Most recently, the company, which had moved up to the leading index Dax, only bought smaller companies.
(Photo: Brenntag AG)
Dusseldorf, Frankfurt Chemicals retailer Brenntag is targeting its biggest takeover to date. However, these plans are not well received on the stock market. The shares of the Dax group broke on Monday at times by more than nine percent to below 62 euros. Brenntag confirmed over the weekend that it was in talks to take over US competitor Univar.
It would be a mega deal in the chemical distribution industry. Brenntag as world market leader would incorporate number two. The Essen-based group will have an estimated turnover of 19 billion euros this year.
After a merger with Univar, the company would significantly expand its position as number one with sales of a good 30 billion euros. Hamburger Helm AG, number five in the industry, has a turnover of just over six billion euros.
Univar acquisition would be very expensive for Brenntag
Brenntag emphasizes that the talks with Univar have not yet produced any results. In industry circles it was said that the negotiations are at an early stage and could drag on for months.
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But investors are already scared of the plans. They fear that Brenntag would have to resort to a capital increase for such a project. Univar is valued at a good five billion dollars on the stock exchange. Brenntag would have to offer shareholders an additional premium, making a takeover even more expensive. The Essen group itself currently has a market capitalization of 10.5 billion euros.
The move also comes as a surprise to shareholders and analysts. Brenntag buys diligently every year. However, these are mostly smaller chemical dealers in certain regions and special areas of application.
At the capital market day a few weeks ago, CEO Christian Kohlpaintner announced that the budget for acquisitions would be doubled to EUR 400 to 500 million per year. The management is primarily targeting chemical distributors in the healthcare sector and in emerging markets.
The Brenntag boss had announced that he would double the budget for takeovers.
(Photo: Brenntag)
A takeover of the largest competitor Univar does not fit into this scheme. Strategically, this would mean a reversal of the chemicals trader’s priorities, commented Alex Stewart of investment bank Barclays on Monday. He called the move an “unwanted distraction in an otherwise compelling investment story.”
In principle, a merger with the competitor is definitely interesting for Brenntag. Unlike Europe, the USA is seen as a clear growth market for the chemical industry in the coming years. Asia, on the other hand, is also growing. However, takeovers there – for example in China – are difficult and risky for chemical companies to implement.
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Univar does 70 percent of its business in the USA, while Brenntag recently accounted for around 32 percent of sales in this region. Both companies are the link between chemical producers and the processing industry. However, they do not just deliver the products, but also take care of mixing and formulation, repackaging and handling the return of containers. Brenntag alone has 195,000 customers worldwide.
Kohlpaintner emphasized the importance of the North American market at the Capital Markets Day. The manager sees the local industry in a more robust condition because of the comparably cheaper energy.
However, he also promised investors that he would adhere to clear criteria for takeover projects. Univar is valued in the stock market at five times expected adjusted earnings (Ebitda) for 2022. Significantly higher multiples have recently been achieved for chemical takeovers.
The analysts at Baader Bank assume that Brenntag would not buy too expensively. At the same time, they consider a combination of both companies to be sensible in terms of the portfolio, especially since the synergies are high.
Antitrust hurdles are high
However, the purchase price alone could not turn out to be a problem for the takeover. Because in financial circles, significant antitrust problems are expected. It is true that the global market for chemical distribution is very fragmented. Brenntag has a market share of just five percent, while Univar has 2.8 percent.
But the business is very local. In the USA in particular, companies could be forced by the antitrust authorities to make significant partial sales in the event of a merger. Nevertheless, the analysts at Goldman Sachs rate the takeover talks between Brenntag and Univar positively. “Any noticeable consolidation of the enormously fragmented industry is positive for price dynamics and market entry barriers,” it said in a comment on Monday.
More: Despite the looming crisis: Chemicals dealer Brenntag doubles takeover budget.