BASF Aktiengesellschaft

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BASF Aktiengesellschaft

also known as: basf founded: 1861

Contact Information:

headquarters: carl-bosch strasse, 38
ludwigshafen 67056 germany phone: (212)815-2367 fax: (212)571-3050 url: http://www.basf-ag.basf.de/basf/html/e/home.htm http://www.basf.com

OVERVIEW

BASF Corporation is the second largest chemical manufacturer in the world. Based in Germany, the company manufactures and markets various chemicals and plastics. BASF has five main operating units: Plastics and Fibers, Colorants and Finishing Products, Health and Nutrition, Chemicals, and Oil and Gas. The company manufactures and markets products in 39 countries and operates business affairs in over 170.

COMPANY FINANCES

In 1997 sales for BASF AG were $31.01 billion; net income was $1.78 billion. Of 1997 sales, $7.99 billion was earned in Germany (26 percent); $10.97 billion was earned in other European countries (35 percent); $6.48 billion was earned in North America (21 percent); $3.73 billion was earned in the Asia/Pacific and Africa (12 percent); and $1.82 billion was earned in South America (6 percent). Sales for BASF Corp. in the United States were $4 billion. Broken down by operating division, the company's Plastics and Fibers division earned the most revenue, $8.04 billion (26 percent of overall 1997 sales). Colorants and finishing products brought in $7.11 billion (23 percent); Health and Nutrition products generated $6.06 billion (19 percent); Chemical brought in $4.86 billion (16 percent); Oil and Gas revenues were $3.47 billion (11 percent); and revenues derived from all other sources totaled $1.45 billion (5 percent).

The company's total earnings per share (EPS) for 1997 were $2.90, a slight decline from 1996 earnings of $2.93 per share. BASF AG's stock price in mid-1998 was around $46.00 per share. Its 52-week high was $46.25, and its 52-week low was $31.25 per share.

ANALYSTS' OPINIONS

Many analysts view the chemical manufacturing industry as a mature market with too many competitors. This led some analysts to praise BASF's joint efforts with Hoescht and Royal Dutch Shell. Jackie Ashurst, a chemicals analyst, was quoted in the October 10, 1996 issue of The Wall Street Journal as saying, "[The joint ventures will] consolidate an industry that has too many players. It will create cost and marketing efficiencies, and raise the possibility of some further restructuring in the industry." Ronald Koehler, chemicals and pharmaceuticals analyst, stated in the same article that the merged efforts of BASF and Hoescht would create the largest polypropylene supplier in Europe, totaling a combined market share of 27 percent. Other experts remain skeptical, claiming BASF's efforts may be in vain as other competitors will arise. Some even question the accuracy of the 27-percent market share, saying it might be closer to 20 percent.

HISTORY

German jeweler Frederick Englehorn founded BASF, initially known as Badische Anilin & Soda-Fabrik, in 1865 to produce coal tar dyes. Demand for dyes was strong, growing in conjunction with the textile industry, and BASF earned a top position in the world dye market by the end of the nineteenth century. BASF set new trends with its development of synthetic dyes, particularly indigo, in 1897. In 1901 BASF pioneered the invention of indanthreme dyes, which were exceptionally lightfast and washfast. These dyes soon overtook indigo's supremacy in the dyeing and printing industry. During the early twentieth century, BASF entered into another product sector with its research into nitrogen and development of the Haber-Bosch process. This process allowed atmospheric nitrogen to be combined with hydrogen at high pressures and temperatures, and with the use of catalysts, to form ammonia. It also led the way to synthetic production of nitrogen fertilizers.

Due to the weakness of the German economy following World War I, BASF, Hoechst, Bayer, and three other companies were merged in 1925, resulting in the founding of I.G. Farbenindustrie AG. With this merger, BASF ceased to exist as an independent company, and the new company's headquarters were moved to Frankfurt. BASF developed polystyrene, PVC, and magnetic tape during this joint operation.

