BASF Sees Cosmetics Recovery as Cognis Bid Looms
April 16 (Bloomberg) -- BASF SE, a possible bidder for moisturizer-ingredients maker Cognis GmbH, said there are signs that demand for luxury cosmetics is improving, adding strength to a rebound in the $3.7 billion personal-care chemicals market.
"During last year, some premium products have been lower in demand, but there are signs that it's recovering, that we are seeing growth in both sectors," said Thomas Greindl, BASF's European marketing director for care chemicals, in an interview.
A recovery in cosmetics use may fuel consolidation among ingredients makers, UniCredit analyst Jochen Schlachter said. BASF's $5 billion purchase of Ciba Holding in 2009 brought a "full R&D pipeline," Greindl said. BASF may make a 3 billion- euro offer ($4 billion) for Cognis, two people familiar with the situation said April 9. Greindl declined to comment on Cognis.
Customers remain "cautious" and Ludwigshafen, Germany- based BASF is developing products for hair care, sun protection and thickeners to capture more of the market, Greindl said in the April 14 interview at the in-cosmetics exhibition in Paris.
"The market is picking up," Greindl said. Inventory is "being built to a certain extent, but I would think that everybody in the value chain is still cautious," he added.
BASF generates about 3.4 billion euros in sales from care- chemicals, a segment that includes cleaning agents as well as products for personal use. The rival unit at Cognis, bought by Goldman Sachs Group Inc. and Permira Advisers Ltd. in 2001, had revenue of about one-half that amount.
Cognis is drawing bidders with its ingredients for body lotions and shampoos based on natural resources like palm kernels and coconut oil as opposed to synthetic materials, tapping demand for environmentally friendly products. That may lead its private equity owners to opt for an outright sale to a rival rather than an initial share sale, analysts said.
While Monheim am Rhein, Germany-based Cognis "fits very well" with BASF's strategy, its owners will not be in a rush to sell, Merrill Lynch equity analysts including Fraser Hill wrote in a report on April 12. The company may also be of interest to Croda International Plc, Solvay SA, and Royal DSM NV, Hill said.
BASF may face a downgrade of its credit rating by one notch if it buys Cognis, Schlachter on April 12 said. It's currently rated A+ at Standard & Poor's, sharing the highest rating among companies in the Bloomberg World Chemicals Index with Monsanto Co. and Saudi Basic Industries Corp.
Editors: Andrew Noel, Jerrold Colten
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