Chemical industry consolidation talk heats up

Recent deals have market watchers guessing “who’s next?”

by Dave Hannon -- Purchasing, 7/16/2008 11:57:00 AM

In light of Dow Chemical’s recent planned buy of Rohm & Haas and Ashland’s buy of Hercules, there’s more talk of a growing chemicals industry consolidation. Morningstar analyst Ben Johnson in Chicago says in a Reuters report that the market will see more consolidation, but “deals the size of what we saw between Ashland-Hercules are more likely than another Dow-Rohm and Haas type deal.”

In the same report, Longbow Research analyst Dmitry Silversteyn notes that Valspar is a likely acquisition target as is Cabot Microelectronics..

A recent Wall Street Journal article points out that higher energy prices are causing some of the consolidation because specialty-chemical businesses are likely to be better able to withstand energy-price increases and growing competition from areas with low-cost oil and natural gas, such as the Middle East

"If you're a Western chemical company with no access to cheap energy, your future is looking fairly bleak in this environment," Hassan Ahmed, an analyst at HSBC Securities, tells the Journal.

But some market watchers say the current tight credit markets may delay merger mania. BASF currently is having difficulty finding a buyer for its styrenics operations, according to a Thompson Financial News report,  because potential buyers are having difficulty lining up financing

And while acquisitions are the current topic of the day, a bigger wave of joint ventures in the chemicals sector may have a greater impact on overall supply. This week, Dow Chemical told Purchasing.com that it is moving forward with Saudi Aramco regarding plans to build a petrochemicals complex in Saudi Arabia referenced in a recent Bloomberg News report. “The exact cost and involved parties related to this project are still being confirmed at this time,” a Dow spokesperson said.

See also: Purchasing.com’s chemicals channel for updates on deals and joint ventures