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!

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 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 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.

Huntsman to cut 470 jobs

Huntsman has announced that it will cut 470 jobs in a new effort to trim costs in the unit manufacturing and supplying dyes and chemicals.  The cuts represent about 12% of the 3,900 employees in the Textile Effects business acquired in June 2006 from Ciba Specialty Chemicals.

Huntsman is in the throes of fighting to complete its buyout by a unit of Apollo Management LP. 

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.

3Q08 Results: Ciba report 8% drop in profit.

With the acquisition of Ciba by BASF seemingly on track with only the regulators now in the way, Ciba's results now become of little interest.  They posted a drop in profits of 8% which was better than the 15% they predicted.  

Sales of the Water & Paper Treatment Division were CHF 1,829 mio (-5% but +2% in local currencies).  Local currency growth was mainly driven by Asia and the USA as Europe continued to decline.  Profitability was lower than the same period last year, with EBIT at CHF 64 mio compared to CHF 80 mio in 2007.  Raw materials and the lag in increasing prices was blamed.

Ciba's shares rose slightly to CHF 49.30 which is not far from BASF's offer of CHF 50.00.

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.

Ciba to acquire Clariant - further speculation

There is further, increased market speculation (eg Bloomberg) that Ciba will make moves to acquire Clariant, especially since the departure of the CEO, Jan Secher. There has been speculation that both Ciba and Clariant are acquisition targets (see earlier blog), but another option is for for the ailing Swiss companies to get into bed with one another - difficult to see a positive outcome, but perhaps Ciba could make a go of the venture, although their assimilation of past acquisitions has not been exemplary.

In 1988 Ciba and Clariant held unsuccessful merger talks, but as the Bloomberg article points out, Clariant Chairman Juerg Witmer has a reputation as favouring mergers and acquisitions and may have clashed with Jan Secher's wish for Clariant to go it alone. Witmer has since stated that Clariant do not want to sell their Textile, Leather and Paper Division, which would make sense if the two Swiss companies joined forces, allowing them to re-jig the entire, combined portfolio after merging.

Ciba and Clariant will have to do something to survive .............. watch this space for more news.

FT view - Ciba Braces for Further Cuts

The Financial Times has also commented on the recent half-year results for Ciba Specialty Chemicals. The comments included:

• Ciba prepared employees and investors for further pain yesterday, as the Swiss specialty chemicals maker plunged into loss after sharply weaker margins and huge impairment charges.
• In almost permanent restructuring in recent years, Ciba warned of cuts ahead with the potential sales of its struggling paper and publication inks activities.
  
• The moves came alongside a one- off SFr595m goodwill impairment in water and paper treatment, pushing the group into a SFr569m ($521m) net first half loss. Sales fell by 7 per cent to SFr3.09bn.
• The scale of task facing Ciba, and many other European counterparts such as cross-town Clariant, was highlighted in the second quarter, when surging raw materials and energy costs prompted a SFr11m loss, even excluding impairment. Including the latter, Ciba lost SFr606m, compared with a modest net SFr27m profit in the same period last year and analysts' expectations of a SFr42m gain this time.
• Two attributed quotes of financial analysts were: 1) "Even though further strategic options are under evaluation, the company is still facing strong headwinds and has to achieve a turn around in difficult times," noted Oskar Schenker at Sarasin, the Swiss private bank; and 2) "We expect demand to weaken further in the coming months, particularly in Europe, but also in Asia, and therefore believe the group's guidance is too optimistic," added Martin Flückiger at Helvea, the Swiss brokerage.
• Ciba blamed its problems on its inability to pass higher costs to customers, many enjoying long-term contracts. The impairment charge was ascribed to rapid changes in the paper industry, especially a structural shift in growth to Asia [as pointed out in earlier blogs, this structural shift is not recent!]
  
• It also blamed about two-thirds of the charge on Allied Colloids, the UK manufacturer bought for £1.42bn ($2.65bn) in 1998 - [this has been an old excuse which Ciba should have been able to recover from by now! Clariant blame the acquisition of BTP for many of their woes - is there something about the ability of Swiss companies to analyse, acquire, and leverage business opportunities? It would be interesting to see how a Chinese company would transform Ciba or Clariant were they to acquire them - significant value generation?]
  

The Times also highlighted 'endemic lethargy', as seen in the belated sale in 2006 of Ciba's textile effects division in the face of a sharp but predictable shift in production to Asia. What we have highlighted in earlier blogs has been lethargy elsewhere in Ciba:

• The strengthening of the Asia market has been staring the industry in the face for many years!
  
• Asian paper chemical producers will lead in the drive for acquiring market share in China (the fastest growing paper chemical market).
• There is a strong need for consolidation of the paper chemicals business in Europe.
  

See earlier, recent blogs on the Ciba/Clariant situation:

• Forbes point to Ciba and Clariant as acquisition targets
• Ciba announce half year results
• Bloomberg - Clariant and Ciba may be targets for BASF, Dow or Sabic
• Clariant announce half-year results
• Clariant to shut Leeds, UK production site - paper chemicals affected
• Ciba looses patience with paper chemicals business

Please contact us if you would like further insight into any aspect of the paper chemicals buisiness world-wide.

Forbes article also points to Ciba and Clariant as acquisition targets

A further article, this time by Forbes, suggests the efforts of Ciba to streamline its business seem to have been in vain. The article gives views on Ciba's 2nd half 2008 financial results where they posted a larger loss than analysts were expecting, possibly making Ciba vulnerable to a takeover bid.

