Is BASF The Only Suitor Standing For Cognis?

I recently discussed published reports indicating that Lubrizol and BASF were eying Cognis, the private equity owned former specialty chemicals business of Henkel. Now, according to Reuters, quoting “three sources with knowledge of the matter”, BASF may be in advanced talks and preparing a bid for Cognis. Last week, Lubrizol CEO James Hambrick, addressed the acquisition rumors with analysts by detailing Lubrizol’s acquisition strategy. He said that he was looking to make purchases in Lubrizol’s consumer specialties, performance coatings, and engineered polymers businesses, which are part of its advanced materials segment. He also said the company aimed to make acquisitions in its industrial additives business, part of its additives segment. However, he went on to stress the need to make acquisitions in the three advanced materials segment businesses, which need to grow from $500 million in annual revenues to about $1 billion to achieve the scale that the company enjoys in its additives segment units. He also said he was unwilling to add businesses new to Lubrizol. “We already have ample growth space within our existing portfolio,” he said. Hambrick added that he was looking for “bolt-on” acquisitions in the “$100 million to $500 million range”. Presumably he meant price, but he might have meant sales, which would be a number on the same order of magnitude as price anyway. “We will evaluate opportunities outside of this size range, depending on the candidate,” he said. Cognis, with $3.6 billion in revenues in 2009, is way out of this size range. It is, in fact, three quarters the size of Lubrizol. But Cognis would align nicely with Lubrizol, adding to industrial additives and consumer specialties and other areas that Lubrizol is in. It could be that Hambrick was trying to dampen expectations. Cognis might have been a good acquisition, but perhaps the price wasn’t right. It could be that Lubrizol is still a contender for the business after all.  When people leak things to the press, they leak them for a reason. The people that leaked the story to Reuters may be Cognis’ owners putting pressure on the non-BASF bidders in the process, much like  a used car salesman does when he tells you that a nice couple was in earlier that day interested in the same Oldsmobile Custom Cruiser that you are looking at. I would guess, however, that the acquisition is out of Lubrizol’s price range.

Author: Alex Tullo

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