BASF Blitz Ciba - 3,700 jobs to go in an EU approved acquisition.

In a not too surprising move, BASF announced that it will further its own agenda and slash the newly-acquired Ciba Specialty Chemicals organisation. In the rather disjointed announcement (lost in the translation, if you want to be kind), BASF announced:

• 23 of the sites acquired with Ciba are under review (management or poor PR speak for, 'Will be shut')
• Synergies of at least EUR400 million per year, in other words, site closures and the planned loss of 3,700 jobs - synergies is a rater out dated word!
• Fair and transparent decisions - a PR strip line which has no credibility whatsoever. BASF decide and you will obey! It bewilders us why large companies continue with their old fashioned PR statements - no one believes that the decisions are fair or transparent! We planned it, you do it and those we want will be employed as long as you support our decisions! Too cruel? Not according to our feedback.

Perhaps, for the paper chemicals business there are some glimmers of commitment. The centre for the business will be in Basel (a tax dodge), but feedback from the people based in Ludwigshafen is far from positive - many will not move to Switzerland and why should the heart of the business be relocated to save taxes - the EU needs to take a stand against the Swiss and support its EU members. Clariant, Hercules, BASF .......... how many more will dodge paying EU taxes?

In a straw poll of the paper industry there is a decided unease regarding the merger and a general belief now that the trend to consolidation ('one stop shop') has had its day and the opportunities for India, China and smaller companies is gaining momentum. The growth in the importation of paper chemicals into the EU bears testament to this view.

Keep posted as we gather more information regarding exactly what BASF intends to do with Ciba ............. so far the message is that they are taking a supplier out of the market. The strategy will not be easy to implement!

BASF remain pessimistic about economy

BASF remain pessimistic and say that slump will continue for the chemicals industry. Sales volumes in some segments had fallen by as much as 30-40% and small to medium sized companies were still having difficulties securing loans.

These comments support the view of those active in the industry that the 'green shoots of recovery' are not being seen yet.

Emotional Intelligence at Ciba - BASF?

When browsing recently, we came across an article on how Ciba used 'Emotional Intelligence' to accelerate its 'change programme'.  Like many chemical companies, Ciba implemented a survival strategy which essentially was geared to slashing costs across the entire organisation.  So how do you do this with the least amount of pain?  Call in the consultants, I guess, and introduce a 'new term', emotional intelligence (EI).

There are many definitions of EI and the original development of the understanding of what it means and its importance in communication and inter-personal relationships is not questioned.  The definition given in Wikipedia is quite detailed, but to steal a few lines: 

Emotional Intelligence (EI), often measured as an Emotional Intelligence Quotient (EQ), is a term that describes the ability, capacity, skill or (in the case of the trait EI model) a self-perceived ability, to identify, assess, and manage the emotions of one's self, of others, and of groups^[1].

What does all of this EI stuff mean?  It was tempting to write an essay and point out where big companies fail in recognising that the company is made up of people who are intelligent, have different abilities (real and perceived) and are able to perceive, understand and use emotion (positively and in a manipulative way) - we will avoid the essay, but conclude that if you harness the combined assets of the individuals you have a great company!  It simply distils into the following:

1. Understand
2. Communicate
3. Listen  
4. Involve
5. Decide

Sure, in these tough times, decisions have to be made but making them in the board room and then asking middle management to implement them may not be the best soultion, unless you don't give a damn about the individuals that make up the company.  The Alan Sugar approach popularised in the TV show, 'Apprentice', seems to lack any Emotional Intelligence and portrays a very old fashioned way to run a company.  If large companies (and SMEs) are to survive in the future, particularly in the developed world, a change of approach is needed - more of this 'Emotional Intelligence'.  In our experience, one advantage that SMEs have is that they are more emotionally intelligent.

The article which started this blog off concerned an approach used by Ciba, a Swiss company with a relatively multi-national outlook.  Ciba has now been acquired by BASF, a giant German company with a reputation for having an autocratic style of managememt (Do it!).  Does BASF have emotional intelligence?  Let us know.