As the motor car proved a runaway success during the 1920s, BASF invested its resources in developing fuels, operating agents, synthetic rubber, and raw materials and surface coatings. The company's first tankers of automobile gasoline were produced in 1927. The development of the first synthetic rubber, "Buna," followed in 1930.

Early in World War II, the first air raids began on BASF's Ludwigshafen and Oppau works. Damage was severe, and when the site became occupied by American troops on March 23, 1945, it was a pile of rubble. After 65 air raids, 33 percent of the factory buildings had been totally destroyed and 61 percent were damaged severely. After World War II, I.G. Farben was dissolved by the Allied Control Council, and BASF began operating alone again in 1952. The company worked to reconstruct its factories after damage from the war.

FAST FACTS: About BASF Aktiengesellschaft

Ownership: BASF is a publicly owned company traded on the OTC (over-the-counter) exchange.

Ticker symbol: BASFY

Officers: Jurgen Strube, Chmn., Pres. & CEO; HannsHelge Stechl, Vice-Chmn.; Hans Albers, Chmn. of the Supervisory Board; Harald Grunert, CFO

Employees: 104,979 (1997)

Principal Subsidiary Companies: BASF Aktiengesellschaft's subsidiaries include: Knoll AG, Comparex Informationssysteme GmbH, Knoll Deutsch-land GmbH, BASF Corp., BASF in east Asia, BASF in southeast Asia/Australia, and BASF in Japan. The company is a publicly traded operating unit of BASF Group.

Chief Competitors: As one of the world's largest chemical manufacturers, BASF's primary competitors include: Akzo Nobel; Bayer; Bristol-Myers Squibb; Dow Chemical; DuPont; Eli Lilly; Exxon; Hoechst; Merck; Pfizer; Rhone-Poulenc; Royal Dutch/Shell; Sony; and Warner-Lambert.

Due to popular household demand for basic chemicals following World War II, BASF regained its strength. With this newfound strength, the company sought partnerships in other countries. They joined with Dow Chemical in the United States in 1958, which it completely owned by 1978. The company began building production sites all over the world during the 1960s, including Brazil, France, India, Japan, the United States, Australia, Mexico, Argentina, Spain, Belgium, Italy, and the United Kingdom. BASF's Antwerp production site was especially important, becoming the second largest European complex.

BASF soon became a leading manufacturer of plastics and synthetic fibers. BASF also began producing petrochemicals and bought Wintershall, a German oil and gas manufacturer, in 1969. Wintershall marketed natural gas to the European market.

Purchasing other companies proved successful for BASF in its goal to expand. Some of the companies it acquired include Wyandotte Chemicals in 1969, Chemetron in 1979, and Inmont in 1985. BASF also bought Synthesewerk Schwarzheide (SYS), a large chemical company in eastern Germany, in 1990. BASF signed agreements with Russia and France in 1991 to produce natural gas there. The following year, the company bought Mobil's polystyrene-resin business in the United States.

By 1994 BASF became the world's second largest chemical manufacturer after it bought Imperial Chemical's polypropylene business. BASF also purchased the pharmaceutical division of Boots, a U.K. retailer, in 1995. In 1996 BASF saw a need, as did its competitors, to merge in order to avoid drastic market turns. The company signed deals with Hoechst and Royal Dutch/Shell that year. It also planned to sell its audio and videotape businesses to RAKS, a Turkish cassette manufacturer.

STRATEGY

BASF devised a growth strategy it called "Vision 2010." This is the year by which the company aimed to be the number one global chemical manufacturer. The company strives toward improved efficiency and flexibility. It also views change as its foundation for future success.

Although BASF yielded sales in South America, North America, Europe, and Asia/Africa in the late 1990s, its strongest potential for growth was seen in Asia due to its strong market demand compared to other regions. Even though the company is based in Germany, it has placed itself in other countries due to the increasing costs of production and shipment in that country. BASF's European and German facilities serve mostly as production, research, and development sites.

BASF's strongest international markets were for natural gas and oil. Other strong markets included pharmaceuticals, crop protections agents, and vitamins. Foams, other plastics like polystyrene, and colorants gave BASF a strong international presence as well.

