BASF Deal with DuPont (DD) Logical But Execution May be Difficult, Says Deutsche Bank

Deutsche Bank analyst Tim Jones discussed BASF SE in a research noted Monday. Comments follow rumors BASF is working with advisers to examine merits of making a counter bid for DuPont (NYSE: DD), which agreed to merger with Dow Chemical (NYSE: DOW) in December. In Jones's view, while a BASF deal would be logical, execution may be difficult. Overall, he more could be going on behind the scenes than markets may think.

"BASF’s current market cap is $60bn with DuPont at $55bn so a merger of the two names – by size – would be possible. There is significant strategic logic of a tie-up between BASF and DuPont with general complimentary exposures to agchems/seeds and specialties/commodities. The exact nature and likelihood of a deal is very difficult to predict (given the current planned merger with Dow) but as discussed in our recent sector note ... we note that the global industry is at a tipping point regarding M&A (as underlying macro growth remains anemic, balance sheets are strong, finance rates low and US “activism” underpinning regional consolidation) with BASF in a strong position to do deals (particularly in North America). If BASF does not undertake a merger with DuPont alone it could be a logical acquirer of some of the assets that become available post the combination of Dow and DuPont," said the analyst.

Jones added, "From our numerous investor meetings over the past few months, we believe that few people expect BASF management to do anything big with the portfolio with most often citing their “conservatism” as the main restrictive factor. The current speculation (which follows speculation of BASF looking at Syngenta (on Bloomberg/Reuters) suggests to us that BASF’s management team is more willing to consider big transformational moves (which could also include mid-term asset divestments, such as Oil & Gas) if need be. Predicting the next move from here remains difficult but with mgmt acutely aware of the consolidating global industry, we see BASF well positioned to participate and (potentially) start to unwind the current conglomerate structure."

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