Bidding War for Cognis?


Lubrizol and BASF are preparing bids to acquire Cognis, according to Bloomberg and DowJones Newswires.

BASF of Ludwigshafen, Germany, was preparing a bid for Dusseldorf, Germany-based Cognis that may value the chemical maker at about 3 billion (U.S. $4 billion), with Lubrizol shaping up as a possible U.S. bidder, Bloomberg reported April 9. On April 13, DowJones Newswires reported that Lubrizol had entered negotiations to acquire Cognis.

Lubrizol and BASF declined to comment on the reports.

Its our policy to respond with no comment on speculations and market rumors, BASF spokesman Michael Grabicki told Lube Report. Lubrizol does not comment about market rumors or speculation, a Lubrizol spokesman told Lube Report.

According to an analysis by lubricant industry consultant Lewis Gaines for Gerson Lehrman Group, Cognis offers an attractive mix of chemical specialty products with potential synergies for both Lubrizol and BASF. Lubrizol, frustrated by its slow growing additive markets and flush with cash, is being drawn to Cogniss complementary products in ester lubricants, gear oils and metalworking, Gaines said. BASF is striving to improve margins. Cogniss extensive product line might be best split between the two companies.

Gaines suggested BASF would be attracted by the higher margins Cognis generates in many of its highly specialized lubricants and chemical products. Cogniss German HQ, production and overlapping products offer significant synergy potential. The [private equity] owners may be trying to initiate a bidding war to maximize value.

If Lubrizol acquired Cognis, he pointed out, the latters finished lubricants products could be a concern. Since Lubrizol needs to avoid moving strongly into any finished lubricants which compete with its major oil company customers, some divestiture may be necessary if the whole product line is acquired, he observed.

Gaines pointed out Fuchs Petrolub could also be an obvious candidate for parts of Cognis. They are Germany-based, have lots of industrial lubricant products and customers, and they are an oil company, he told Lube Report.

Since November 2001, Cognis Group has been owned by a consortium of private equity funds advised by Permira, Goldman Sachs and SV Life Sciences. Cognis has about 5,600 employees across 62 locations in 30 countries.

Cognis Functional Products business unit, including its synthetic lubricants business, posted an operating profit of 54 million (U.S. $73.4 million) for the full year 2009, an 8 percent improvement from 50 million in 2008. Its other units include Care Chemicals, which services the personal and home care industry, and Nutrition and Health, which serves the healthcare and food market.

Overall, Cognis reported a net profit of 25 million for 2009, compared to a 49 million net loss for 2008. For 2009s fourth quarter, Cognis as a whole posted a 24 million net profit, compared to a 30 million net loss in 2008s fourth quarter.

In Lubrizols Feb. 4 release recapping 2009s fourth quarter earnings, CEO James Hambrick stated the company had emerged as a stronger company with ample resources to execute its long-term strategy for growth. We will use our resources to drive organic growth through geographic expansion, as evidenced by the investment in a new China plant for additives, he said. We will continue to evaluate value-adding acquisition opportunities that will build out our portfolio. The companys largest acquisition to date was its $1.84 billion purchase of specialty chemical producer Noveon International in 2004.

Wickliffe, Ohio-headquartered Lubrizols additives segment posted record operating income of $191.4 million for the quarter ending Dec. 31, up 105 percent from $93.3 million in the year-earlier quarter. For the full year, the additives segments operating income reached $787.8 million, up 81.3 percent from $434.5 million total for 2008.

Ludwigshafen, Germany-based BASF posted sales of more than 50 billion in 2009 and had approximately 105,000 employees as of the end of the year. BASF makes synthetic lubricants and base stocks such as polyalkylene glycols, and produces a number of chemicals used in lubricants, additives and metalworking fluids. In April 2009, BASF acquired Ciba, including its process and lubricant additives business.

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