Selling off some of its businesses in the late 1990s, BASF aimed to focus on its core business. Businesses sold included its electrical insulation systems business, container coatings business, and subsidiaries Resart GmbH and Critesa SA, Spain, along with PMMA plastics. BASF also reduced its holdings in Kali und Salz Beteiligungs AG, owned through Guano-Werke GmbH, from more than 75 percent to less than 50 percent. The company also agreed to sell Chemag Aktiengesellschaft. BASF reorganized some areas of the company, including the transfer of its building paints operations to newly founded BASF deco GmbH and the transfer of the company's printing system operations to BASF Drucksysteme GmbH.

CHRONOLOGY: Key Dates for BASF Aktiengesellschaft

1865:: Badische Anilin & Soda-Fabrik (BASF) is founded to produce coal tar dyes
1897:: Research into an indigo dye cost the company 18 million gold marks, more than BASF's capital
1901:: Indanthrene dyes are developed and becomes the industry leader
1914:: BASF paves the way for agricultural chemistry with the opening of the Limburgerhof Agricultural Center
1925:: BASF merges with Hoechst, Bayer, and three other German companies to form I.G. Farben
1945:: During World War II, 45 percent of BASF buildings are destroyed in bombing raids
1952:: I.G. Farben is separated into three large firms: Hoechst, Bayer, and BASF
1961:: BASF invents Styropor, a new lightweight packing and insulating material
1968:: Purchases Wintersall potash and natural gas company to become Germany's second largest chemical company
1978:: Completes ownership of Dow Jones
1991:: Signs an agreement with Russia and France to produce natural gas there
1996:: Merges with Hoechst and Royal Dutch/Shell

INFLUENCES

BASF's early success began with its development of synthetic dyestuffs. The chemical manufacturing market following World War II was favorable, allowing BASF to spread its wings to the United States, eastern Germany, Russia, and France. The purchase of Mobil's polystyrene-resin business gave BASF 10 percent of the U.S. market in 1992. However, the early 1990s also proved to be difficult for the company. BASF sales dropped due to high domestic-labor expenses, slow buyer demand, and a strong Deutschmark. The company was able to remain balanced, however, due to a raised universal need for BASF's chemicals, plastics, and fibers.

CURRENT TRENDS

BASF continued to reach its global goals through expansion. It took advantage of the North American Free Trade Agreement (NAFTA) by developing plans for an industrial manufacturing site on the Gulf Coast. A. Jennings, President of BASF Corporation's Chemical Division said in a January 22, 1997 issue of The Wall Street Journal, "This investment is of strategic importance to BASF because it will ensure integrated long-term propylene and ethylene supply for future expansion in the NAFTA region." BASF was expanding its U.S. presence by building a new plastics plant in Texas and expanding plastic-making operations in Alabama, Louisiana, and Illinois. BASF also used acquisitions as a growth strategy in the United States. One example was its signing of a million-dollar deal with Molecular Simulations Inc. (MSI) in October of 1996. This venture allowed BASF scientists and researchers to use the company's new software to further the BASF chemical developments through vivid graphical imitation of molecular structures.

The company's expansion plans included other acquisitions, some of which were premix plants for feeds in Poland and South Africa; a coatings manufacturer; the printing ink businesses of Punch Printing Inks Ltd., Ireland, and Schou Trykfarver A/S, Denmark; the surfactant businesses of Olin Corporation and PPG in the United States; and 50-percent holdings of Hanwha Chemical Corp., Korea, in the joint venture Hanwha BASF Urethane Ltd. (now BASF Urethane Korea Ltd.). Other acquisitions and joint ventures also took place during 1997.

Also part of BASF's expansion was its launch into Asia—China in particular. In late 1996 negotiations were underway with China regarding the building of a manufacturing facility in Nanjing. Negotiations were to be finalized in early 1997. The company established a presence in Hong Kong and also planned to build a new facility in China and Malaysia. New plants were already built in Australia, Indonesia, Japan, and Pakistan. In South Korea, BASF agreed to buy Daesang's profitable chemical unit for $600 million.

