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The BASF Group is one of the world's leading chemical companies, achieving sales of $32 billion in 1995. BASF offers a full range of chemical and chemical-related products. We have built major strengths in science and the process of innovation, and we are using these strengths to assure our future success. Ingrained in our culture is applying the process of innovation--or change&mdashø all aspects of the business.
Since its founding in 1865 Badische Anilin- und Soda-Fabrik AG (now known as BASF Aktiengesellschaft) has been a major influence in the world chemical industry. As one of the three largest German chemical companies, BASF exerted an influence from 1924 to 1947 that extended far beyond dyes and nylons. When joined with Bayer and Hoechst to form the world's largest chemical cartel, one of the most powerful cartels in history, BASF was instrumental in helping to secretly re-arm Germany.
For its role during these years the chemical cartel, known as the I.G. Farben, was broken up by the Allies, and BASF again existed as an independent company. Despite the fact that almost half of its plant in Ludwigshafen, Germany, was reduced to rubble during World War II, BASF was able to reestablish its presence in the chemical industry. It is now the world's second-largest chemical company (after Hoechst). In addition to its flagship production facilities in Ludwigshafen (the world's largest chemical site), BASF operates major facilities in Antwerp, Belgium; Nanjing, China; Tarragona, Spain; and Geismar, Louisiana. BASF holds a significant share of the international market in chemicals, natural gas, plastics, pharmaceuticals, crop protection agents, and its original product, dyes.
Early History in the Late 19th Century
BASF was founded in 1861 by Frederick Engelhorn, a jeweler, along the banks of the Rhine River at Mannheim. Using the discoveries of the English scientist William Perkins, BASF became one of the first companies to manufacture dyes from coal tar. Its specialty was the bright bluish purple known as indigo. The attraction of BASF's process lay in the fact that it took coal tar, a messy byproduct of gas distillation, and transformed it into something that replaced a more expensive and unreliable organic substance.
BASF's synthetic dyes were less expensive, brighter, and easier to use than organic dyes. Profits from these dyes were used to finance BASF's diversification into inorganic chemicals later in the century as well as new production facilities across the river in Ludwigshafen.
By the early 20th century journalists were calling BASF "The World's Greatest Chemical Works." In 1910 the company employed over 8,000 people and by 1926 this number had grown to 42,000. Its production facilities in Ludwigshafen alone covered 2,787 acres. American journalists were impressed by BASF's charity and reported that, "The company has given a great deal of attention to welfare work; especially to housing, hygiene and the care of the sick."
BASF's sanatoriums and dispensaries, along with its main production facilities, were financed in part by business arrangements that would be illegal today in either Germany or the United States. Beginning around 1900 leaders of the German chemical industry began to dream of what was, in effect, the merger of most German chemical companies. Should this cartel be formed, said Carl Duisberg, the man who eventually set up the I.G. Farben, "... the now existing domination of the German chemical industry, especially the dye industry, over the rest of the world would then, in my opinion, be assured."
Cartels Formed in Early 20th Century
By 1904 two major cartels had been formed. The first of these cartels included Bayer and BASF; the second cartel was anchored by Hoechst. Not only did these firms avoid competition and fix prices, but they also set up a quota system and even shared their profits. For instance, a marketing agreement was reached for the sale of indigo, which was one of the most profitable dyes.
Both cartels played an important role during World War I. Not only was dye necessary for garments, but the basic chemical formulas for dyes could be altered slightly to make mustard gas and munitions. Companies such as BASF provided gas and explosives for German troops and, previous to the United States' entry into the war, they initiated economic activities that stunted the growth of the chemical companies important to the U.S. war effort. For instance, BASF had sold aniline at below market prices to U.S. firms in order to discourage aniline production by U.S. companies. As part of the dye cartel it had also engaged in a practice called "full-line forcing." If a dealer wanted to purchase item A for example, available only from BASF, the dealer was forced to purchase the whole product line, effectively eliminating U.S. producers.
After the war the German government recognized the importance of the chemical industry, especially the dye industry. Not only did the chemical industry bring in needed foreign currency, but it was critical to defense. Since the build-up of the chemical industry was so important to Germany, the cartels were granted government loans as well as a ten-year tax deferment. The cartels also received a special allotment of coal, which was very scarce at the time.
