FRANKFURT (Reuters) - BASF BASF.DE has launched an agreed cash offer to acquire smaller Swiss rival Ciba CIBN.VX for 3.4 billion Swiss francs ($3 billion), a deal that would boost its position in the specialty chemicals business.
The move by the world's biggest chemicals maker on Monday follows Dow Chemical's (DOW.N) $15.3 billion bid for rival Rohm and Haas ROH.N in July, signalling that a consolidation of the industry is speeding up amid high raw material and energy costs.
Chemical companies with a broader portfolio are increasingly moving into the specialty chemicals segment, which offers higher margins than commodity chemicals like polypropylene, which is used in basic plastics, and is less cyclical.
Basel-based Ciba, which makes colors for plastics, paper and wood, shocked the market last month by announcing it might sell key businesses after it posted a surprise first-half net loss due to a writedown in its water and paper treatment unit.
"In our view, Ciba is not in good shape at all. The takeover is therefore a story of restructuring and consolidation within the chemicals industry," said UniCredit analyst Andreas Heine in a note to clients.
"BASF has the chance to leverage its product offering with a global sales force and to reduce costs on the supply chain management."
A banker close to the deal said further deals in the sector could follow.
He cited Lanxess (LXSG.DE), Rhodia RHA.PA and Saudi Basic Industries (2010.SE), all competitors of BASF, as possible predators, and said Ciba's cross-town rival Clariant CLN.VX and Finland's Kemira KRA1V.HE were seen as attractive targets.
Ciba shares, which had fallen 27 percent since the start of the year, soared 27.4 percent to 48.4 Swiss francs by 1445 GMT, while the cost of insuring Ciba's debt against default rallied.
BASF shares fell 3.9 percent, while the DJ Stoxx European chemicals index .SX4P was trading 1.42 percent lower, one of the best-performing sectors in a broadly weaker market .
BASF said it would offer 50 Swiss francs ($44.05) in cash per Ciba share, a premium of 32 percent over the closing price of Ciba shares on Friday.
The Ludwigshafen, Germany-based firm said the deal would lift it to market leading positions in plastic additives, specialty coatings and paper chemicals.
Ciba's board supports the offer, which is expected to be completed in the first quarter of next year, and will recommend that shareholders accept it, BASF said.
Including Ciba's net debt and pension provisions, the deal is worth 6.1 billion Swiss francs ($5.4 billion). In a conference call, Chief Executive Juergen Hambrecht described the bid as BASF's "last, best and final offer".
The bid is subject to a number of conditions, such as the tender of at least 66.67 percent of all nominal shares, approval by the relevant authorities, and removal of various takeover defences in Ciba's statutes, BASF said.
BASF's Hambrecht declined to comment on possible synergies, saying he would be able to give further details towards the end of November.
Oliver Schwarz, an analyst at Equinet, said in a note that BASF was a key supplier of raw materials to Ciba and could address some of the Swiss firm's weaknesses by integrating it into its own operations. He said the deal values Ciba at 15.2 times estimated 2009 earnings.
"As these numbers do not factor in any positive effects from synergies, we do not see BASF overpaying for the targeted asset," Schwarz said.
BASF competes with rivals such as Dow, Saudi Basic Industries, Dupont (DD.N) and Bayer BAYG.DE for a slice of the 2 trillion euro ($2,8 billion) chemicals market.
Unlike its rivals, BASF has benefited from an integrated business model.
The company also produces oil, so higher crude oil prices raise its profit for part of its business at the same time as they increase costs at divisions that use oil-based products. BASF is also a major producer of gas -- a key feedstock in the chemicals industry.
Ciba was advised by Credit Suisse, Lazard and Homburger AG. Deutsche Bank advised BASF in the deal.
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Additional reporting by Sven Egenter in Zurich, Mantik Kusjanto in Frankfurt and Maya Thatcher in London; editing by Sue Thomas