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Useless goal

30 June 2014 By Olaf Storbeck

Evonik’s 300 million euro ($400 million) tie-up with Bundesliga soccer team Borussia Dortmund (BVB) has little merits for the company’s shareholders. Germany’s third-largest chemical company hopes that the alliance with the club will turn its brand into a global household name. The snag is that Evonik doesn’t do any business with end users.

The Essen-based speciality chemical maker has been Dortmund’s shirt sponsor since 2006. It will now buy a 9 percent stake in the club that finished second in the last season. Evonik also locks in its sponsorship rights for 11 more years. According to Ruhr Nachrichten, a local paper, the total deal is worth up to 300 million euros.

It will improve Borussia Dortmund’s financial might and makes it less dependent on fickle sporting success. BVB, which is Germany’s only listed club, follows the lead of Bayern Munich. Sportswear firm Adidas, carmaker Audi and insurance group Allianz all bought minority stakes in the country’s most successful football club. But all three are operating in consumer markets where brand identity is key. That is not the case with Evonik.

The group specialises in intermediate products like battery chemicals, animal feed additives and super-absorbers used in nappies. Forging a consumer brand identity will bring little return to Evonik. In business-to-business markets, good products, reliable supply chains and competitive prices are more important than global visibility among end users. Evonik says brand recognition also helps in recruiting. But splashing out hundreds of millions on a football club doesn’t look like a clever strategy to woo chemical science graduates.

A silver lining for Evonik shareholders may be that the company pays a reasonable price for its 9 percent stake in the club. The transaction, done via a capital increase at a 5 percent discount on Dortmund’s share price, values the club at 1.2 times next year’s sales and 5.8 times next year’s EBITDA, Thomson Reuters data shows. When Allianz invested in Bayern Munich this February, it paid three times sales and 19.6 times historic EBITDA. Buyout group KKR valued loss-making Hertha BSC Berlin at 2.8 times sales. Evonik pays a good price for an asset it does not need.


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