BASF to place Paper Chemicals HQ in Basel

BASF has announced that from July 1, 2009, BASFs Paper Chemicals operating division will be based in Basel together with two associated business units: Coatings & Starch Europe and Wet End Chemicals.  The cynic would say that this is another tax-dodging ruse followed by other companies such as Hercules and Clariant where repatriation to Switzerland has saved paying higher taxes in Europe; on the other hand, BASF had to make some promises to Ciba and Switzerland that in acquiring Ciba, some major businesses would remain in Switzerland.   Basel was the HQ for Ciba's paper business.

The details are available on the BASF web site including the overall plans for the Basel site - Research Centre; European Plastics and Additives Business Unit; and the Business Centre Switzerland.   

BASF Roadshow - 'The Chemical Company' pitch to investors

BASF has been on the road with a story to keep or entice future investors.  

Unde the title, 'Tackling the challeneges ahead", details of BASF's current performance and outlook are made.  In the last slide, the integration of the Ciba businesses into the BASF structure, effective 1 April, 2009,  is shown.

BASF start to implement the 'Plan' as key people in Ciba are replaced

BASF has started to implement its 'Plan' for swallowing Ciba.  As one of many moves, BASF announced today that it had appointed its Michael Heinz (45) as the new CEO of Ciba.  In addition, Heinz has the role of integrating Ciba into BASF.

Ciba's current CEO, Brendan Cummins, has been given an 'advisory capacity for the next few months.'

Federal Trade Commission USA requires BASF sell off some pigment business to receive go ahead for Ciba acquisition

The chemical  giant BASF has been instructed inder the terms of the US FTC consent order, to sell all assets, including intellectual property, to two pigments, bismuth vanadate and indanthrone blue, to a Commission-approved buyer within 6 months.  A mere drop in the ocean for a lumbering giant like BASF.

With both the European and USA monopolies regulators sanctioning the go-ahead for BASF to acquire Ciba, the re-organisation of the combined paper chemicals businesses will begin.  As a Ciba employee stated recently, 'We just wait for BASF to order us what to do.  They have made their plans and we will not be consulted.'

EU asks BASF to offload some business to comply with competition concerns - a good deal for BASF

The European Comission has concluded its look at the acquisition of Ciba by BASF and ruled that there are concerns in a number of market segments:

• DMA3 (dimethylaminoethyl acrylate - a chemical intermediate)
• Synthetic dry strength resins (used in the paper industry) 
• Bismuth vanadate (a pigment)
• Indanthrone blue (a pigment)
• Styrene acrylic (used as a glue for paper applications) - BASF will, of course remain a dominant producer of styre acrylate emulsion polymers
• HALS - hindered amine light stabilisers (used in plastics)
• UV filters for skin care products

To resolve the competition concerns, BASF and the EU have agreed that the following will be divested:

• BASF's DMA3 production assets in Ludwigshafen, Germany
• Ciba's entire EEA (Ethylene ethyl acrylate) synthetic dry strength agent business
• Ciba's global bismuth vanadate business
• Transfer Ciba's ' know-how of the finishing line', all supply contracts acustomer lists and inventories for the indanthrone blue
• Ciba's styrene acrylate business (and polyvinyl acetate, acrylic acid or acrylate) in the European Economic Area at Kaipianen, Finland
• HALS - Ciba's entire 'Chimassorb 119 FL' business, including the Chimassorb 119 FL production assets, releveant know-how and customer lists
• UV filters - BASF will conclude a UV Filter Licence Agreement, giving third party access to the technology behind Tinosorb S

Further information is available from the European Commission web site if one likes reading and can understand the EU mumbo jumbo.

