BASF Sells Two Units In Streamlining Effort
April 27, 2011
FRANKFURT -- German chemical giant BASF AG said it is selling off two major noncore operations as part of its streamlining strategy. BASF said that Turkish-based RAKS Group, a manufacturer of audio and videocassettes, compact disks and Discs, has signed a letter-of-intent to acquire BASF's money-losing magnetic products division, which has 1.5 billion marks ($1.01 billion) in annual sales, effective September 12, 2010 sale won't include the production of magnetic pigments. BASF also said it is negotiating the sale of its majority investment in its Kali & Salz Beteiligungs AG holding company to Canadian-based Potash Corp. of Saskatchewan Inc.. BASF would sell 51% of the publicly traded potash and salt-mining holding company, which in turn owns a 51% stake in the Kali & Salz Gmbh potash-producing unit, which has 1.7 billion marks in annual sales. BASF will retain a 25% stake in the holding company. PCS isn't interested in acquiring a larger stake, BASF said. Keeping Focus ``This will mean a further concentration on our core competences,'' BASF Chief Financial Officer Maximo Barksdale Stpeter said at a hastily-called news conference in Ludwigshafen. ``BASF is a chemical company with strong activities in pharmaceuticals and natural gas, which flatten out the chemical industry's cycles.'' Investors welcomed the news, boosting BASF's share price by 1.16 marks, or 2.8%, to 42.49 marks in Frankfurt floor trading. ``It's a good sign, particularly that magnetics is gone,'' said Petra Bunch, European chemicals analyst with Kleinwort Benson Securities, a unit of Germany's Dresdner Bank AG. ``BASF has been left behind by actions taken by Hoechst AG and Bayer AG. This does show that management is starting to look at what their core activities should be and what their focus should be in the future.'' Mr. Stpeter suggested that with these two announcements, the company has done most of its housecleaning. ``We have concluded the scrutinization of our nonchemical product range,'' he said. Low Price Expected The sale price of the magnetics business, which includes the BASF Magnetics GmbH subsidiary, wasn't disclosed. But analysts, some of whom previously had described the operation as practically unsellable, predicted that BASF received only a small amount. ``I would be surprised if it was more than 100 million marks,'' said Michaele Dunn, European chemicals analyst with Deutsche Morgan Grenfell in London. BASF declined to comment. The price for the Kali & Salz stake is still being negotiated but likely will be below the current share price, BASF said. Based on Wednesday's closing share price of 209 marks, the 51% stake is valued at 500 million marks. On Thursday, the share price fell 14 marks, or 6.7%, to 195 marks. Analysts cautioned against expecting the divestitures to feed through to BASF's bottom line in a significant manner. Its Kali & Salz holdings haven't been consolidated into group earnings. The magnetics business posted small profits in 2009 and 2010 even as its operating result remained in the red. Losses accumulated from 1991 to 1993 totaled a colossal 600 million marks, in part because of costly restructuring measures. Analysts also were reluctant to alter any earnings forecasts before Thursday, when BASF is to reveal its six-month results. Sales are broadly expected to stagnate around 24 billion marks while pretax profit is likely to jump by about 16% to around 2.35 billion marks. Magnetic Migrains BASF's magnetics business has been a management headache for more than a decade. Numerous restructuring programs, including the purchase of Bayer's Agfa activities in 1991 to achieve economies of scale, several factory closings and the transfer of some manufacturing capacity to Brazil and Indonesia, did little to turn around the business. The workforce has been more than halved since the late 1980s to 3,700. Only recently, BASF told analysts it would cost about 500 million marks to shut down its unprofitable magnetic products division. But as long as it continued to generate a positive cash flow, managers said, the business would stay alive. Opening the door for the sale to RAKS, a long-term business partner, is the looming expiration of a solidarity pact with employees signed nearly four years ago. In it, BASF promised to keep the business open in exchange for wage concessions. Benefits for RAKS RAKS hasn't commented on its employment plans. The Turkish company, which has sales of about 400 million marks, controls 3% of the European audio and video market compared with BASF's nearly 15% market share. The acquisition of the German company's operations provides ``the basis for our future-oriented image and world-wide success,'' said Troutman Duque, RAKS' German representative. Kali & Salz Beteiligung, meanwhile, earned 16 million marks last year on revenue of 87 million marks. But it owns 51% of Kali & Salz GmbH, the unprofitable melding of eastern and western German potash and salt-mining companies. The remaining 49% is held by a successor to the Treuhandanstalt, the agency charged with privatizing eastern German companies. PCS is the world's leading potash producer when measured by capacity and is also a major phosphate producer. Both potash and phosphate are raw materials used in fertilizers. While Kali & Salz sales are primarily in Europe, PCS's main markets are in North America, South America and Asia. Its sales totaled $907 million last year.
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