Bayer Sells $1.5 Billion in Covestro Stock to Trim Debt

March 1, 2017 11:58 AM
 
Bayer_Seeds

Bayer AG sold 1.46 billion euros ($1.54 billion) worth of shares in plastics maker Covestro AG to gain financial leeway as it seeks clearance for its $66 billion takeover of agriculture giant Monsanto Co.

Bayer sold 22 million shares for 66.50 euros each, paring its stake in its former division to 53.3 percent, the German conglomerate said in a statement on Wednesday. The shares were sold at a 6.4 percent discount to Covestro’s closing price of 71.07 euros yesterday. Bayer will use the proceeds to pay down debt.

The sale gives Bayer more financial firepower as it tries to complete the Monsanto transaction by the end of the year. The acquisition, the most significant in the company’s 152-year history, would burden the German drugs and chemicals conglomerate with debt and pare its ability to pursue attractive targets for its profitable pharmaceutical unit. The transaction may also pave the way for Covestro to enter Germany’s benchmark DAX index.

“We’re happy about it, not because we’re losing Bayer as a shareholder, but because the free float and of course the liquidity in the stock will rise,” Frank Lutz, Covestro’s chief financial officer, said in an interview. “So we benefit from this indirectly. In the daily business of the management board, I don’t really see anything changing.”

Focus on Results

Bayer shares rose 1.6 percent to 105.50 euros at 10:52 a.m. in Frankfurt trading. Covestro fell 7.2 percent to 65.98 euros. Shares of the maker of plastics commonly used in upholstery and foam have more than doubled in value in the past 12 months.

The sale move doesn’t come as a surprise, said Michael Schaefer, analyst at Commerzbank AG. For Covestro, it means “the share overhang we saw in the last weeks should go away, and the market will be able to focus on operational results again.”

Bayer, which held 64.2 percent in Covestro following its 2015 initial public offering, said it continues to expect a “mid-single-digit” percentage growth in earnings per share from continuing operations this year.

The transaction “will reduce the equity increase of $19 billion planned for Monsanto’s takeover,” Peter Spengler, an analyst at DZ Bank AG, wrote in a note to clients.

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