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BASF Corporate Strategy and Portfolio Development
BASF Corporate Strategy and Portfolio Development
Questions to be answered
1. BASF will have a new CEO at the end of the year. This is a perfect time to think through the portfolio restructuring of the last 10 years. What was the strategic rationale behind it? Do you think this rational is still valid and should be further pursued? 2. The corporation is thinking about further major enhancements of efforts in the agrobusiness. This means that they would have to up-scale their respective R&D even further, but potentially make some aquisitions as well. There is an option to acquire a major EU seed company for about 1.5 2.0 bn USD. Is this option worth to be pursued further?
Outline
1. Understanding the context
1.1 BASF The Chemical Company 1.2 Portfolio Analysis Basic Methods
Activities
14.000 12.000
Sales per segemnt (in million )
10.000 8.000 6.000 4.000 2.000 0 2001 2002 2003 2004 2005 2006
Figure 1: Sales per segment from 2001-2006, Source: BASF Annual Reports Torsten Arnold BASF Corporate Strategy and Portfolio Development 8
Intermediates
Creating value-adding chains from basic chemicals to higher value products Implement all business segments into the production process using interdependence Provides new opportunities for more flexible response to economic fluctuations
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Figure 3: Nine-box matrix. Source; McKinsey and Company. 2000. Thinking strategically. Torsten Arnold BASF Corporate Strategy and Portfolio Development
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MACS - Overview
Figure 4: Market activated corporate strategy framework. Source; McKinsey and Company. 2000. Thinking strategically. Torsten Arnold BASF Corporate Strategy and Portfolio Development 17
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Combination of a business units attractiveness and its risk component Both factors are assessed on a stand alone base and under the consideration of overall portfolio interdependences
Figure 5: Risk/Return Matrix. Source; Rall, W. and Knig, B., 2003. Aktuelle Herausforderungen an das strategische Management. Handbuch strategisches Management Torsten Arnold BASF Corporate Strategy and Portfolio Development 20
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parenting advantage
Synergistic effects through integration (Verbund), scale effects, effects on exisiting market position
At best:
D
Torsten Arnold BASF Corporate Strategy and Portfolio Development 22
At best:
D A
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At best:
A
D
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BASF Acquistions - 1st Step: Strengthen portfolio plus high ROI chances
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30 11 07 24 01 10 06 20 19 22 03 23 28 09 13 25 26 02 05 21 08 31 04
12 34 33 1517 27 16 18 14
8Huntsman: global TDI business 9Leuna-Miramid GmbH: engineering plastics Europe 10Rhenania Coatings GmbH: coil coatings business 11Degussa: construction chemicals business 12Engelhard: catalysis and surface finishing 13Johnson Polymer: resins 14Lanxess: SAN business 15CropDesign: biotechnology company 16PEMEAS: fuel cell components 17Chinese motorcycle catalyst business 18Chinese Hi Con: concrete admixtures 19Billakksenteret AS: Coatings, R-M sales activities 20Autolacke Handel GmbH: Coatings,R-M sales activities 21Dutch Polymer Chemical Company: Polyurethane System House 22DERIS and Chteau-Arnoux Peinture: Coatings, R-M sales activities 23Michel DE-RIS S.A.S. France 24SABIC Innovative Plastics joint venture 25BCD Rohstoffe fr Bauchemie HandelsGmbH (Austria) 26Multi Chemical Est.:: polyurethane business 27Yasar BASF Automotive Coatings Ltds 28Revus Energy ASA (Wintershall) 29Recticel: car windows, polyurethane specialities business 30Ciba Holding AG. 31Sorex pest control business, Whitmire Micro-gen 32NOF Thailand: motorcycle coatings business 33Kejie: concrete admixture business 34 Cognis Holding Luxembourg S. r.l.
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Functional Solutions Chemicals Functional Solutions Functional Solutions Plastics Functional Solutions Functional Solutions Plastics Chemicals Plastics Functional Solutions Oil & Gas Plastics Chemicals Agricultural Solutions Functional Solutions Chemicals Functional Solutions
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BASF Divestitures 1st Step: Sell units with low level of attractiveness and low parenting advantage
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08 21 05 15 17 19 20 01 16 06 14 09 02 11 04 12 10
22 23
18 03 07 13
1014 percent shareholding in DENC 11major assets of Micro Flo Comp. Agricultural Solutions Agricultural 12global terbufos insecticide business Solutions Chemicals 13animal feed premix sites, Netherlands 14Chemische Fabrik Wibarco GmbH Chemicals Chemicals 15exit human nutrition premix marketplace 16rail cargo company RAIL4CHEM Chemicals 17Seal Sands site, UK Pharmaceuti 18Shreveport site cal Functional 19China process catalysts site Solutions Functional 20Ako site to Kansai Paint Solutions 21styrene monomer site in Korea 22polystyrene business in Brazil Chemicals 23 European starch business
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Figure 6: BASF strategic rationales, Reasons for Acquisitions and Divestures; Source: Own illustration Torsten Arnold BASF Corporate Strategy and Portfolio Development 32
Oil & Gas plus Agricultural solutions build a stable earnings base -> Strengthen
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The strategic logic of the transaction is convincing, since the combined businesses will be strengthened sustainably and positioned for long-term profitable growth. (Dr. Jrgen Hambrecht, Chairman of the Board on the acquisition of Ciba Holding AG) The aim is to strengthen our involvement in less cyclical areas that are driven by innovation and offer growth above the average of the chemicals market. (Dr. HansUlrich Engel, Member of the Board on the largest acquisition within the last years) Construction chemicals is an innovative business area with cyclically resilient margins that we will develop into a profitable growth sector in BASFs portfolio. (Dr. Andreas Kreimeyer, Member of the Board on the acquisition of Degussa's construction chemicals)
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Our investment programs are geared to growth markets and to Asia and China in particular. Examples include the $1.4 billion expansion of our Verbund site in Nanjing, China (Dr. Hans-Ulrich Engel, Member of the Board)
Through this, we open up further opportunities for a long-term and reliable supply of Russian natural gas in Europe to competitive conditions." (Dr. Jrgen Hambrecht, Chairman of the Board on the joint venture between Gazprom and Wingas)
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As the starch business is a regional, stand-alone business offering few synergies with BASFs paper chemical operations, we have taken the decision to divest this business (Christian Schulz, Vice President Business Management Paper Coating and Starch Europe on the sales the European starch business)
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High one-digit growth rates in the last five years, ROE 12 14 % range
High attractiveness Lowers overall portfolio risk
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AT
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AT
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AT
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List of figures
Figure 1: Figure 2: Figure 3: Figure 4: Figure 5: Sales per segment from 2001-2006, Source: BASF Annual Reports Sales per segment from 2007-2009, Source: BASF Annual Reports Nine-box matrix. Source; McKinsey and Company. 2000. Thinking strategically Market activated corporate strategy framework. Source; McKinsey and Company. 2000. Thinking strategically. Risk/Return Matrix. Source; Rall, W. and Knig, B., 2003. Aktuelle Herausforderungen an das strategische Management. Handbuch strategisches Management Figure 6: BASF strategic rationales, Reasons for Acquisitions and Divestures; Source: Own illustration
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