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Musing On BASF’s Styrenics Following Nova’s Sale

Nova Chemicals revealed in its earnings announcement earlier this week that back on Halloween it had reached an agreement to divest its 50% stake of its Ineos Nova styrene and polystyrene joint venture to its partner.

The partners haven’t settled on a price, which is subject to final determinations on debt and other liabilities. Nova’s CEO, Randy Woelfel, did promise a modest amount of cash and reduced liabilities to come out of the deal.

Last month at the K show in Düsseldorf, people kept on speculating about the future of BASF styrenics business. That month, Styrolution was carved out of BASF into a €2.5 billion unit that makes styrene, polystyrene, ABS, and other styrenics. People supposed that Styron or Ineos might be interested in the business.

Chris Pappas, CEO of Styron since Bain Capital bought it from Dow, is keen on growing his company through acquisition. At the same time, he seemed miffed when I asked him at K about the styrene business cycle. He doesn’t want his company pigeonholed as a styrenics company. (I don’t know how I got that impression, considering that the company, along with ChevronPhillips, owns Americas Styrenics, one of the largest polystyrene makers in the world. Oh, and the name of the company is STYRon). Anyhow, he wouldn’t comment when asked about BASF and I doubt he’s inclined to order up a bigger helping of polystyrene and ABS. He would also need to get ChevronPhillips on board.

I wouldn’t quite say the same for Ineos and wouldn’t be surprised if it has kicked the tires of the BASF business. The company did, after all, buy BASF’s U.S. polystyrene business back in 2007. Ineos also recently acquired the old Lanxess/Bayer/Monsanto ABS business. Now it is in full possession of the Ineos Nova joint venture. Though, another big deal is a tall order.

I’m on the fence about whether either of these firms CAN buy the business for anti-trust reasons. Americas Styrenics and Ineos Nova have big market shares—first and third–in North America, respectively. Globally, the industry is still quite fragmented. It might be doable with divestitures.

That said, just because styrene has been down in the dumps for a decade doesn’t mean it can’t come back. Ineos Nova has turned a profit, albeit modest, in the first nine months of the year. Perhaps years of consolidation and plant shut downs are starting to catch up to the industry.

There is still a matter of the structural shift. Most of the growth is in consumer durable goods in Asia. The industry in the U.S. and Europe has been more anemic in recent years. BASF might be attractive on that front. It has operations in Korea, India, and Altamira, Mexico, which might make it attractive to acquire. But Its Mexican operations, in northern Mexico, no less, are oriented to the U.S. market. And the company is heavily concentrated in Belgium and Germany.

Another problem is that BASF has been on the market for three years and still hasn’t been sold. During that time, Dow unloaded Styron for a $1.6 billion, which was a good, full valuation for Dow. The BASF business is unloved for some reason.

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