INSIGHT: BASF's styrenics prove hard to shift

20 August 2008 16:51  [Source: ICIS news]

By Mark Watts


LONDON (ICIS news)--BASF’s styrenics business has long been bottom of the class when it comes to the company’s mid-term results and has proved to be just as troublesome to expel.


The German chemicals giant announced it would sell the division over a year ago but the price tag appears to be too high for potential suitors.


On Monday BASF said it would add its styrenic copolymers units to the carve-out, then split the package into a number of subsidiaries to attract investors.


The new subsidiaries – with total annual sales of about €4bn ($5.9bn) – will now include styrene copolymer plants in Ludwigshafen and Schwarzheide, Germany, as well as global marketing, sales and logistics activities.


“The original styrenics business has been up for sale for some time and I assume they’re not finding a buyer at an acceptable price,” said ING analyst Paul Satchell. “It is not clear whether in principle they can sell it as a whole or sell it in parts.”


Although the new subsidiaries are not planned to be launched until January 2009, BASF on Tuesday said it was already in negotiations with a bidder for the carve-out businesses.


Satchell said he could not envisage a buyer from any of the large listed companies in Europe. A number of suitors have been suggested in the last year including LyondellBasell, SABIC and INEOS Nova.


“It’s conceivably a good business. BASF aren’t selling it because it’s not fixable, they just want as little exposure to the commodities end of the business as possible,” said Satchell.


“Styrenics as a value chain is difficult and it’s unlikely to become great anytime soon,” he said.


One source close to a major producer told ICIS news that whoever bought BASF’s styrenics unit would be “getting a bargain” as the market was plateauing with the company keen to shift the business. 


It added that BASF’s operation was widely considered to be technically superior to much other European production. 


A key issue, however, remains the financing necessary for the takeover, with credit hard to find.  Anti-competition laws were also widely mooted as a potential sticking point, given the extent to which a handful of key players had now consolidated much of European business.


Access to feedstocks such as benzene and ethylene were also likely to be a major consideration for potential European buyers, with costs high against diminishing downstream demand.


As a rule of thumb, basic commodities chemicals businesses in normal times would go for something like 0.8 times sales, which is a surprisingly good guide, according to Satchell. But in current market conditions the business would probably be sold at a discount.


Citigroup had estimated the original sale’s (turnover about €3bn) value at €1.6bn, while in February the German company estimated the value of the styrenics copolymers division at €615m.


BASF’s European styrene business has been lagging in profitability for years now and its low margins make it a hard sell.


The energy intensive styrenics production faces poor downstream demand and high feedstock costs, and may be relying on the increasing wealth of consumers in Asia.


BASF’s recent second quarter results showed the company’s commodity chemicals are still way behind its robust specialties and agricultural businesses.


BASF was expecting the sale to go through in the first half of 2008. The structural reshuffle signals further measures are needed to finally offload the lagging business.


($1 = €0.68)


Peter Salisbury contributed to this article

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