Merck KGaA Explores Sale of Pigments Business

(Bloomberg) -- Merck KGaA is exploring a sale of a pigments unit that could be worth as much as 1.5 billion euros ($1.7 billion) as it faces a slowdown in the auto sector it supplies, according to people with knowledge of the situation.

The German health and materials conglomerate has met with financial advisers and potential bidders to gauge interest in the business, said the people, who asked not to be identified as the matter is private.

Pigments are a hot spot for M&A in the chemical industry, with major players BASF SE and Clariant AG putting their operations up for sale amid weak demand from car and truck makers. The rash of potential deals has piqued the interest of rival companies and private equity players who see an opportunity to combine the various assets.

A Merck spokesman declined to comment. Deliberations are at an early stage and there’s no certainty they will lead to a transaction, the people said.

The company has operated a pigments unit for 60 years and today makes materials used in everything from car paints to lipsticks to coatings on packaging. Among other things, the products give automotive coatings their pearlescent effects.

The unit makes up a minor part of the company’s performance materials division, the smallest of Merck’s three business pillars, trailing health care and life science in sales.

Chief Financial Officer Marcus Kuhnert said last week that Merck is trying to turn around the pigments unit and make it “hopefully a stable business” in 2020. Last month, Merck increased the performance materials division’s reliance on semiconductors by closing a $5.8 billion takeover of Versum Materials Inc.

Darmstadt, Germany-based Merck has also recently announced plans to invest 28 million euros to modernize pigment production at a site near its headquarters.

©2019 Bloomberg L.P.

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