigger? Yes, no doubt,” he said. “(…) when we see opportunities to complement our business, we will look at it and make up our mind.”

BASF however does not desperately need to do a transaction, Mr. Bock said. “Do we need to have a seed business to have a good crop protection business? No.” BASF’s crop division was large enough to compete successfully, he said.

The German firm in June spent $3.2 billion on Chemetall, a specialty provider of coatings and surface treatments. This, according to Mr. Bock, is the type of M&A opportunities that BASF is currently pursuing.

“I strongly believe, if you have a sound business model, and we think we have a sound business model (…), you can demonstrate that you grow and that you can improve margins over time (…), he said.

In Europe, the company intends to continue reducing some of its overcapacity. “If you are the market leader, you need to lead moving forward,” Mr. Bock said. That, he said, includes restructuring as well as divestments. This year, BASF has announced three sales so far.

Britain’s exit from the European Union, on the other hand, could make costs rise again, if there are new tariffs on goods from the U.K., the company’s U.K. and Ireland Managing Director Richard Carter said.

“On top of every tariff, there is additional bureaucratic cost,” Mr. Carter said, “it is additional red tape.” Any price increase in the U.K, caused by tariffs, could impact the whole supply chain. “We need to make sure we get everybody up to speed on the government side.”

After Brexit, the company wants tariff-free access to the EU’s Single Market, Mr. Carter said, including the free movement of people.