This list of divestments is very light and a great deal for BASF who will continue to increase their dominance in a number of market segments - especially paper chemicals.  It raises the question as to whether this type of deal would have been allowed if the current poor economic environment had not existed.  In the last 6 months there have been a number of attempts to protect industries in Europe and past competition rules seem to have been relaxed.

BASF stike a very good deal with EU in meeting competition concerns over Ciba acquisition.

BASF has reached agreement with the EU Union anti-trust approval board and found a way forward to complete its acquisition of Ciba Specialty Chemicals.

Last September, BASF agreed to buy Ciba for CHF6.1 billion, but the EU regulators had concerns over the distortion of competition in products used in paper, plastics and skin care.  BASF has agreed to sell off some of these businesses in order to win regulatory approval.

The details will become more clear, but the staement was that BASF, '.... will sell chemical plants in Ludwigshafen and Ciba units making synthetic dry strength agents for the European paper industry; the pigment, bismuth vanadate, sold globally; and a Finnish-based business making glue for the paper industry.'  The statements were made to confuse and not give a transparent view of what was being sold and to whom.  It will all come out within the next few days - it just takes a couple of phone calls to Ciba!

Furthermore, the 'statement' goes on to say that, ' ..... Ciba's know-how for making and selling the pigment indathrone blue will be transferred, and aunit making light-stabilisers for plastics will be divested.'  It will also strike a licensing deal to allow rivals to use an ultraviolet filter Ciba developed for skin care.

On the face of it, BASF has made a good deal with the EU and will now find themselves in a very dominant position in the paper chemicals industry.

CIBN (Zurich) rose 30 centimes to CHF48.30 and BASF (Frankfurt) rose 84 euro cents to EUR24.26.

Later views:

Cosmeticsdesign.com

BASF pay a dividend - is there any change left in their Euro pockets?

BASF decides not to put its dividend into its own pocket!  After reporting its first quarterly loss for 7 years, 'The Chemical Company' made a commitment to keep paying a dividend, despite plant closures, job cuts etc.  This is unlike rivals such as the Dow Chemical company which cut its payout for the first time in 112 years.

Shareholders will receive EUR1.95 which is similar to pay-outs in previous years.  

Some facts - BASF will eliminate 1,500 jobs, idle factories, reduce working hours for 2,500 employees ............  the slump in chemical demand coincides with BASF's decision to buy Ciba Specialty Chemicals.  The integration of Ciba will have an additional impact on earnings.

In reality the dividend payment is a 'nice thing' but BASF, like many chemical companies has a tough year ahead.  At least BASF are better positioned than many of the other chemical companies which have not joined the essential consolidation of the European chemical industry.

BASF offer Cocessions in EU review of bid to acquire Ciba

In a Bloomberg report today, BASF has offered various undisclosed concessions in discussions with the EU regarding the acquisition of Ciba Specialty Chemicals.

BASF Start to Prepare Organisation for Swallowing Ciba

BASF has announced that it will optimise its structure and lay the foundation for the rapid integration of Ciba's businesses.  Sounds ominous!

The main changes will be in the 'Performance Products segment', and will take effect on the 1st April, 2009, assuming the anti-trust authorities approve the merger.  From the end of the first quarter, the 'Discovery Phase', will involve a two month analysis of the joint businesses with the integration expected to start in the second half of 2009.  Despite the co-operative tone of the announcement, BASF is not known for consultation and conciliation and it is more than likley that the bulk of the BASF plan will already have been decided and there will be a quick implementation and integration of Ciba.

BASF's performance products 'segment' consists of:

• Acrylics and Dispersions
• Care Chemicals
• Performance Chemicals
• Paper Chemicals (a new devision from 1st April) - this division will initially consist of BASF's business with paper chemicals, binders and kaolin minerals.  After the so-called 'Discovery Phase', Ciba's paper chemicals activities will be integrated into this division.  Dr Ehrenfried (Fred) Baumgartner (56) will move from being head of BASF's Inorganics Divison to head up Paper Chemicals.  BASF will then become the largest supplier of chemicals to the world-wide paper industry.  The paper industry waits with interest to understand what The Chemical Company's definition is of a 'market-oriented positioning' for the combined businesses'!  

