BASF's Coatings Division: A Strategic Pivot to Unlock Value

BASF SE (ETR: BAS) has signaled its intention to explore strategic options for its Coatings division during the second quarter of 2025, marking a pivotal step in its broader portfolio reshaping. The announcement, led by CFO Dr. Dirk Elvermann, underscores the chemicals giant’s commitment to capital discipline and shareholder value creation under its “Winning Ways” strategy. With a coatings division generating €700 million in EBITDA and strong sponsor interest, the move could unlock significant value for investors—provided market conditions align.

Ask Aime: What's next for BAS's coatings division?

The Strategic Rationale: Focus on Core Businesses

BASF’s decision to review the Coatings division reflects its push to streamline operations and prioritize high-return, integrated core businesses. The division, while profitable, operates as a “standalone” entity under the “Winning Ways” framework, meaning it lacks synergies with the company’s Verbund production system, which integrates chemicals manufacturing for efficiency.

Ask Aime: What strategic options has BASF Coatings explored for 2025, and how might it impact shareholder value?

The planned sale of its Brazilian decorative paints business to Sherwin-Williams for $1.15 billion—a transaction expected to close by late 2025—already highlights this strategy. That division, generating $525 million in sales in 2024, was described as a non-core B2C operation with limited strategic overlap. The remaining Coatings segments—automotive OEM coatings, refinish, and surface treatments—will now undergo a similar review, with potential outcomes including a full divestiture, spin-off, or partnership.

Financial Implications: Valuation and Dividend Potential

The Coatings division’s financial health is a critical factor. With €700 million in EBITDA, it represents a non-trivial portion of BASF’s earnings. A successful sale or spin-off could bolster free cash flow, enabling the company to meet its target of distributing over €12 billion to shareholders through dividends and buybacks between 2025 and 2028.

Analysts estimate the remaining Coatings business could command a valuation of up to €3–4 billion, given its strong brand equity in automotive and industrial markets. For context, the $1.15 billion sale of the Brazilian division represents a roughly 2.2x EV/EBITDA multiple—a figure that could rise for the higher-margin automotive segments.

Market Interest and Potential Buyers

BASF’s engagement of JPMorgan and Bank of America as advisors signals its intent to pursue a robust auction process. Private equity firms and strategic buyers, including PPG Industries (NYSE: PPG) and Axalta Coating Systems (NYSE: AXTA), are likely contenders. Axalta, for instance, has shown appetite for acquisitions to expand its automotive coatings footprint, while private equity firms may view the division as a stable cash generator.

Risks and Challenges

Regulatory hurdles, particularly in the European Union and Brazil, could delay the process. Additionally, market conditions for industrial assets remain uncertain, with investor appetite tied to macroeconomic stability and sector-specific trends like electric vehicle adoption (which could boost demand for automotive coatings).

Conclusion: A Calculated Move with Upside Potential

BASF’s strategic review of its Coatings division is a logical step in its portfolio optimization journey. With a clear plan to monetize non-core assets and reinvest in high-growth areas like renewable materials, the company is positioning itself for long-term resilience.

The $1.15 billion sale of its Brazilian business to Sherwin-Williams serves as proof of concept: a division once deemed non-core now commands a premium valuation. If the remaining Coatings segments achieve a similar or higher multiple, shareholders stand to benefit significantly.

Investors should monitor two key metrics:
1. Progress on the Brazilian sale, which could validate the market’s appetite for coatings assets.
2. BASF’s free cash flow trajectory, which will indicate whether proceeds from the sale are being deployed effectively.

While risks exist, the strategic clarity and financial discipline underpinning this move suggest BASF is on the right path to transforming its portfolio—and its value proposition—to investors.