Ciba's shares fell 16.6%, or 5.30 Swiss francs ($4.83), to 26.60 Swiss francs ($24.23), in Zurich on Tuesday morning, after it reported a loss of 606.0 million Swiss francs ($552.0 million), during the second quarter of the year, following a profit of 27.0 million Swiss francs, a year earlier. The company also took a 595.0 million Swiss franc ($542.1 million) charge on its water and paper-treatment unit.

Like the rest of the chemicals industry Ciba has been struggling with rising raw material costs, as well as quality competition from Asia. (See “Clariant Collapses On Costs.”).

The article goes on to point out that, 'With a market capitalization of 2.2 billion Swiss francs ($2.0 billion), Ciba is trading at 9.2 times its 2009 earnings, and its shares have fallen 44.9% since the start of the year. That compares to a 14.0% drop in the Dow Jones EuroStoxx index of European chemical companies.'

As reported in an earlier Bloomberg article, Ciba and Clariant, its fellow Swiss rival, could find themselves the target of takeover interest from a number of Germany chemical giants such as BASF (analyst at Bayerische Landesbank).

Ciba announce half year results - paper chemicals not seen in future recovery plans

Ciba announced their half-year financial results and after a series of poor results for speciality chemicals businesses it was expected that Ciba would not bring much cheer to investors (Share price immediately dropped 15%). The group highlights were:

• Sales of CHF 3,088 million (2007: CHF 3,308 million) were flat in local currencies and 7 percent lower in Swiss francs.
• Gross profit margin was 26.8 percent (2007: 29.0 percent) - significant impact of high raw material and energy costs
• Good sales growth in Asia in first half year, some slowdown in Europe
• Significant sales price increases taking effect from mid June - time will tell!
  
• Goodwill impairment of CHF 595 million in Water & Paper Treatment
• Strategic options under evaluation for paper and publication inks businesses
• Acquisitions and JV planned for Q3 to strengthen Plastic Additives and Coating Effects
• New industry focused operating model to be effective early 2009

After earlier pronouncements that Ciba had lost patience with its paper chemicals business and in an attempt to prepare the media before the announcement of their first-half results Ciba is now clearly prepared to participate in the much needed consolidation of the paper chemicals industry. This is especially needed in Europe.

Ciba's statements relating to their paper chemicals business are:

• A number of options are being evaluated for the paper business - it is not performing in line with expectations and requires additional strategic action to improve their market position.
  
• Decisions will be taken on an appropriate course of action in the next few months. Ciba state that, 'The market dynamics of the paper industry have changed considerably in the last three years, (the timescale has been far longer!) and the structural shift of growth to Asia, along with dramatically increased raw material costs have further compounded an already difficult business environment. Although a new business model was successfully implemented in 2007, it was not sufficient to counter balance the difficult market conditions and it has not been possible to achieve satisfactory profitability levels. The Board of Directors of Ciba has decided to evaluate a number of strategic options to ensure a sustainable future for the business.'
  
• In accordance with accounting requirements, goodwill levels have been adjusted for the Water & Paper Treatment segment, which brings Ciba into a loss for the second quarter. Their statement was, 'In the first half, the Company conducted a strategic review of the paper business and concluded that further strategic options needed to be evaluated for this business, as market dynamics had changed considerably over the last few years and previously forecast profitability levels would not be met.' There has therefore been an adjustment of goodwill, resulting in a non‑cash impairment of CHF 595 million.

The changes in the paper chemicals industry which Ciba highlight have not happened 'in the last 3 years' (eg move of the business to Asia) and it is their slow strategic thinking which has lead to the situation which they find themselves in today. The big questions are just how much of the Asia market does a company like Ciba expect to get in Asia? Will Ciba actually be able to compete with Asian (Chinese) companies of the future? I have my doubts. Ciba has also struggled to effectively integrate their acquisitions, especially Raisio, and to structure their organisation world-wide, despite many changes in their senior management.

Recently there have been a number of moves to further consolidate the paper chemicals industry and more is needed to counter the shifts and consolidations in the customer base (pulp and paper industry):

• Ashland acquire Hercules
• Dow acquire Rohm and Haas
• Ciba loose patience with paper chemicals and announce strategic review
  
• Clariant, a dye and FWA (OBA) specialist, continue to struggle to find a sustainable paper chemical strategy as corporate decisions appear to compromise their paper business (eg site closures; Swiss-centric approach) - the company's share price continues to lack any sparkle and they have recently been removed from the Swiss blue-chip index (SMI). However, today has seen a jump as acquisition speculation continues.
  
• Nalco is looking at options for its paper chemicals business

In addition there are three other major players:

• Kemira (Market leader) - looking at cost savings and re-structuring but stll want to be in this business in the long-term
• BASF - in the strongest position financially and probably waiting to see what it can pick off
• EKA Chemicals - part of the bigger Akzo Nobel but so far there have not been any comments in the media that it expects to get out of the paper chemicals business. Again they may be waiting to acquire additional market share.

There are also a number of smaller suppliers such as Buckman Laboratories and a growing group of Asian manufaturers and suppliers.

One could envisage a number of effective consolidations, but will the strategic thinkers be able to carve out a sustainable business or businesses - it will need an independent look at this business (eg private equity company) with a forward looking approach to match how the paper and paper chemicals industries will develop in the future. The USA has seen some consolidation; Europe is in need of consolidation; and Asia is developing its own industry.

Two points to consider:

• China will be the biggest consumer of paper chemicals in the next 10 years!
  
• China has its own thriving paper chemicals business!