In the same announcement, BASF has indicated its intention to 'review its strategic options for leather and textile chemicals' - this is probably management code for exiting these businesses.

Even "The Chemical Company", BASF finds the going tough - what of the rest?

BASF announced that it will temporarily close 80 plants world-wide and cut production at a 100 more in a move which will affect over 20,000 workers over the next two months.  In effect, BASF will reduce output by 25%.

Three weeks ago, BASF said it was coping with declining demand and that 2008 sales would top last year's EUR 97.5 bn with operating earnings matching 2007 (EUR 7.32 bn).  All has changed.  BASF has now issued a profits warning for this year. 

In the view of the FT and industry experts, the move by BASF is a pre-cursor to a huge bout of restructuring among Europen companies, including job cuts and factory closures.  

Where does this leave the paper chemicals industry?  

For the stong companies:

• BASF is in the process of acquiring Ciba on the wave of their gloomy announcements.  So, tough times for Ciba under their new masters.  
• Kemira - has recently announced significant lay-offs and a restructuring programme.
• Ashland and Hercules are well placed to take advantage of the current climate, further  investing in Europe would be folly, but they could help in the market consolidation.  However, a recent Forbes.com article puts Ashland in a different light - Trashland!
• Dow Chemical - announced last week that a fall in demand would force them into a restructuring before year end.

Then there are the question marks:

• Nalco - quiet at the moment but in need of a freshening up.  Their cost-cutting waves have left them rather thin on the ground.  Rumours abound.
• Clariant was struggling before the economic crisis - time to make some significant strategic and tactical moves? Don't hold your breath, but desperate times require desperate measures.  The share price is moving close to being considered a 'penny stock'.  Their leading global paper group (technical and manufacturing) in the UK is on schedule to shut before year end in what appears to be an attempt to protect their high-cost Swiss base.  A good move when the Swiss franc gains against sterling?!
• Eka Chemicals - solid in their protective Akzo Nobel net but again, the economic crisis may force some moves affecting paper chemicals which is not core business for the mighty Akzo.  The inability to sell National Starch has been a recent issue.
• Buckman - recently there has been news that this smaller company has struggled, but it is not beyond them to find an innovative way forward.  They are more agile than the larger companies.

As we have stated many times in this weblog, the Chinese paper chemical companies are well positioned to take advantage of the Chinese growth market and further squeeze the sluggish European and North American manufacturers, cutting down their options to show any future growth.

Difficult times, for sure, but there are opportunities for the sharp strategic thinkers.

BASF hold 68.1% stake in Ciba - acquisition is on track.

At the end of the tender offer period, the 28th October, BASF announced that they owned 68.1% of the share capital of Ciba AG.  BASF has therefore exceeded the minimum acceptance threshold of 66.67% which was a condition listed in the offer prospectus.

There is now an additional acceptance period which begins on November the 3rd, 2008 and ends at 4pm CET on November the 14th, 2008.  During this period, Ciba shreholders who have not tendered their shares have the opportunity to do so for the same price (CHF 50) and avoid becoming minority shareholders in Ciba and holding limited liquidity.

Essentially, BASF has cleared its biggest hurdle and it should now be a matter of time before Ciba is swallowed by 'The Chemical Company'.

Swiss take-over board reject attempt to extend offer period for Ciba acquisition

The Swiss Take-over Board has rejected a request from the Bestinver Investment Group to extend the offer period for the public take-over of Ciba Holding AG by BASF.  As a result, the offer period will end on  the 28th October, 2008 (4pm CET) as specified in the offer prospectus.

BASF has welcomed the decision and are confident that more than 66.67% of the shares will be tendered by the end of the offer period.

BASF publish Offer Prospectus for the acquisition of Ciba

BASF have now published their 'Offer Prospectus' for the acquisition of Ciba.  the next step is for the Ciba shareholders (66% of them) to agree to the deal.

