BASF’s unsolicited pursuit of fellow Frankfurt-listed chemicals group Evonik sits ill with its strategic positioning and faces daunting political obstacles, according to sector advisors citing contact with stakeholders.

The parties and relevant works councils can see the synergies across production, staff and headquarters expenditure, yet the social dimensions are immense, a source familiar with the matter said. The whole approach is “problematic”, he added. A deal is possible, “but at what cost?” he asked.

Other observers are even less positive on the logic of the potential transaction.

BASF acquiring a large domestic peer “makes no sense” in the context of an ailing European chemicals market that already faces weak demand and the ever-increasing threat of Chinese overcapacity, one of the advisors said.

It goes “against everything BASF’s CEO has been saying to the market since 2024”, he said, adding he sees the deal as “highly opportunistic.”

BASF CEO Markus Kamieth unveiled Winning Ways, the group’s transformation strategy in September 2024. It included a major portfolio reshuffle separating core chemicals and materials businesses.

Standalone divisions have been earmarked for disposal: BASF completed the EUR 7.7bn sale of its automotive coatings unit to a Carlyle-led consortium in June; its Agricultural Solutions arm is being lined up for an IPO.

Exploratory talks between the two chemicals stalwarts came to light last week.

Against that backdrop, BASF’s strategic rational for acquiring Evonik is far from clear, the first and a second sector advisor said. Acquiring a large domestic rival contradicts BASF’s entire value creation plan, which is largely aimed at strengthening core divisions and expanding in key overseas regions like China.

BASF already has a significant chemicals platform, and it is difficult to see where the major improvement would come from, the second advisor argued. “It is not clear how such a transaction would strengthen BASF‘s backbone,” he said.

Indeed, doubling down on the region with the worst economics for energy cracker feedstocks is baffling, the first advisor said.

Further shrouding the move in mystery is BASF’s lack of engagement with the market on what it considers the deal rationale to be. Those close to the situation are very cautious, have been told to stay quiet and investors are “all confused”, the second advisor said.

Even the status of talks remains unclear. BASF confirmed “exploratory talks” regarding an Evonik takeover in a statement on 28 September, while the latter said no such talks are “currently” taking place.

There are no ongoing discussions or negotiations, the source familiar with the matter insisted.

Both BASF and Evonik declined to comment.

BASF shares are down almost 4% since this news service broke news of its Evonik plans on 25 September. BASF got “caught out” by the news breaking and the stock risks heading “further south”, the first advisor cautioned.

Evonik has reportedly rebuffed BASF’s initial proposal of EUR 22.15 per share, which would value the business at EUR 10.3bn. No further proposal has been forthcoming following the initial approach, the source said.

Were a deal to progress, BASF’s best bet would be to break up Evonik through carve-outs of various divisions, though the rationale for investors is not immediately obvious, the second advisor said.

There are parts of Evonik that BASF would have to exit immediately, namely several of its facilities in Marl and Wesseling, the first advisor agreed.

Political problems 

Such disposals will be on the minds of social partners affected by the transaction. Any potential deal faces major pushback from works councils in Germany. The IG BCE, Germany’s third-largest trade union, has already voiced criticism over BASF’s plans, citing concerns for workers’ rights and domestic industry stability.

Besides likely intense scrutiny from EU regulators and labour unions the deal would imply, there are also key concerns around Evonik’s anchor shareholder RAG-Stiftung.

With a 44% stake – and given 25% is a blocking minority under German law, RAG’s backing is vital. But the investor’s board of trustees is full of political representatives, making any potential deal even more complex, the first advisor cautioned.

“Anyone who knows RAG knows that this is a deal with the state,” they added.

Ex officio members of the board of trustees include North Rhine-Westphalia premier Hendrik Wüst, who faces state elections in April and is widely tipped as a leading candidate to replace Friedrich Merz as federal chancellor. Evonik is headquartered in Essen, North Rhine-Westphalia.

Much will also depend on BASF’s proposed deal structure, a third advisor added. If BASF issues shares to RAG, which is highly likely, it would become the biggest single shareholder in the company, he argued.

RAG, which was established to ensure the phase-out of hard coal mining in Germany and finance related liabilities, must have sufficient income to meet its obligations, the third advisor noted. RAG spent EUR 309.3m on its “perpetual obligations” in its 2025 financial year.

“You’d really need to make sure that you are investing in assets that are producing steady cash flow and are stable in terms of value – and able to satisfy claims coming from operations from the past,” this advisor said.

RAG-Stiftung declined to comment.