I.G. Farben Formed in 1925
In 1925 the top executives in the chemical industry decided that the duplication of product lines and the maintenance of separate sales forces was wasteful. As a result, hundreds of German chemical companies (including Bayer and Hoechst) formally merged with BASF. This new corporation, headquartered at Ludwigshafen, was renamed the Interessengemeinschaft Farbenindustrie, or I.G. Farben. BASF ceased to exist as a legal entity; it operated for the next 26 years as "Betriebsgemeinschaft Oberrhein," or the upper Rhine operating unit of I.G. Farben.
The I.G. Farben set quotas and pooled profits. But this large trust was more than an economic entity--it was a political one. I.G. Farben's executives feared that leftists might triumph in Germany's unstable political climate and that I.G. Farben itself would be nationalized. This led to the I.G. Farben's support for Adolph Hitler. As early as 1931 its directors made secret contributions to the Nazi Party.
Notorious World War II Years
The I.G. Farben profited handsomely from its support of Hitler and his foreign policy, and it grew tremendously during World War II. By 1942 the cartel was making a yearly profit that was 800 million marks more than its entire combined capitalization in 1925, the year of its founding. Not only was the I.G. Farben given possession of chemical companies in foreign lands (the I.G. Farben had control of Czechoslovakian dye works a week after the Nazi invasion), but the captured lands also provided its factories in Germany with slave labor. In order to take advantage of slave labor, I.G. Farben plants were built next to Maidanek and Auschwitz.
At its peak, the I.G. Farben had controlling interest in 379 German firms and 400 foreign companies. It has been noted that one of the historic restraints on Germany was its lack of colonies to supply necessary products, such as rubber. During this time the I.G. Farben, synthesizing many of the country's chemical needs with a native product, provided Germany with the self-sufficiency it lacked during World War I.
Near the end of the war the BASF production facilities at Ludwigshafen were bombed extensively. While factories built during the war were often camouflaged, the old BASF factories were more visible to American bombers, which often flew over Ludwigshafen on the way back from other bombing raids and dropped any leftover bombs on the ammonia and nitrogen works. During the war BASF factories sustained the heaviest damage in the I.G. Farben with 45 percent of BASF buildings destroyed.
Postwar Rebuilding of BASF
With the surrender of Germany, I.G. Farben's problems had only just begun. Immediately after the war many members of the Vorstand, or board of directors of the I.G. Farben, were arrested and indicted for war crimes. There was a large amount of written evidence incriminating the Vorstand, most of it written by the directors themselves. I.G. Farben executives were in the habit of keeping copious records, not only of meetings and phone calls, but also of their private thoughts on the I.G. Farben's dealings with the government. Despite the quantity of written evidence and testimony from concentration camp survivors, the Vorstand was dealt with leniently by the judges at Nuremberg. Journalists covering the 1947 proceedings attributed the light sentences, none of which was longer than four years, to the fact that all the sentences in the trials were becoming less severe towards the end, and to the judges' unwillingness to lower the standards for active participation in war crimes to include businessmen.
The Potsdam Agreement referred to the necessity of dismantling the I.G. Farben in the interests of "peace and democracy." But from the very beginning the Allies disagreed over the fate of the I.G. Farben. The British and French favored a breakup of the company into large separate companies, while many U.S. officials advocated that the company be divided into smaller and therefore less influential firms. Negotiations over the cartel's fate lasted for several years. The French and British plan eventually prevailed.
After operating under Allied supervision from 1947 to 1952, the I.G. Farben was divided in 1952 into three large firms--Bayer, Hoechst, and BASF--and nine smaller firms. After this reorganization BASF was once again a small corporation located on its original Ludwigshafen site. Its share of the 30,000 I.G. Farben patents had been taken away; some of its trade secrets had been sold for as little as $1.00. It was isolated from its previous suppliers in Eastern Europe and, in fact, most of its basic supplies, such as coal, were insufficient. The 55 percent of its buildings that had not been destroyed were filled with outdated equipment. Leading BASF from its refounding until 1965 was board chairman Carl Wurster, who started at the company as a chemist.
West Germany, lacking money to import chemicals from abroad, was in dire need for chemicals produced at home. By 1957, BASF's sales of nitrogen and ammonia products were approaching their wartime levels. BASF initially lagged behind both Bayer and Hoechst in profits, in part because its product line included such items as fertilizers, plastics, and synthetics which were easily challenged on the market by competitors. Between 1957 and 1962 sales grew 59 percent, less than either Bayer or Hoechst. As prices for plastics and fertilizers stabilized in 1963, however, sales for the company increased 19 percent in one year.
BASF's growth during the postwar period was impressive. In the 10 years after the dissolution of the I.G. Farben, the company increased its capital from DM81 million to DM200 million. Employing only 800 workers in the late 1940s, it employed 45,000 by 1963. Although BASF had lost all of its patents in 1952, within 10 years it had recovered a large number of them.
