The merger between BASF and ANI Printing Inks is the third major consolidation move in the European printing ink sector during the last five years. But there could be more to come.
The biggest was Sun Chemical’s acquisition in 1999 of Coates, which brought together the two largest ink manufacturers in the European market.
At the time, this combination was thought to be creating such a dominant player in the sector that commentators predicted that it would run into anti-trust difficulties. However, the European Commission decided that there was still plenty of room for competition in the market.
Two years ago, Flint Ink acquired Gebr. Schmidt of Germany to form Flint-Schmidt as a strong force in northern and central Europe.
Now BASF Printing Systems, the third largest ink manufacturer in the European sector, has been merged with ANI, the seventh largest, after CVC Capital Partners, a London-based private equity company, took over both operators to create a business with total sales of around E830 million ($1 billion).
The new group will be ranked second to Sun in the Europe ink market with a share of approximately 18 percent against the leader’s 35 to 40 percent. Flint Schmidt will be in third position with a share of approximately 13 to 14 percent, followed by Siegwerk, Huber and SICPA with shares of 8 to10 percent each.
Although the top three will now have at least two-thirds of the total European market, more concentration could be triggered by some medium-sized players who still appear to believe that they do not have enough critical mass, or an Asian ink producer who could be looking for a stepping-stone from which to establish itself in Europe.
Evidence of this stems from the fact that when BASF’s management board decided this summer that it would divest its printing systems business, comprising printing inks and plates, prospective buyers included both equity companies and ink makers.
“For European ink companies, a powerful motivation for more concentration of ownership is the need for rationalization to help reduce the large amount of overcapacity in the market,” said one industry source. “Also there are Asian ink producers who would like to have a presence in Europe so that they can take advantage of their low cost production plants to export into a region which would give them relatively high margins.”
Aspects of the Merger
ANI emerged as the eventual partner to BASF Printing Systems in the deal because ANI’s senior executives have believed for a time in the necessity for more consolidation.
ANI, which has its headquarters in Trelleborg, Sweden, was previously the printing ink operation of Akzo Nobel. NeSBIC, a Dutch-based private equity company which is ANI’s majority shareholder, backed a management buy-out three years ago.
“It was clear to us at the time of the buy-out that we were not big enough to compete over a long period within the industry,” said Bertil Ahlberg, ANI’s marketing director. “For us, this merger with BASF is almost a perfect partnership because the overlap is limited from the point of view of geography and products.”
CVC, which has a current European portfolio of 54 companies with a combined turnover of R30 billion, believes that there is a need for greater concentration in what Christian Wildmoser, its managing director, calls a “fragmented industry.”
The equity firm is aiming to create a broadly-based player which will be able to take advantage of both vertical and horizontal integration.
The acquisition of the BASF operations includes not just the ink and printing plates activities but the company’s manufacturing facilities for printing ink pigments.
It covers pigments production at BASF Colorants and Chemicals Co. Ltd. in Shanghai, where the group makes most of its standard ink pigments, and also the manufacture of alkali blue at BASF Corporation’s plant at Huntington, WV.
In the ink area, BASF will be bringing to the new company a strong position in heatset, coldset and offset inks in Germany and central Europe. It has a big presence in flexo and gravure inks, in which it has seven production facilities in Europe as well as three research units in Germany, France and Italy.
BASF will, however, be retaining its activities in ink jet inks, which are currently mainly in textile printing but which are being developed for graphics applications. It is also hanging on to its fledgling operation in conductive polymer inks.
ANI, which had sales last year of R231 million, has a leading global position in narrow web inks for products like self-adhesive labels, small-size packaging, sleeves and rigid plastic containers.
It is also a major supplier of newspaper inks in Scandinavia, the Benelux countries and parts of France and Germany. It is also active in liquid packaging inks and in the sheetfed sector in northern and eastern Europe.
The merger could have anti-trust problems with the European Commission in the field of newspaper inks. In Scandinavia, the enlarged company will have approximately two-thirds of the coldset market.
However, the Commission’s analysis of the merger will be dictated by its decision five years ago on Sun’s acquisition of Coates. Then it decided that printing inks was a pan-European market rather than a conglomeration of national or local markets. Hence domination in one part of it was not considered to be anti-competitive.
In addition to its backward integration into pigments, the new entity’s greatest strength will be in its ability to link ink with printing plates. BASF is already the only major player in the European ink market with its own plate business. Sun provides printing plates but only through Kodak Polychrome Graphics, a 50/50 joint venture with Eastman Kodak.
BASF Printing Systems is the only worldwide supplier of photopolymer plates for a wide range of processes such as flexo, letterpress and gravure as well as in-line finishing in offset. It has just begun constructing a plant for the production of flexo printing plates at Willstaett, Baden, Germany.
“For us, there will be some very interesting synergies in the narrow web packaging sector because we will be able for the first time to offer a complete system with printing plates and completely compatible inks,” said Mr. Ahlberg.
Hence the new company could develop into printing products business with considerable emphasis on services. Ink will be part of the package. The first expansion initiatives could be in products outside of inks and plates such as the supply of color management software and equipment.
BASF/ANI, which is unlikely to be given a name until the merger has been approved by the regulatory authorities, will be headquartered in Stuttgart where BASF Printing Systems is based.
Peter Koivula, chief executive of ANI, and Michael Stumpp, head of BASF Printing Systems, who until the beginning of this year was responsible for BASF’s performance chemicals operation in North America, will be the joint CEOs of the business.
One of the first tasks of the management team will be the reorganization of ink manufacturing so that it has a proper network of mother plants making specific products like heatset and coldset inks.
Although its priority will be to establish a platform for widening its scope in Europe, it will also be seeking to become a bigger force outside the region. Both BASF and ANI already do business in the Americas and in Asia.
In fact, Wolfgang Buechele, director of BASF’s performance chemicals division who is in charge of the printing systems operation, sees a need for a “more global thrust” behind the business at a time of upheaval in the entire European printing industry. “By spinning off the printing business, we are endeavoring to give it new prospects to further expand its activities worldwide,” said Mr. Buechele.
Mr. Stumpp talked about the ability to “exploit opportunities that arise in an increasingly globalized market,” while Mr Koivula stresses that the new entity will be “a global supplier of complete printing system solutions.”
A major worry among bulk ink producers in Europe at the moment is that Asian ink makers could start to make deep inroads into their domestic market.
Thus there is a feeling that to survive commodity ink manufacturers, there is a need to be broadly spread internationally.
Among the Japanese ink companies, Toyo is already a prominent player in Europe, with a regional headquarters in France and also a pigment plant in the country.
However the biggest current fear is that India’s Micro Inks, formerly Hindustan Inks and Resins, which has already entered the U.S., will shortly secure a foothold in Europe. Micro has just set up a sales office in Italy soon after revealing that it had achieved annual international sales of $100 million in 59 countries.
“They are determined to get into Europe mainly through the heatset and coldset markets,” said one European printing executive. “They have a huge amount of production capacity in India. Their strategy may well be to offer low prices to European customers to gain market share.”
Initially, BASF/ANI will be having to cope with the effect of increases in raw material costs while printers are fiercely resisting attempts to increase prices of inks and other supplies.
The pressure on prices could then be considerably exacerbated by the arrival of a newcomer on the market with the competitive advantage of having much lower production costs.
BASF/ANI will at least have the protection of greater size and also the capability to provide technical support and services which a new entrant will have difficulty matching.
The merger could be interpreted ultimately as a defensive maneuver, which could be imitated by other ink companies in Europe.