Germany's BASF, the world's largest chemical company, has made the offer for its US rival, a major catalyst and pigment maker that would significantly boost BASF's small catalyst business.
More significantly, BASF would gain approximately a third of the automotive catalyst market and would become a major maker of pearlescent pigments used in cosmetics, paints, and plastics.
In hostile takeover talks over the Christmas period, BASF Chairman Jürgen Hambrecht was forced to take his $37-per-share cash offer directly to Engelhard stockholders after his initial advance to Engelhard's chief executive officer, Barry Perry was rejected.
The offer represents a 23 per cent premium above the December 30, 2005 closing price of Engelhard's stock of $30.15 (the last trading day before BASF announced its intention to commence a tender offer).
Industry analysts have stated that the price for Engelhard is too "expensive" and not in the best interest of shareholders.
However, in a conference call to analysts and reporters, Kurt Bock, Chief Financial Officer of BASF, said that looking back at the share price development of Engelhard over the last few years I think every investor should make up his own mind, or her mind, that an offer of $37 per share is quite attractive.
"Not only is it a premium of 23 per cent over the closing price at the end of December. It's a 30 per cent increase over the average of 90 days, over the last three quarters," he added.
BASF has started the year in an acquisitve mood, with talk of the chemical company to make an offer for Degussa's construction chemicals business with an $3 billion offer being touted around.
Considering the compnay has zero net debt, a healthy balance sheet, and high cash flows, the feeling is that BASF can afford both aquisitons.
"BASF has had a AA- rating from agencies, Standard & Poor and Moody's. We are very comfortable in this range, in this credit category. It needs to be seen how the agencies will react to this and Degussa's offer," said Bock.
"BASF has a very, very strong free cash flow. It's close to €3bn over the last few years, per year. So there is also capacity to offload debt in the future very fast," he added.
Engelhard acknowledged BASF's unsolicited proposal and urged its stockholders to take no action at this time.
They added that the company's Board would meet to review and consider BASF's proposal making a recommendation to stockholders in due course.
Engelhard is a supplier to approximately a third of all catalytic converters used in cars. As governments worldwide tighten pollution controls the market is expected to grow by more than 5 per cent each year.