Impressive Growth in the 1960s and 1970s
BASF began its second decade of independence from the I.G. Farben with a switch to oil as a base for most of its old, coal-based formulas. With the purchase of Rheinisch Olefinwerke, BASF added petroleum to the long list of raw materials it was able to provide for itself. The company soon became the world's largest producer of plastic, and provided an astonishing 10 percent of the international requirement for synthetic fibers.
Despite these gains, BASF was still faced with problems. It was the possessor of the old I.G. Farben soda and nitrogen works, but these products were often in oversupply. BASF competed with other European producers who were not burdened with this product and who were situated in more petroleum-rich countries. Nevertheless, the company reached DM1 billion in sales during 1965. Bernard Timm, the newly appointed board chairman with a background as a physicist, attributed the company's performance in 1965 to a judicious mix of plastics, farm chemicals, raw materials for coatings, dyes, and raw materials for fibers.
In 1969, another significant year for the company, BASF purchased Wintershall, which had half of the German potash market and produced a quarter of the country's natural gas. This acquisition was the largest in German history, and with it BASF jumped over Bayer to become the nation's second largest chemical company. A large new plastics plant at Antwerp made PVC, polyethylene, and caprolatum (a nylon intermediary) at an accelerated rate.
Following the impressive growth of BASF during the 1960s, the 1970s started slowly. After much encouragement by the state of South Carolina to build a $200 million dye and plastics plant in an impoverished area near Hilton Head, the company's plans were thwarted by an unlikely coalition of outside agitators, local residents, and Southern gentry who feared damage to the beautiful Carolina coastline. In 1971 large investments in fibers and plastics were lost due to overcapacity. Synthetic fibers, whose prices were low in relation to the petroleum used in their manufacture, continued to plague BASF throughout the decade.
Despite the problems with fibers, however, the company continued to grow. The growth plan favored by Timm, who served as board chairman until 1974, and Matthias Seefelder, chairman from 1974 to 1983 and a chemist by trade, featured vertical integration, expansion abroad, and emphasis on consumer products. Of the three successors to the I.G. Farben, BASF was the one left with the least attractive product line. In order to remedy this situation, BASF marketed its line of magnetic cassette tapes (a product it claims to have invented) and then ventured into videotapes. As for vertical integration, the company had ample access to raw materials and chose to modify existing raw materials rather than diversify into unfamiliar fields.
U.S. Expansion in the 1980s
Since there was little room to grow in Germany, the expansion into foreign markets was a cornerstone of BASF's strategy for growth. And the 1980s were a decade of significant growth for BASF in the United States. In order to avoid U.S. tariffs BASF formed numerous partnerships with American companies and acquired others. Wyandotte Chemicals Corporation of Wyandotte, Michigan, had been a major acquisition in 1969. The 1980s began with the purchase of Fritzsche Dodge and Olcott, Inc., the third largest U.S. producer of flavors and fragrances, not to mention Cook Industrial Coatings and Allegheny Ludlums. This last acquisition put BASF among the top 15 pigment manufacturers in the U.S. The 1985 purchase of American Enka doubled BASF's fiber capacity. Although BASF's 1980s foreign ventures were by no means limited to the United States, its emphasis on U.S. expansion was understandable. At the time, the United States consumed one-third of the world's chemical production. The company's holdings in the United States also cushioned BASF against fluctuations in the value of the deutschemark and the dollar.
In 1986 the increasing importance of its U.S. operations was highlighted when BASF consolidated all North American operations under a new subsidiary called BASF Corporation. Within the entire BASF Group, the new company ranked second in size only to the flagship BASF A.G., and generated 20 percent of overall group sales. Nearly all--90 percent--of the BASF Corporation's sales were generated from products it produced in North America.
The very year of its consolidation, BASF Corporation was in the news when the Oil, Chemical and Atomic Worker's union decided to strike at a plant located in Geismar, Louisiana. Union allegations of unsafe working conditions prompted the U.S. Congress to investigate conditions at the plant. The union announced a campaign of negative publicity directed against the company. The strike surprised the management at BASF which, with the exception of World War II, generally treated workers well. Asked about the labor difficulties, a highly ranked BASF executive said, "We haven't had a strike since 1924, except a work stoppage in 1947 to protest our president being tried for war crimes." The strike--which evolved into a lockout--dragged on and on until it was finally settled with a union victory in 1989.
