BASF mulls divestment of construction chemicals business

BASF is evaluating strategic options for its construction chemicals business including divestiture, according to a statement released by BASF India to the stock exchanges. The construction chemicals business, comprising admixture systems and construction systems, generated sales of more than €2.4-bn in 2017. In India, the business, which forms part of the Functional Materials & Solutions segment, generated sales of Rs. 455-crore for the year ended 31st March 2018.

According to a Reuters report, the German chemicals giant is of the view that the unit is not large enough to compete successfully on its own over the longer term. “Neither are we satisfied with the (group) business development nor with our share price development,” BASF’s CEO, Dr. Martin Brudermueller told journalists in a conference call after the company released its third-quarter results. BASF share prices were reported to be at their lowest in more than two years. BASF said its quarterly operating profit fell 14% as stricter emission rules and trade barriers dented its business with automakers. When he took over in May this year, Dr. Brudermueller had thrown his weight behind the company’s strategy of keeping divergent businesses folded into one company. The CEO, who is scheduled to outline his strategic vision in more detail on November 20, said portfolio reviews would continue, adding that the decision on construction chemicals did not mark a policy change. “The unit has a very low degree of integration into the rest of the BASF network and it does not fully meet our expectations regarding profitability,” said BASF’s finance chief, Mr. Hans-Ulrich Engel. A deal “should help establish a very strong player, in particular in construction systems, given the ongoing round of consolidation in construction chemicals,” added Mr. Engel.

The construction chemicals sector is seeing a wave of consolidation, the Reuters report observed. “While St. Gobain failed with its takeover of Swiss-based Sika, private equity firm Cinven acquired France’s Chryso. Currently, buyout group CVC has engaged investment bank Lazard to find a buyer for French chemical company Parex, which could be valued at around €2 bn,” the report stated.