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BASF's fertilizer sale may trigger K+S deal
September 27, 2011 / 3:25 PM / 6 years ago

BASF's fertilizer sale may trigger K+S deal

FRANKFURT, SEPT 27 - BASF’s (BASFn.DE) sale of its nitrogen fertilizer plants to Russia’s EuroChem may be a catalyst for more divestments at BASF’s distribution partner K+S (SDFGn.DE), which now has to cooperate with a rival.

BASF, which pioneered the mass production of nitrogen fertilizer in 1913, said in a statement on Tuesday it plans to complete the transactions with EuroChem, worth a combined 700 million euros ($943 million) including unspecified debt, by the first quarter of 2012.

BASF’s marketing partner and former subsidiary K+S (SDFGn.DE), which is bound by an agreement that runs through 2014 to distribute BASF’s fertilizers to farmers, said that it would not rule out a divestment of the sales and marketing network that BASF has drawn on.

A K+S spokesman said the company would fulfill its marketing contract regardless of the change of suppliers.

Potash miner K+S has said it would probably sell its nitrogen fertilizer sales network if a direct competitor -- which would include EuroChem -- were to buy BASF’s plants because such a buyer was unlikely to need K+S’s distribution services.

As part of its bid to focus on salt and potash mining, K+S in June divested its garden fertilizer and potting soil unit Compo and has also said that marketing nitrogen fertilizer was not a core business.

“EuroChem has a strong presence in Eastern Europe, they might be interested in using K+S’s sales network to make inroads into Western Europe,” said WestLB analyst Wolfgang Fickus.

“In an ideal scenario for K+S, EuroChem would seek to buy K+S out of its exclusive distribution agreement with BASF,” he said, adding that this would turn K+S into a pure-play potash and salt miner and boost operating profit margins by 6 percentage points.

K+S shares were up 3.3 percent at 1400 GMT, underperforming the 5 percent rise in Germany's benchmark DAX .GDAXI.

EuroChem, which is controlled by Russian tycoon Andrei Melnichenko, said the deal would boost its European business.

“The acquisition ... is a major milestone in EuroChem’s growth strategy to enhance its exposure to the European market,” EuroChem’s Chief Executive Dmitry Strezhnev said in a statement.

Melnichenko had this month said he was eyeing the purchase of a large asset in Europe soon.

Norwegian nitrogen fertilizer specialist Yara (YAR.OL) had also expressed interested in buying BASF’s assets.

The businesses that are being sold, with a combined annual capacity of about 2.5 million tonnes of fertilizer, comprise plants in Antwerp, Belgium, and BASF’s 50 percent share in its PEC-Rhin joint venture with French company Total (TOTF.PA).

BASF is keeping some fertilizer production facilities at its Ludwigshaven headquarters, where fertilizer precursors emerge as a by-product of making other chemicals.

BASF said in March the assets it was putting on the block accounted for less than 1 percent of group revenue, which would imply less than 640 million euros based on 2010 results.

It had announced earlier this year it would sell major parts of its fertilizer business, which is under pressure from low-cost producers in the Middle East such as Saudi Basic Industries 2010.SE.

Chemical companies in the region, mainly in Saudi Arabia, are using their cheap and direct access to natural gas, the feedstock needed for nitrogen, to make massive inroads into the fertilizer market.

K+S’s main business of potash fertilizer is based on mineral mining while the nitrogen fertilizer industry converts natural gas into fertilizer in a chemical process. ($1 = 0.742 Euros)

Reporting by Ludwig Burger; Editing by Jon Loades-Carter

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