If you can't strike a friendly deal with the board of directors, go public with the offer and see whether the shareholders won't vote with their feet. That would seem to be the strategy of German chemical giant BASF
After apparently trying in vain to reach an agreement on a friendly takeover, BASF has gone public with its offer to buy Engelhard for $37 a share in cash. That's a pretty attractive premium of over 20% for the stock and above its all-time high (excluding today's trading). It also seems like a pretty fair price from a cash flow valuation standpoint.
With my numismatic leanings, I often find myself forgetting or overlooking Engelhard's true business these days. Yes, I have some precious metal bullion stamped with Engelhard's name, but the company's true businesses are in emission/environmental control, catalysts, and various pigments and additives. Precious and base metals are still a significant part of the story, though they contribute relatively little in terms of operating income.
Given the value and growth potential of Engelhard's catalyst business, I can see why BASF would be interested. What's more, I suppose you could argue that Engelhard might never get quite its fair due in the markets because of worries about the cyclical nature of its businesses. It'll be interesting to see what ultimately happens with this deal. Given today's action in the price, it would seem that investors expect either another bidder to come in to the game or that the two companies will sit down and hash out a friendly deal with a higher price.
Either way, this deal has my antennae twitching. I've been sniffing around the chemicals sector for a little while now, working off of a hunch that this year could be an interesting one for these companies. Secondly, it's interesting to see a European company launching a hostile deal for an American firm -- something that not all that long ago would have been unthinkable.
Time will tell whether this is the beginning of a merger wave in specialty chemicals and whether other players in the specialty chemicals, metals, and catalyst markets like OM Group
For more refined Foolishness:
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).