12 February 2008

Albemarle Action - Update on a Zacks Top 10 Pick for 2008

Albemarle shares shot up over 4% today.


Some unsubstantiated rumors:

Germany's BASF eyes Albemarle: report
Tue Feb 12, 2008 10:44am EST

FRANKFURT (Reuters) - Germany's BASF (BASF.DE: Quote, Profile, Research) may be interested in buying U.S. chemicals group Albemarle (ALB.N: Quote, Profile, Research) for $4.9 billion, German weekly magazine Capital reported.

The magazine, which did not give a source for the report, said BASF could be interested in Albemarle's lucrative refinery business, which generated about 40 percent of its sales.

A BASF spokesman declined to comment on market speculation.

Albemarle shares were up 1.2 percent at $38.94 at 1450 GMT, while BASF rose 1.8 percent in a broadly higher market.

Albemarle, which also focuses on polymer additives and fine chemicals, posted net profit of $230 million on net sales of $2.3 billion last year.

BASF, which competes with the likes of Dow Chemical (DOW.N: Quote, Profile, Research), DuPont (DD.N: Quote, Profile, Research), had said it could spend up to 10 billion euros ($15 billion) on acquisitions.

The German group is also in the process of selling its styrenics operation, which had annual sales of around 3.2 billion euros.

BASF has sold weak performing assets and trimmed highly cyclical businesses. It spent about 7 billion euros in 2006 to buy U.S. catalyst maker Engelhard, the construction chemicals business of Degussa and U.S. resin maker Johnson Polymer.

(Reporting by Mantik Kusjanto)

ALB shares closed today at $39.74. That corresponds to a market capitalization of $3.81B. If ALB were to be bought out for $4.9B, that would translate to an approximate share price of $51.11.

That type of return-on-investment certainly wouldn't suck.

If you were thinking of checking out the options market to try to leverage on this bit of speculation, well, that's already gotten expensive. From Andrew Wilkinson's Daily Options Report:

(ALB) - Shares in specialty chemicals maker Albemarle are up 6% today at $40.10 on a resurgence of takeover chatter suggesting German chemicals giant BASF is on the verge of a $4 billion-plus bid for the company. Albemarle has a strongly heterogeneous product palette, producing polymer additives for flame-retardant and antioxidant use, catalysts for the oil refining industry, pharmaceuticals and other complex chemicals for industrial use. Although the takeover chatter remains unsubstantiated, some analysts have given credence to BASF as a possible suitor on strength of Albemarle's oil refining catalyst activities, which are said to account for half of its profits. This is the second session in 7 that Albemarle call volume has picked up on BASF chatter, and today's heavy buying interest in February 40 calls has driven overall volume to more than 4 and a half times the normal level. It also appears to have driven implied volatility higher by more than 20% to 50.7%. We would add however that there's not a lot of momentum elsewhere in the Albemarle calendar – trading interest is firmly rooted in the front-month, at-the-money.

Disclosure: I picked up some ALB shares earlier this week. I will add to the position once the rumor-mongering settles down.

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