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BASF's Bid for Fish-oil Maker Pronova on Knife Edge

Jan. 16, 2013

BASF's attempt to boost its nutrition business is set to go down to the wire as some investors in target Pronova rebuff the chemical group's offer ahead of a Friday deadline to tender their shares.

Global No.1 chemicals maker BASF sees the bid as part of its efforts to expand in markets less exposed to swings in the economy than its core chemicals and plastics operations - a quest recently reflected in the planned acquisition of U.S. crop protection company Becker Underwood for $1.02 billion.

The German group has made its bid, worth 4.85 billion Norwegian crowns ($877 million) including debt, conditional on 90 % acceptances among Pronova shareholders, as required in Norway to squeeze out the remainder.

Yet Pronova shares have hovered above the 12.50 crowns per share bid level over the past fortnight, at about 12.60 crowns on average, pointing to bets on a higher offer.

While two thirds of Pronova shares have been tendered to the bid, shareholders representing about 5 percent in the Norwegian group have come out rejecting BASF's terms.

"We know for sure we will not accept the offer," Alexandra Morris, a fund manager with Odin Forvaltning, which holds 4.68% in the Norwegian target, told Reuters.

Handelsbanken Asset Management, which holds less than 0.59%, also said it would not tender, while Folketrygdfondet, with 3.47%, told Reuters it had not decided yet.

Herkules Private Equity Fund - which holds 50% in Pronova - has played down the chances of a higher offer, saying it had talked to other possible suitors and that BASF's offer was the best it would get.

Drug use

Pronova is appealing to BASF for its expertise in the extraction of omega-3 fatty acids from fish oil for use in drugs and food supplements.

In addition to its previous acquisitions of consumer product groups Cognis and Equateq, the Pronova deal would help BASF cover the entire omega-3 range - a market where its competitors include DSM and Croda - from food-grade to highly concentrated versions for drugs.

Overall BASF expects the market to see 8%% annual growth until 2020.

To underscore its interest, it is also working with agricultural products group Cargill to extract omega-3 fatty acids from new types of rape seed.

Prior to the bid published in November, BASF had secured the support of both Herkules and Pronova's management for an offer which represents a 24% premium to the Norwegian group's average share price for the six months prior to the bid.

But the bid was pitched just 4% higher than Pronova's closing price on the previous trading day.

The target company's board of directors earlier this month reaffirmed its endorsement, pointing to healthcare austerity measures and looming competition in Europe from cheap generic copies of Pronova's omega-3 heart medicine Lovaza/Omacor.

Last month the offer period was extended to 1630 CET (1530 GMT) on Friday, after BASF secured only 67.2%% of Pronova shares after the end of the initial subscription period.

"Ninety percent is not an easy hurdle, but there is a chance that BASF can make it," said Ulle Woerner, an analyst at LBBW. "The Pronova share price shows that at least there is no aggressive speculation on a higher bid."

 

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