Goldman Sachs Group and Permira Advisers want out of their investment in German chemical maker Cognis. The private equity companies hope to take advantage of a recovering appetite for chemical-sector assets in Europe, and move on to greener pastures.

Ludwigshafen-based BASF, the world's largest chemical producer, is rumored to be among the potential German bidders for Cognis, together with Lanxess and Evonik. Belgium's Solvay and US companies DuPont and Lubrizol complete the line-up of potential international bidders.

Cognis, its owners and potential buyers are all mum on their plans but numerous media reports quote inside sources claiming a deal is ripe.

Fast return to deal-making

The Monheim-based chemical producer, which employs about 5,600 people, was sold by Henkel in 2001 for 2.5 billion euros after the maker of the well-known Persil detergent brand chose to focus on consumer products. Cognis makes specialty chemicals, such as additives used in cosmetics and detergents.

A bid by BASF would mark a surprisingly fast return to deal-making following its acquisition of Swiss rival Ciba for almost 4 billion euros just 18 months ago.

Experts believe the company would be a good match for Cognis because of synergies in surfactants and fine chemicals. They also note that the company's products, based on natural raw materials, are more resistant to economic cycles than those directly derived from oil and gas - the bulk of BASF's business.

“BASF wants to be less dependent on cyclical products,” said Heiko Feber, an analyst with Bankhaus Lampe. "And Cognis can help."

BASF is keen to curb its reliance on plastics and chemicals for another reason, too: Its Middle East competitors produce them more cheaply.

High debt: Owners largely to blame

Goldman Sachs and Permira have been trying, unsuccessfully, to sell Cognis for the past few years. The chemical producer's debt has been the major stumbling block; it stood at 1.9 billion euros as of December 31. But the owners themselves are largely to blame. In the years following the acquisition, they used buoyant bank markets at the time to push Cognis' debt load higher to pay themselves dividends, according to financial analysts.

Cognis returned to a net profit from continuing operations of 25 million euros in 2009 after reporting a loss of 45 million euros the year before.

“The private equity firms have owned Cognis for a relatively long time, nine years,” Feber said. “It really make sense for them to sell and move on. And now is a good time; the markets are bouncing back.”

Goldman Sachs and Permira are also said to be considering an initial public offering for Cognis if they fail to find a buyer. However, Feber believes the manufacturer's debt could make an IPO difficult.

Author: John Blau
Editor: Sam Edmonds