German chemicals giant BASF is weighing a higher takeover offer for specialty chemicals maker Evonik, according to a Reuters report on Friday. The move comes after Evonik rejected BASF's earlier €10.3 billion approach as too low, setting the stage for a potential bidding war or a prolonged negotiation.
The report, citing people familiar with the matter, said BASF is considering both a sweeter price and possible job commitments to address political concerns. Evonik, which is headquartered in Essen, Germany, is a major employer in the state of North Rhine-Westphalia, and any deal that threatens jobs could face political opposition.
Background: A rejected bid and a cautious response
Evonik confirmed in September that BASF had made an approach, but the company has insisted that no formal talks are currently underway. According to Reuters, the rejected offer was worth €22.15 per share, a figure that Evonik's management deemed insufficient.
BASF, the world's largest chemical company by sales, has been looking to expand its specialty chemicals business, which includes products like additives and coatings. Evonik, on the other hand, is a leading player in specialty chemicals, with a strong portfolio in areas like nutrition and care, and high-performance materials.
The potential deal would be one of the largest in the German chemicals sector in recent years. However, the path to a completed transaction is far from clear. Evonik's largest shareholder, the RAG Foundation, which holds a significant stake, would need to approve any deal. The foundation's trustees are likely to weigh the financial offer against the long-term interests of the company and its employees.
What a higher bid could look like
If BASF returns with a higher offer, it would likely need to be significantly above the €22.15 per share that was rejected. Analysts suggest that a premium of 10% to 20% might be necessary to win over Evonik's board and shareholders. However, the exact figure is speculative, and BASF has not publicly commented on the report.
Adding job guarantees could be a strategic move to ease political resistance. In Germany, large takeovers often face scrutiny from labor unions and regional governments. By committing to maintain employment levels or avoid forced layoffs, BASF could smooth the path to approval.
What it means for investors
For investors in both companies, the news highlights the potential for a significant transaction. If a deal goes through, BASF would gain access to Evonik's lucrative specialty chemicals business, which could boost its growth prospects. However, paying a higher price could dilute the benefits, and integrating two large companies is always a challenge.
For Evonik shareholders, a higher bid could mean a nice premium over the current market price. But there's also risk: if the deal falls through, the stock could drop back to pre-approach levels. Investors should watch for any official statements from either company, as well as updates from the RAG Foundation.
The broader chemicals sector has been under pressure from high energy costs and weak demand in Europe. A successful merger could create a stronger competitor, but it also raises questions about market concentration and regulatory approval.
Political and regulatory hurdles
Beyond the RAG Foundation, any deal would need approval from competition authorities, likely at both the German and European Union levels. The German government has shown increasing interest in protecting key industries, and a deal that could lead to job losses might face political pushback.
North Rhine-Westphalia, where Evonik is based, is a politically important state. The state government has historically been protective of its industrial base. Job guarantees could be a key factor in winning support.
BASF's own shareholders will also have a say. The company would likely need to finance a higher bid through debt or equity, which could affect its balance sheet and dividend policy. Investors in BASF may be wary of overpaying, especially given the company's recent struggles with high energy costs and a slowdown in global demand.
The bottom line
The situation remains fluid. BASF has not confirmed the Reuters report, and Evonik has downplayed the likelihood of immediate talks. But the fact that BASF is reportedly considering a higher offer suggests that the company is serious about acquiring Evonik.
For everyday investors, this story is a reminder that M&A activity can create both opportunities and risks. If you own shares in either company, it's worth staying informed about developments. If you don't, the outcome could still affect the broader European chemicals sector and related stocks.
As with any major deal, the devil is in the details. The next few weeks could bring clarity, or the talks could fizzle out. Either way, investors should be prepared for volatility in both BASF and Evonik shares.