Transformation of BASF in the 1990s
After Hans Albers had served as board chairman from 1983 to 1990, he was succeeded by Jürgen Strube. The year 1990 was a fitting one for a change in leadership; it was the 125th anniversary of the company founding, and represented the beginning of one of the most remarkable periods in BASF history, a period of furious activity--restructurings, acquisitions, divestments, joint ventures, and immense capital expenditures, all on a scale unprecedented in BASF history.
Strube took over BASF after it had posted one of its strongest years ever in 1989, with sales of DM46.16 billion and net income after taxes of DM20.2 billion. Sales would then fall for each of the next four years, while net income fell for the next three. The levels of 1989 would not be surpassed until 1995. The reasons for BASF's struggles were many: a cyclical downturn in the chemical industry in the early 1990s, to which the company was still highly vulnerable; a serious recession in Germany, brought on in part by the cost of German reunification; health care reform efforts in Europe, which led to the increasing use of generic drugs to contain costs, with BASF's proprietary drug sales suffering as a result; and the Common Agricultural Policy reform effort, which reduced the amount of farmed land and the amount of chemicals used in farming it, thus hurting the sale of BASF agricultural products. The German reunification also affected BASF in a more direct way when it took over--for nothing--Synthesewerk Schwarzheide, one of the largest chemical businesses in the former East Germany. BASF converted it into BASF Schwarzheide GmbH, but then had to spend DM1.4 billion to modernize and expand its facilities.
Strube quickly responded to the crisis by initiating a serious cost-cutting program and by identifying businesses BASF should divest. Cost-cutting efforts included the closure of a number of plants and a gradual workforce reduction that saw BASF's employee numbers fall from a high of 136,990 in 1989 to 106,266 in 1994, a reduction of more than 22 percent. Divested operations were identified as those where BASF was not competitive. These included the Auguste Victoria coal mine, which BASF had used to supply itself with coal since 1907, sold in 1990 to Ruhrkohle A.G.; the flavors and fragrances business of Fritzsche Dodge and Olcott, which was no longer viewed as a good fit; and the advanced materials division, which was not profitable enough to retain.
Strube also wanted to make BASF less susceptible to the cyclical downturns of the chemical industry by bolstering the company's noncyclical businesses. The company's consumer products area was beefed up with the 1991 acquisition of AGFA-Gevaert's magnetic tape operations, which were reorganized with BASF's existing magnetic tape business to form BASF Magnetics GmbH, producer of tapes, videocassettes, and diskettes. A more important and daring venture began in 1990 when Wintershall, BASF's oil and gas subsidiary, entered into an agreement with Gazprom--the world's largest natural gas producer, based in Russia&mdashø build and operate pipelines for distributing Gazprom natural gas to the German market, directly challenging Ruhrgas, Germany's near-monopoly natural gas supplier. After committing itself to invest more than DM4.5 billion over the next decade in what was described as the largest project in company history, BASF could boast of already attaining 10 percent market share in its first year of operation (1995), and aimed to reach 15 percent by 2000.
The natural gas venture was perceived by BASF as a very-long-term investment, as were the company's large expenditures in China. Although other countries were also targeted by BASF for significant investment in the 1990s--including Japan, Russia, India, Malaysia, and Korea--it was China which saw astounding expenditure levels. BASF's first plant in China opened in 1992 in Nanjing, a production facility for unsaturated polyester resins. By 1995 the company had committed DM600 million to various Chinese ventures, including plants for making pigments, textile dyes, polystyrene, and vitamins, all through various joint ventures. In 1996 another joint venture was formed, this one to build a US$4-billion petrochemical facility, also in Nanjing, in what was the single biggest investment in China yet by a chemical company.
Meanwhile, acquisitions bolstered BASF's plastics operations. In 1992 the polystyrene-resins operation of Mobil was acquired for US$300 million. Then, two years later, BASF paid US$90 million for Imperial Chemical's polypropylene operations in Europe. Also in 1994, a new steam cracker located in Antwerp became operational after an outlay of DM1.5 billion, the largest single capital expenditure in BASF history. Further moves in plastics came in 1996 when two joint ventures were formed, one with Hoechst in polypropylene and one with Shell in polyethylene. Because of German antitrust laws, these had to be set up as separate businesses, with the joint venture partners being able to have only limited control over their operations.
