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EU Conditionally Approves BASF, DIC Pigment Deal

Tuesday, December 15, 2020

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The European Commission has conditionally approved the proposed acquisition of BASF Colors & Effects by the DIC Corporation, under the European Union Merger Regulation.

”Pigments are essential inputs for many consumer products that require a coloring process, for example in the automotive and advanced plastics value chains,” said Executive Vice-President Margrethe Vestager, in charge of competition policy.

“There are only a few alternative producers for these products and the combination of DIC and BASF Colors & Effects risked depriving customers of high-quality pigments. This merger is approved on the condition that the companies divest DIC's main manufacturing facility for pigments, thereby preserving effective competition in the market.”

Proposal Background

The agreement was announced in August 2019, and at the time the companies said that DIC would purchase the business for 1.15 billion euros (roughly $1.26 billion).

BASF

The European Commission has conditionally approved the proposed acquisition of BASF Colors & Effects by the DIC Corporation, under the European Union Merger Regulation.

“We have achieved our goal to find an owner who considers pigments a core strategic business,” said Markus Kamieth, member of the Board of Executive Directors of BASF SE, responsible for the Industrial Solutions segment.

“DIC pursues ambitious growth plans and has announced to further develop the business in the coming years. We are convinced that the pigments business will be able to unfold its full potential within DIC.”

DIC is headquartered in Tokyo and employs about 20,000 people globally. It was founded in 1908 and is active in more than 60 countries. It generated about 800 billion yen ($7.56 billion) in 2018. DIC has three segments: Packaging & Graphics, Functional Products and Color & Display, which includes a portfolio of pigments.

“We have outlined a clear growth path for DIC with the target to increase our sales to 1 trillion yen by 2025,” said Kaoru Ino, President and Chief Executive Officer of DIC.

“In this context, BASF’s pigments portfolio is an important strategic addition in meeting our goals more expeditiously. It will allow us to expand our position as one of the leading pigment suppliers globally and offer our customers even more versatile solutions.”

BASF’s pigments business has about 2,600 employees globally and generated sales of approximately 1 billion euros in 2018.

It was anticipated that the transaction wouldn’t close until the fourth quarter of 2020.

What Now

The Commission is concerned primarily about perylene pigments (red, maroon, violet and black) and quinacridone pigments (yellow, red and violet), noting that the transaction as proposed would reduce competition on the market for the supply of those specific pigments.

“In particular, the Commission's market investigation indicated that although several Asian pigments manufacturers have been gradually entering the pigment markets for many chemical classes over the last decades, it is difficult for pigment customers to switch suppliers,” according to a press release summarizing the report.

“This was due to high qualification and reformulation costs that the pigment markets require. In addition, the Commission found that for some perylenes and quinacridone pigments, only a small number of manufacturers are considered to be suitable suppliers for customers requiring high specification pigments.”

Therefore, the Commission was concerned that customers would have insufficient alternatives for the supply of these pigments, meaning the acquisition could lead to higher priced, reduction of choice and lower quality in services.

To address the concerns, DIC is divesting its pigment manufacturing facility, operated by subsidiary Sun Chemical, in Bushy Park, South Carolina. This is where the majority of DIC’s perylene and quinacridone pigments are manufactured.

The divestment would include the plant, technology, brands, equipment and other tangible assets to another manufacturer.

Assuming that the divestiture commitment is followed, the Commission conclude that the transaction would no longer raise competition concerns.

   

Tagged categories: Acquisitions; Asia Pacific; BASF; Business matters; Color + Design; EMEA (Europe, Middle East and Africa); Latin America; Mergers; North America; Z-Continents

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