A Dollar's Deciding Difference

Isn't it funny how a management team will castigate a would-be acquirer as a scurrilous, opportunistic dog one moment, then suddenly slap backs and light stogies after a small change in the bid? That's the case today for German chemical conglomerate BASF (NYSE:BF) and American specialty chemical company Engelhard (NYSE:EC).

Though the deal's been chugging along since January, its deciding ingredient was apparently BASF's willingness to go just one dollar higher on the bid. At $39 a share, it would seem that there were several institutional investors lined up to support BASF, and Engelhard's management decided to support the bid. That final bid compares with an original bid of $37, when the stock was trading for around $30, and a stepped-up bid of $38 in April.

Engelhard certainly made some moves of its own in the meanwhile. The centerpiece of Engelhard's response was to take on debt to fund a buyback of 20% of the shares at a price of $45. There were also claims that BASF was being too cheap, and that Engelhard was undervalued relative to the likes of Johnson Matthey and Umicore. However, I have to question any claiming of being undervalued when you use a forward P/E methodology and you've recently been a bit of an industry laggard.

But that's all history now. BASF is paying a reasonable price to get into the high-potential pollution control segment, and to shield itself (at least in part) from the inevitable cyclical decline in its basic chemicals businesses. And while some Engelhard shareholders may have believed that management would succeed in its own value-creation efforts, the BASF offer is a risk-free cash-on-the-barrel proposal.

I wouldn't go to great lengths to draw industrywide conclusions about this deal. Specialty players like Hexcel (NYSE:HXL), Cytec (NYSE:CYT), or metals player Brush Engineered (NYSE:BW) might get a look, but making investment decisions on the hopes of buyouts is decidedly un-Foolish.

For more industrial-grade Foolishness:

• A New Catalyst For BASF
• BASF's Small-Tech Big Bet
• Spinning Pollution Into Gold?

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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).