BASF SE is working with advisers and financing banks on the merits of making a counter bid for DuPont Co., the $55 billion chemical company that agreed to a merger with Dow Chemical Co. in December, people with knowledge of the matter said.
The German chemical producer hasn’t made a decision yet about proceeding with an offer, said the people, who asked not to be identified because the information is private. No formal approach has been made to DuPont, the people said.
BASF, the world’s biggest chemicals company, has been working with advisers since last year to explore a bid for DuPont, said the people. It held talks with the U.S. company before it agreed to merge with Dow and those talks didn’t progress, the people said.
BASF has so far missed out on a wave of consolidation within the industry that has focused on crop products like pesticides and seeds. This has come as years of low commodity prices continue to erode farmer incomes. Buying DuPont would give it more profitable businesses from food ingredients to enzymes as well as the second-biggest producer of seeds such as genetically-modified corn. Monsanto Co. is the largest seed company.
Considered a Deal
BASF Chief Executive Officer Kurt Bock said in a Bloomberg Television interview last month that he considered a deal in the field of agricultural chemicals before deciding to stay put. Dow and DuPont in December announced the industry’s biggest ever deal, one that creates the world’s largest agriculture business and the second-biggest chemicals company after BASF. Last month, China National Chemical Co. agreed to buy Switzerland’s Syngenta AG for about $43 billion, gaining the biggest pesticide maker.
“We look at the industry and try to understand what is our position,” Bock said. “We feel comfortable with what we have. You have to look at multiples, price expectations in the market, and have to make up your mind whether that is something which is really creating value or not.”
Representatives of BASF and DuPont declined to comment. DuPont, based in Wilmington, Delaware, jumped 5.3 percent in after-hours trading. BASF, based in Ludwigshafen, Germany, has a market value of about 58 billion euros ($64 billion). Midland, Michigan-based Dow has a market value of about $56 billion.
Monsanto sparked the string of mega-deals with its unsuccessful bid last year for Syngenta. During the period described in October by Dow CEO Andrew Liveris as one when everyone was “talking to everyone,” the European companies appeared caught out by the speed and pressure for mergers and acquisitions.
For BASF, which has no seed business, DuPont would fill an important gap, said James Sheehan, an Atlanta-based analyst at Suntrust Robinson Humphrey Inc.
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“Everyone else is combining and no one else wants to be left in a strategically weak position,” he said by phone. “DuPont would be a good strategic fit for them.”
DuPont discussed potential deals with multiple companies ahead of the Dec. 11 agreement with Dow, according to a March 1 regulatory filing by DowDuPont Inc., the name of the merged company. DuPont may be obligated to pay Dow a termination fee of $1.9 billion if it breaks the deal, the filing shows.
‘Math is Terrible’
The added cost of the breakup fee is just one reason why BASF’s potential bid for DuPont looks “unrealistic,” Jonas Oxgaard, a New York-based analyst at Sanford C. Bernstein & Co., said by phone. BASF also would need to pay a 30 percent premium to DuPont’s share price in December, which was more than $74 after the deal announcement, and it would probably need to issue equity at currently depressed prices to avoid excess borrowing, he said.
“The math is terrible for this,” Oxgaard said. “DuPont already rejected them once, and the world has now changed quite dramatically” with the Dow merger.
BASF expects earnings to drop as much as 10 percent this year as the crash in crude prices hurts its oil-and-gas unit and erodes margins in petrochemicals.
DuPont Chairman and CEO Ed Breen met with the chairman of “a large, publicly traded chemical company” in Short Hills, New Jersey, on Nov. 25 to discuss the purchase of DuPont’s agriculture business and other transactions, the March filing shows. Short Hills is about seven miles (11 kilometers) from BASF’s U.S. headquarters in Florham Park. Breen received a letter from the unidentified company’s chairman on Dec. 10 proposing preliminary talks on a potential combination, according to the filing.
DuPont announced its agreement to merge with Dow the next day.
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