Part of BASF's plan to expand also involved getting rid of trouble spots. The company made plans in late 1996 to sell its magnetic division to Turkey's RAKS Holding A.S. In addition, BASF entertained talks of selling its 51-percent share of its potash and rock-salt producer Kali und Salz Beteiligungs AG to Canada's Potash Corporation.

PRODUCTS

Products marketed by BASF's Health and Nutrition division include pharmaceuticals, fine chemicals (especially vitamins), fertilizers, and crop protection products. The Colorants and Finishing Products division offers products such as dyestuffs, dyes for the oil industry, pigments, finishing products, process chemicals, coatings, colorants, graphic systems, dispersions, basic chemicals, catalysts, industrial chemicals, plasticizers, solvents, glues, intermediates, specialty chemicals, surfactant raw materials, and chemicals for motor vehicles and additives. The Plastics and Fibers division offers polyolefins, polyvinyl chloride, polystyrene, engineering plastics, foamed plastics, polyurethane products and systems, PUR elastomers, and fiber products. And the Oil and Gas division markets crude oil, natural gas, and petroleum products such as fuel oil and fuels. Examples of the most well known developments associated with BASF include the synthesis of indigo, Indanthren(r) dyestuffs, and the synthesis of ammonia as a basis for fertilizer production.

CORPORATE CITIZENSHIP

Producing chemicals and other substances, BASF demonstrated its concerns in the area of environmental safety. The company remains active in the Chemical Manufacturers Association (CMA) Responsible Care Program. The company ranks among the best in the U.S. chemical industry after it significantly reduced the amount of chemicals released into the air between 1987 and 1994 by 93 percent.

BASF also developed building plans for a rigid thermoset polyurethane recycling plant. The company picked Detroit for the site since polyurethane is used to make car bumpers and moldings. Set to open in the late 1990s, the plant would use a chemical process that breaks polyurethane plastic to a state at which it can be reused.

Complete accounting of the company's environmental practices are available in its annual Responsible Care 1997 Environment, Safety and Health Report and can be ordered online at http://www.basf-ag.basf.de/basf/html/e/mail/ubericht.htm.

GLOBAL PRESENCE

Engaged in business activities in more than 170 countries, BASF has established a strong presence in Europe, North America, Asia, Africa, and South America. The company's largest sales percentages came from various European countries, totaling 64 percent of sales for 1995. North America came in second with a 20-percent hold on sales for that year, while Asia/Pacific & Africa totaled 11 percent; South America claimed 5 percent.

Acquiring the pharmaceuticals business of The Boots Company PLC in Nottingham, England, added to BASF's international strength as well. BASF also continued to enhance its international capacity by developing the BASF East Asia regional division in Hong Kong. To capitalize on the growing Asian market, BASF moved its Textile and Leather Dyes and Chemicals division from Germany to Singapore.

SOURCES OF INFORMATION

Bibliography

"basf aktiengesellschaft." hoover's online, 6 july 1998. available at http://www.hoovers.com.

"basf confirms plans to build ethylene cracker on u.s. gulf." the wall street journal, 22 january 1997.

"basf sells audio and video tape division as it focuses on core business." san diego daily transcript, 15 august 1996. available at http://www.sddt.com.

basf web site, 19 june 1998. available at http://www.basfag.basf.de/basf/html/e/home.htm.

"germany's basf in ventures to shore up polymers: amplifier." the wall street journal, 10 october 1996.

"germany's basf sells oilfield chem. marketing to u.s. baker." the wall street journal, 29 august 1996. "germany's basf sees 'mixed impression' for 2h orders." the wall street journal, 22 august 1996.

"msi signs million dollar agreement with basf." molecular simulations homepage, 2 october 1996. available at http://www.msi.com.

welch, michael. "philip environmental, basf launch polyurethane recycling venture." international environmental information network, 5 november 1996. available at http://www.envirobiz.com.