Germany's BASF approaches Evonik to create global chemicals giant

By Matthias Inverardi and Patricia Weiss

DUESSELDORF, Germany, Sept 25 (Reuters) - Germany's BASF, among the world's largest chemicals makers, has approached smaller peer Evonik over a possible takeover that could strengthen its portfolio as European companies face tough competition from China.

BASF said it continuously evaluated "the strategic option of acquisitions that strengthen its core businesses, deliver a strong strategic fit, drive profitable growth and create value" and was in exploratory talks.

Evonik said earlier it had "received a non-binding approach from BASF regarding a voluntary public takeover offer for all shares of the company".

RAG Foundation, which holds 43% in Evonik, also said it had been contacted by BASF regarding a takeover offer for Evonik.

BASF has a market capitalisation of €45.8 billion ($52.2 billion), while Evonik is currently valued at €9.2 billion.

""Evonik's comparatively low valuation makes it an attractive potential partner," said Linus Vogel of Deka Investment, a top-20 investor in both companies.

"For BASF, active consolidation would be a logical response to the structural weaknesses of the European market," Vogel added.

A deal is far from certain. BASF in a statement said the outcome of the exploratory talks was "open at this stage", while Evonik said no discussion was underway.

Evonik shares continued a recent rally that traders said was partly driven by takeover speculation. The stock closed 7.2% higher on Friday. BASF shares fell 3.6%.

EVONIK'S COMPLEMENTARY PRODUCT RANGE

Evonik's products include high-tech plastics, feed additives as well as ingredients for coatings and household products, while BASF makes engineering plastics, super absorbent polymers, vitamins and a wide range of chemicals for industrial uses.

Arne Rautenberg, head of equities at mutual-funds firm Union Investment, said there was a sound business case for a deal.

"By acquiring Evonik, BASF could strengthen its position in the speciality chemicals sector and increase capacity utilisation," Rautenberg said.

Geographically, however, the companies are less complementary.

Europe is the largest market for both and BASF has pledged to increase revenue contributions from Asia and other regions.

The company, along with the rest of the European chemicals sector, has been held back by rising energy costs and weak demand.

CEO Markus Kamieth said in June that the business environment was at its most difficult in at least the last 25 years, with the global balance of industrial power shifting to Asia.

BASF is at risk of losing its years-long rank as the world's largest company by chemicals revenue to China's Sinopec.

Last year, BASF's group revenue of €59.7 billion ($68.9 billion) was almost the same as that of the chemicals segment of China's Sinopec.

European chemical producers have, however, received a temporary boost because Asian rivals are hit harder by supply disruption linked to the US-Israeli war on Iran.

Kamieth has been seeking to make BASF more focused and to exit or separate businesses that are not closely integrated and physically connected within the group's chemical plants across the globe.   

The Financial Times reported earlier that BASF had approached Evonik and its biggest shareholder, the RAG Foundation, about a takeover.

($1 = 0.8770 euros)

(Reporting by Matthias Inverardi, additional reporting by Rachel More, writing by Ludwig Burger, editing by Christoph Steitz, Louise Heavens and Barbara Lewis)