Swiss Sika strong candidate for BASF construction chems arm - Bernstein

Source: ICIS News

2018/11/07

LONDON (ICIS)--Switzerland-headquartered Sika is a strong candidate to acquire BASF’s construction chemicals operations, analysts at Bernstein Research said on Wednesday, as one of the few companies in the space with the scale to make a serious bid for the assets and a strong overlap in operations.

BASF announced last month that it is to evaluate options for its construction chemicals operations, a €2.4bn business by 2017 sales, with around 7,000 employees.

The business has strong overlap with Sika’s operations, Bernstein said, with 48% of sales in concrete admixtures and the remaining 52% covering waterproofing, sealants, flooring and other chemicals.

The business has under-performed since BASF acquired it from Evonik in 2005, Bernstein said, but Sika would be able to capture stronger synergies than most other potential acquirers due to its complementary product slate, brands and geographic footprint.

Among diversified businesses with strong construction chemicals or related operations such as Henkel, Saint-Gobain and Mapei, only Sika has the capacity to bid, according to the analysts.

The BASF division is likely to be valued at around €3bn or higher, and Sika would have the capacity to absorb that entirely through new debt issuance.

However, the leverage involved would present a risk to its credit rating, meaning that the company would likely pursue a rights issue or share placement to finance part of the cost, Bernstein added.

The conclusion of a years-long legal battle for control of Sika through the acquisition by Saint-Gobain of Schencker-Wrinkler Holding, its largest shareholder, has left the company with greater freedom to act, meaning that the timing of BASF placing construction chemicals on the sales block is auspicious.

Sika's management had already announced plans to increase acquisition spending, although a deal of this size may not have been what the team had envisaged.

“This deal would present a transformative 'once in a decade' type of opportunity for Sika and be a big consolidation move for the industry in several of Sika's business segments,” Bernstein noted.

BASF and Sika had not responded to requests for comment at the time of publication.

In line with most European chemicals stocks, BASF and Sika's shares were trading up around 1% by 11:30 UK time.

Pictured: BASF Construction Chemicals technology centre in Mumbai
Source: BASF