Frankfurt, April 7 - UK specialty chemicals maker Croda, Germany's BASF and financial investors including Apollo and Blackstone are interested in acquiring German chemicals firm Cognis, an industry source said.
He said Cognis, a specialty chemicals maker currently owned by Goldman Sachs Capital Partners and private equity firm Permira, could fetch its owners 2.5 billion to 2.7 billion euros ($3.05 billion-$3.3 billion).
"Croda is interested, BASF has looked at it in the past and is taking a look, and the private equity firms like Apollo, Bain, BC Partners, Blackstone and CVC are among those interested," said the source, who declined to be identified.
BASF and Croda declined to comment.
The source said Croda was interested in Cognis because of its specialty oleochemicals and cosmetics businesses.
He said BASF would be interested only if it could get Cognis cheap, given that some of Cognis's businesses were commoditised and that BASF was not interested in these.
"The attraction is that Cognis is in Germany and they could get it for a low price," he said.
"For the financial investors the question is: what can they do with a business that Goldman Sachs and Permira have not been able to over five years?"
BASF shares were down 0.3 percent at 64.27 euros in Frankfurt and Croda was up 0.4 percent at 481.5 pence in London.
The cost of credit protection on Cognis rose, with five-year credit default swaps trading 20 basis points wider, bid at 320 basis points, a trader said. That means it costs 320,000 euros a year to insure 10 million euros of the company's debt against default.
"The whole market is wider," a second trader said. "And in the case of Cognis it seems to be becoming more and more clear there won't be an IPO, but that there might be a secondary buy-out, which would be worse for bondholders."
VALUATIONS
A price of 2.5 billion euros would translate into 7 times core earnings, a similar multiple one would have to pay for other assets in the specialty chemicals sector, he said.
According to Reuters estimates, Swiss chemical firms Clariant and Ciba trade at 5 times estimated 2006 core earnings.
Goldman Sachs Capital Partners and Permira, which bought Cognis in 2001 from German consumer goods firm Henkel, plan to decide this year whether to float or sell it.
Cognis, which has said it is considering a listing or sale this year, saw its 2005 core profit slip amid high energy and raw material costs and tough markets for some of its products.
Cognis said on Wednesday that earnings before interest, tax, depreciation and amortisation (EBITDA) and before special items fell 1.7 percent to 356 million euros ($445 million) as sales rose 3.3 percent to 3.18 billion euros.
The company's 2005 net loss surged by five times to 136 million euros due to an impairment charge on its oleochemicals unit, which makes chemicals from edible oil, and the effect of the stronger dollar on its debt. Around 40 percent of Cognis's net debt of 1.59 billion euros is denominated in dollars.
Its operating business was hit by higher raw material and energy costs, a strike at a U.S. factory and lower sales of Vitamin E due to health worries about the vitamin's use.