Jones Lang LaSalle


BASF deal could mean higher price
Tuesday, February 14, 2006
BY DAVID SCHWAB
Star-Ledger Staff

German chemical giant BASF could prevail it its bid to acquire New Jersey-based Engelhard, analysts said, but the deal will likely come at a higher price.

Six weeks ago, BASF unveiled a hostile takeover offer of $37 a share for the Iselin- based specialty chemical. BASF also said it was prepared to offer $38 per share if Engelhard allowed BASF an insider's look at its finances.

Alan Scharfstein, president of the DAK Group, an investment banking firm in Rochelle Park specializing in deals involving midsized companies, said Engelhard's board of directors is probably trying to negotiate with BASF and other companies to increase the offer.

BASF, as the first to make an offer, may have a headstart compared with other potential bidders. But that doesn't mean it will automatically prevail, he said.

"At the end of the day, I think the deal is going through," said Sumit Desai, an equity analyst at Morningstar, the mutual fund research company in Chicago. "You can tell by what the market is doing."

For most of the past two years, Engelhard shares hovered around $30 per share. The day BASF announced its $4.9 billion offer in a letter to Engelhard, shares jumped 26 percent, to more than $37, and they have since risen past $40 a share.

Desai said the deal makes sense for BASF, the world's largest chemical company, which wants to become less reliant on low-margin commodities by adding higher- profit businesses such as those Engelhard has developed, notably sophisticated emissions-control devices for cars and trucks.

Some analysts say demand for emission controls is expected to grow rapidly as more nations enact tougher air-pollution standards for both gasoline and diesel-powered vehicles.
In a recent note to investors, Michael Sison, an analyst at KeyBanc Capital Markets, said he expected BASF, or possibly another company, to offer more than $40 before Engelhard would agree to a deal.

Engelhard, a Fortune 500 company with sales of about $4 billion, has about 6,800 employees, including 650 in New Jersey. BASF, with sales of $50 billion, has about 82,000 employees, including 1,250 in New Jersey.

Engelhard has said BASF's offer is inadequate, in part because Engelhard executives expect significant growth during the next few years as a result of investments in technologies. Engelhard also has said it is exploring other options, including the possible sale of the company.

The fact that by last week less than 1 percent of Engelhard shareholders had tendered their shares shows BASF's offer had limited support among investors, according to Engelhard. About 90 percent of the Engelhard's shares are owned by institutional investors and mutual funds.
Analsyts said much of the real action is taking place behind closed doors, but more news will emerge. Consider what happened to Johnson & Johnson, which seemed to have locked up the deal for medical device maker Guidant, but then lost out last month to Boston Scientific which made a $27 billion offer.

"BASF clearly is a highly qualified contender with a lead in this process," Scharfstein said. "But I don't think anybody can handicap it in terms of their chances of success."


David Schwab may be reached at dschwab@starledger.com or (973) 392-5835.