Unsatisfactory earnings and high production costs prompted German-based manufacturer BASF AG to sign a letter of intent to transfer its worldwide magnetic recording media business to RAKS Holding AS in Turkey, for an undisclosed sum. The sale also would include BASF's computer disk production division.
BASF makes polyester base film at six plants: Willstaett and Munich, Germany; Obenheim and Avranches, France; Jakarta, Indonesia; and Manaus, Brazil.
Unsuccessful efforts to boost profitability included reorganizing the magnetic tape operations into BASF Magnetics GmbH and closing three European manufacturing plants.
Faced with the necessity of making changes in cost structures and entering new markets, BASF chose to concentrate on its core chemicals business and divest the tape operations, according to information re-leased by BASF Magnetics Corp., based in Bedford, Mass.
BASF and RAKS have been cooperating successfully for about five years in the form of exchanged goods in which BASF supplied RAKS with coated tape in exchange for RAKS' ready-made videocassettes.
A BASF spokesman in Bedford said RAKS has a ``mold and load'' operation in which they manufacture the audio and video cassettes using BASF magnetic tape products for several companies, including BASF. BASF Magnetics posted sales for 1995 of $816 million.
According to the BASF release, RAKS reported sales last year of 400 million deutsche marks (US$269.8 million). Besides audio and video cassettes, RAKS manufactures computer disks and CD-ROMs and also maintains its own music and film production facility and television channel. It also markets electrical household appliances.
BASF spokesman Walter Geschwill said products manufactured by RAKS will continue to be sold under the BASF label for about five years.
``The exact time will depend on RAKS' market penetration and whether the markets accept the new label,'' Geschwill said.
James J. Ringwood, vice president of Maxell Corp. of America in Fairlawn, N.J., said that given BASF's presence in the U.S. market with its audio, video and pancake products, he is ``surprised'' at BASF's move. Ringwood added that about 10 years ago, RAKS attempted to break into the U.S. market with its products but pulled out.
Industry observers see this as a way for RAKS to successfully break into the U.S. magnetic tape market.
Ron McClenny, vice president of production at JVC Magnetics America Co. in Tuscaloosa, Ala., said, ``It's very difficult with the market the way it is to break into it unless you buy an established name, and it would seem that if they want to break into the U.S. market, that would be the way to go.''
McClenny added that in the long run there are cost advantages to RAKS making its own tape; however, there will be learning curve for RAKS.
``It's a tremendous step to actually make the tape vs. importing the pancakes and loading the tape into cassettes,'' he said.
Still, RAKS' success in this commodity market that remains price driven depends on whether it can offer BASF quality with a ``unique price,'' McClenny said.
This is not the first time a major player has opted out of the highly competitive magnetic tape business. Earlier this year, 3M Co. of St. Paul, Minn., announced that it planned to exit the polyester magnetic tape market for many of the same reasons cited by BASF.
Increasing raw material and production costs continue to plague the magnetic tape industry. An industry spokesperson said the magnetic tape industry continues to suffer from ``too much capacity. For BASF, being able to sell is a victory,'' he said. ``For RAKS, it's an interesting challenge.''