On the Street: BASF Buying Cognis

June 24/London/MarketWatch -- German chemicals giant BASF said it will acquire Cognis in a 3.1 billion euro ($3.8 billion) deal that will give the company a strong position in the health and nutrition business.

BASF said it will pay 700 million euros to Goldman Sachs' GS Capital Partners unit and private equity group Permira Funds. The rest of the deal's value comprises debt and pension obligations taken on by the chemicals group.

Cognis' core business is as a specialty chemicals supplier to the health and nutrition market as well as the cosmetics and detergents industries.

"By purchasing Cognis, we will in particular expand our portfolio with products based on renewable raw materials," said John Feldmann, BASF board member responsible for performance products.

"A broader and more attractive offering of products and services combined with our research and development expertise will allow us to become an even more important partner for joint development projects with our customers," he added.

BASF won the battle for Cognis even though rival Lubrizol made a higher offer, according to a report earlier this week in The Wall Street Journal.

In a presentation on the company's website, BASF said the deal will take it from the number-three player in personal care ingredients to the top spot and that it expects the deal to lift earnings from 2012 onward.

It added that integration costs will be between 200 million-250 million euros, while longer-term cost savings will be at lest 130 million euros a year by 2013.

Shares in BASF rose 1.2% in Frankfurt, outperforming against a modest decline for Germany's benchmark DAX 30 index.

Commerzbank analyst Stephan Kippe said BASF's projected annual savings are higher than he was expecting, while integration costs are significantly below his 400 million euro projection.

"Following the acquisition, BASF in our view will achieve global leading positions in attractive end-markets," Kippe said as Commerzbank maintained its buy rating on the stock.

"In addition to being defensive in nature, these markets offer growth potential of at least 4% a year," he added.

The deal is expected to close by November at the latest and is subject to clearance by merger authorities.

Cognis employs around 5,500 people and had sales of 2.6 billion euros in 2009.

From the July 6, 2010, Prepared Foods E-dition