And it doesn’t move. Normally, the news that a corporation might divest a five-billion-euro stake should cause some reaction on the stock market. But not with the BASF share. Whether or not the group will say goodbye to its 49 percent stake in the specialty chemicals company Solenis will apparently leave investors indifferent. On Thursday last week, when speculation about the sale in Frankfurt was making the rounds, BASF shares went out of trading with an increase of 0.32 percent.
The papers of the largest European chemical company are among the most boring values in the Dax 30 index. Course fantasy? Doesn’t come from Ludwigshafen. Since Martin Brudermüller has been running the company, the share price has fallen by a fifth, while the Dax 30 index has risen by 20 percent on balance. After all, BASF got out of the deepest Corona valley, but that’s about it. Perhaps things are slowly improving because an extremely cyclical company like BASF is benefiting from the general economic upturn. But you shouldn’t expect a leap up.
BASF is sticking to its strategy
With the best will in the world, you can’t imagine a decision by the BASF Board of Executive Directors that could provide a boost. The group sticks firmly to its “Verbundprinzip”, which critics used to label many years ago as a “capitalist combine”. After that, the group will continue to produce all sorts of chemicals from a single plant at its major locations. A specialization, as many investors have been demanding for many years, cannot take place here. Whether the prices for a raw material are high or low, BASF produces what it can produce.
Therefore, by definition, the group can only change in marginal areas. Sometimes you buy something in addition (for example some agricultural products from Bayer), sometimes you sell something (for example a stake in the oil and gas business). But a real transformational deal for the actual core business cannot be expected under today’s conditions. A certain stability follows positively, a certain immobility negatively. Both are reinforced by a culture that relies heavily on insiders. At the end of their term of office, CEOs automatically mutate into supervisory boards – and their respective successors are recruited from among long-serving managers. So everything stays as it is.
Some investors appreciate this mélange. 47 percent of the share capital is in German hands. BASF explicitly prides itself on the fact that there is hardly any other Dax company with so many private shareholders. Conversely, however, one can also say: Many institutional investors avoid the group, especially those from the Anglo-Saxon world. You expect too little upside potential in Ludwigshafen.
What many small shareholders overlook: At BASF, boring cannot be equated with low-risk. The group invests quite risky – with its long-term decision to rely entirely on the Chinese market. It is assumed that nothing will fundamentally change the stability of the political system in the People’s Republic. Anyone who analyzes developments over the past two years, however, concludes that the USA and China are not far away from a new cold war. And one way or another, Europe is caught between the fronts. BASF’s geopolitical risk is increasing.
Bernd Ziesemer is a capital columnist. The business journalist was editor-in-chief of the Handelsblatt from 2002 to 2010. Then he was managing director of the corporate publishing division of the Hoffmann und Campe publishing house until 2014. Ziesemer’s column appears regularly on Personal-Financial.com. You can see him on Twitter here consequences.