Early in 1994 BASF reached the important decision to retain its struggling pharmaceuticals business as a core business and to pour money into its growth. The next three years saw a flurry of activity in this area. In 1994 a new biotechnology and genetic engineering research center was opened by BASF Bioresearch Corporation in Worcester, Massachusetts, to develop drugs for fighting cancer and immune system diseases. BASF gained a foothold in generic drugs that same year by acquiring the German generic drug maker Sagitta Arzneimittel, and by entering into a 50-50 joint venture with IVAX to market generic drugs. The following year BASF's pharmaceutical sector received a huge boost with the acquisition of Boots Pharmaceuticals, based in England, for US$1.3 billion. Boots was merged into BASF's existing drug operations, forming the new Knoll Pharmaceuticals.
Following the Boots acquisition, BASF created a new Health and Nutrition sector to highlight the importance of both pharmaceuticals and agricultural products to the company's future. Included in this sector were pharmaceuticals, fine chemicals (notably vitamins), crop protection agents (herbicides, fungicides, etc.), and fertilizers. In 1996, crop protection was beefed up when BASF paid US$780 million for the North American corn herbicides business of Sandoz, which was ordered divested as part of the merger of Sandoz and Ciba to form Novartis. Another joint venture was also initiated that year in an agreement with Lynx Therapeutics, based in California, to form BASF-Lynx Bioscience A.G., for research in biotechnology and genetic engineering for the development of new pesticides and drugs. BASF planned to invest more than DM100 million (US$66 million) in this venture, in which it held a 51 percent stake. Also in 1996, the FDA approved the antiobesity drug sibutramine--developed by Boots--from which the company expected annual worldwide sales of DM800 million (US$525 million).
As part of the restructuring that created the Health and Nutrition sector, BASF in 1995 also created an Information Systems sector. This was short-lived, as magnetic tape products were identified as a noncore business and sold early in 1997 to KOHAP of Korea. Another noncore business was potash and in 1996 BASF's holding in Kali und Salz was sold to Potash Corp. of Saskatchewan. Also in 1996, BASF purchased Zeneca's textile dye operations for US$208 million, making BASF third worldwide in textile dyes, trailing only DyStar (the merger of Bayer and Hoechst textile dye businesses) and Ciba's spun-off specialty chemical division.
By 1997, BASF was operating five main sectors: Plastics and Fibers, Colorants and Finishing Products, Health and Nutrition, Chemicals, and Oil and Gas. The company had plans to spend more than DM20 billion (US$13 billion) on acquisitions in the coming years, concentrating on businesses that will counter the cyclical chemical area--notably its Health and Nutrition sector--and on strengthening itself outside Europe. Another long-term goal was to set up early in the 21st century a more streamlined structure in Europe (where the conglomerate had more than 100 separate companies), one similar to that of the integrated BASF Corporation in the United States. There was certainly little doubt that BASF's visionary and aggressive approach would continue to make it one of the most important chemical companies in the world.
Principal Subsidiaries: BASF Lacke & Farben AG; BASF Magnetics GmbH; BASF Schwarzheide GmbH; Comparex Informationssysteme GmbH; Elastogran GmbH; Knoll AG; Rheinische Olefinwerke GmbH (50%); Wintershall AG; BASF Argentina S.A.; BASF Australia Ltd.; BASF Antwerpen N.V. (Belgium); BASF S.A. (Brazil); BASF Química Colombiana S.A. (Colombia); BASF France S.A. (France); BASF Peintures & Encres S.A. (France); BASF India Ltd.; BASF Italia S.p.A. (Italy); BASF Vernici e Inchiostri S.p.A. (Italy); BASF Japan Ltd.; Mitsubishi Chemical BASF Company Ltd. (Japan; 50%); Hyosung-BASF Co., Ltd. (Korea; 50%); BASF (Malaysia) Sdn. Bhd.; BASF de México, S.A. de C.V. (Mexico); BASF plc (U.K.); BASF Corporation (U.S.A.).
Principal Divisions: Operating Divisions: Fertilizers; Potash and Salt; Crop Protection; Pharmaceuticals; Foam Plastics and Reactive Resins; Polyurethanes; Polyolefins and PVC; Engineering Plastics; Oil and Gas; Raw Materials Purchasing; Industrial Chemicals; Intermediates; Fine Chemicals; Basic Chemicals; Dispersions; Colorants and Process Chemicals; Specialty Chemicals; Textile and Leather Dyes and Chemicals; Coatings; Fiber Products. Regional Divisions: Central Europe; East Asia; Japan; South-East Asia, Australia; South America; Eastern Europe, Africa, West Asia; Northern Europe; Southern Europe; North America Chemicals; North America Coatings; North America Polymers; North America Consumer Products and Life Science/Central America.
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