May. 8, 2018
After spending most of his seven years at the helm honing BASF's efficiency, outgoing CEO Kurt Bock ended his tenure with moves including an opportunistic deal to buy agrochemical and seed assets from Bayer AG for almost 8 billion euros ($9.6 billion). In a parting message to shareholders at Friday's annual general meeting, he said there's more for his successor to do.
"We have a lot on our plate," Bock said. He jovially addressed his image of an obstinate bean counter, saying his sober decisions were intended to keep the company steady, amid the emergence of a powerful Chinese chemical industry and a renaissance in the U.S. fueled by shale gas. "We need to keep the ship on course but also pick up the pace. I'm sure new management will make its mark." He retook his seat to a standing ovation.
The new CEO takes over while traditional bulk chemicals and an oil-and-gas division are generating more income than expected due to high prices, and investor attention is moving toward how BASF will spend the extra funds and what could be brought into the portfolio, according to Sebastian Bray, an analyst at Berenberg. Having secured the agrochemical and seed deal with Bayer, additional seed assets could be one area of interest, he said.
"BASF suffers from a conglomerate discount," Ingo Speich, a money manager at Union Investment, which owns about 1.5 percent of BASF shares, said by phone, referring to the diverse range of businesses that's under the BASF umbrella. "Brudermueller needs to do more acquisitions and spinoffs and really drive innovation. He has the expertise and is the right person to do this."
Concerned that BASF was overly Germanic, both Bock and Brudermueller were among a crop of promising executives sent overseas to gain global experience from the 1980s onwards. While Bock's roots were in accountancy and finance, Brudermueller is centered more on research and operations. His management career took off in mid-2006, when he was appointed head of the Asian Pacific region, at a time when China was a central pillar of BASF's growth strategy. Born in Stuttgart in 1961, he studied chemistry at the University of Karlsruhe, and did a PhD at the University of California.
BASF has long defended its conglomerate structure, arguing the sprawling integrated complexes that produce basic chemicals as well as ingredients used in face creams and pesticides provide a surer footing than splitting the company into focused businesses. During the most recent quarter, the structure served it well as the sale of crop-centered chemicals slumped. BASF's rival, DowDuPont Inc., is opting to split up its divisions into separate companies.
The German company leaned on an oil-and-gas business it's exiting as prolonged winter weather hampered quarterly sales of the agricultural products that are at the forefront of an expansion drive. First-quarter earnings before interest and taxes increased 2 percent to 2.5 billion euros, in line with estimates, and BASF reiterated guidance for the year of a slight advance in both sales and profit.
"BASF is too big for revolutionary cultural change," Berenberg's Bray said. "There are not too many ways to run it, other than the way already chosen by management. From his time in Asia, Brudermueller will in my view have an appreciation of the fact that fighting the Chinese purely on cost and capacity is a difficult strategy."
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