Engelhard set to fall in BASF's hands

By Gregory Roumeliotis

- Last updated on GMT

Related tags Chemical industry

The stage is ready for the biggest acquisition in BASF's 140-year
history after Engelhard's management agreed to recommend their
shareholders accept the German chemical group's $5bn (€3.8bn)
takeover bid.

BASF, already the world's largest chemical company, is looking to establish itself in pollution-reducing catalytic converters for automotive and industrial use, where Engelhard is a market leader.

But this move also has implications for the pharma industry since many of Engelhard's catalysts can be used in chemical production processes for active pharmaceutical ingredients (APIs) and intermediates, at a time when the chemical industry cycle may be moving toward a peak.

In addition, Engelhard boasts a range of additives that improves both drug appearance and efficacy, as well as a robust line of precious metals supply and full-loop management services, including refining to recover precious metals from spent catalyst.

"In terms of our fine chemicals pharma business, this acquisition fits well, as have previous acquisitions we have made like Orgamol, our Swiss contract manufacturing unit,"​ BASF spokesman Gareth Rees told In-PharmaTechnologist.com​.

"Now obviously we have to be cautious and see how the shareholders react."

Engelhard's shareholders now have till 5 June 2006 to tender their shares for $39 each, ending a five-month-long drama that started with Engelhard's first public bid on 3 January 2006, when it offered $37 per share.

Apart from sweetening the deal by raising the amount of cash it offered, BASF dropped unspecified conditions in the original offer to make it more attractive to Engelhard shareholders, and in exchange the US company abandoned a plan to buy back its own shares that it had unveiled to make shareholders resist BASF's advance.

Currently the chemicals sector is struggling against rising costs brought about by increased oil prices, and although BASF has been hit by the price hikes, it is a much larger and more diverse company, controlling its own oil resources.

Engelhard, on the other hand, has been affected more severely by these global market pressures, forcing it to make price increases of between 5 and 7 per cent on a number of its leading fine chemical and material lines, which have in turn impacted its bottom line considerably.

An Engelhard spokesperson told In-PharmaTechnologist.com​ it was premature to speculate about synergies between the two companies before the deal closes and a timeframe for integration is set out, something expected by the end of June.

The takeover was cleared by US competition authorities in February and is anticipating EU regulatory approval.

It is the latest in a series of acquisitions made by BASF, including Degussa's construction chemicals unit for $3.4bn and Johnson Polymer for $470m.

Further takeovers may be in store as the chemical giant seeks to reduce the cyclical nature of its business and mop up some of the cash that its integrated production generates.

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