Big bang - BASF bid for Ciba

After days, weeks, months (years!) of speculation, BASF have made the big move and bid to acquire Ciba Specialty Chemicals.

The implications, developments and impact of this move on the paper chemicals industry will be analysed further in this blog ...............

Take a look at this mornings presentation.

Bloomberg update: Clariant or Ciba may be targets for Dow, BASF or Sabic

A recent Bloomberg update (Clariant May Be Bait for Dow as Oil Hammers Shares) makes for some interesting reading. The gist of the article is:

• Clariant AG trades at 15 percent under book value and less than half what it fetched a year ago. That may make the Swiss company a $4 billion takeover target for BASF SE or Dow Chemical Co., which are shopping for acquisitions.
• It is suggested that Clariant and Ciba Holding AG of Basel, would be logical targets for Dow Chemical, as it is looking for opportunities, and in the U.S. there isn't much that is attractive.
• Clariant and Ciba, spinoffs of drug companies in the 1990s, never "took off'' because they were unable pass along higher raw material costs.
• Clariant is a good buy with a P/E ratio is 7.80.
  
• BASF, Dow and Riyadh-based Saudi Basic Industries Corp., or Sabic could all be in line to bid.
• Ironically, Clariant was today's second-best performing share in the benchmark Swiss Market Index, rising 3.8% to 9.31 Swiss francs at the close of trading in Zurich, giving the company a market value of 2.06 billion francs ($2.1 billion).

Further consolidation of the paper chemicals market it may well involve acquisitions into larger companies rather than spin-offs into pure paper chemicals companies. Watch this space as there is considerable activity in the market today.

BASF to increase price of acrylic monomers

BASF is to further increase prices for acrylic monomers. In a detailed price review, BASF has announced it will increase prices of acrylic acid and acrylic esters (glacial acrylic acid; methyl acrylate, ethyl acrylate, n-butyl acrylate, 2-ethyl hexyl acrylate), as contracts permit. The amount and timing of the price increases will vary by region.

These increases affect the pricing of a number of paper chemicals where acrylic monomers are used as raw materials: superabsorbent polymers; acrylate-based dispersions; polymer dispersions/emulsions used as coating binders, adhesives, synthetic strength additives and retention aids.

Hydrogen peroxide market predicted to reach 4.3 million tonnes by 2012

A press release by RISI reports on a recent market review, "Hydrogen Peroxide: A Global Strategic Business Report" published by Global Industry Analysts, Inc.

The highlights are:

• Hydrogen peroxide (H2O2) demand is partly driven by elemental chlorine free (ECF) processes; the introduction of maximum achievable control technology (MACT) by the EPA in United States; and total chlorine free (TCF) processes mandate by the European Union [comment: there is still not much TCF pulp produced and some analysts do not see much future growth - at least in the next 10 years]
  
• The US hydrogen peroxide market in 2008 is estimated to be 705 thousand metric tons for 2008
• The Asia-Pacific is the fastest growing market, with a CAGR of 8% over the period 2001-2010.
  
• The pulp & paper industry is the largest market segment for hydrogen peroxide and this segment is expected to be around 2.11 million metric tons by 2010.
• European producers dominate the market in both Europe and North America.
  
• North American producers such as Dow Chemical and FMC also have a significant presence in the market.
  
• The market is fragmented in the Asia-Pacific region where there is a large number of small players.
• Players dominating the global hydrogen peroxide market include Arkema, BASF AG, Chang Chun Petrochemical Co, DC Chemicals, Dow Chemical, Eka Chemicals, Evonik Degussa, FMC Corporation, Guangdong Zhongcheng Chemicals, Hansol Chemicals, Kemira, Kingboard Chemical Holdings, Mitsubishi Gas Chemicals, Nippon Peroxide, PT Degussa Peroxide Indonesia and Solvay.