Bayer’s Covestro Raises $1.7 Billion After Cutting Size of IPO

  • 62.5 million shares sold, with Bayer's stake diluted to 69%
  • Stock priced at 24 euros, at upper end of reduced range

Covestro AG, the plastics unit of drugmaker Bayer AG, raised 1.5 billion euros ($1.7 billion) in an initial public offering after cutting the size of the sale by 40 percent amid slumping global stock markets.

Investors will pay 24 euros each for the 62.5 million shares, Leverkusen, Germany-based Bayer said in a statement on Friday, at the upper end of the 21.50 euros to 24.50 euros at which banks were marketing the stock. Covestro, which makes foams used in car seats, on Thursday cut that price range, which had been 26.50 euros to 35.50 euros.

The IPO comes after capital markets were roiled by an economic slowdown in China, confusion over the trajectory of U.S. interest rates and, in Germany, the admission by Volkswagen AG that it cheated on emissions tests. Lackluster orders from investors forced Covestro to reduce the amount it wanted to raise to 1.5 billion euros from an originally targeted 2.5 billion euros.

“The IPO will enable us to deploy our strengths more quickly, effectively and flexibly,” Covestro Chief Executive Officer Patrick Thomas said in the statement. “We intend to share our commercial success with our stockholders by way of dividend payments from the start.”

The sale price for the 31 percent stake gives the company formerly known as Bayer Material Science a market value of 4.9 billion euros, according to the statement. Bayer will retain the other 69 percent. Shares of Covestro, which also makes foam ingredients for mattresses as well as polycarbonates for medical devices, will start trading Oct. 6 on the Frankfurt Stock Exchange.

“It feels like a bit of bargain but they clearly wanted to get the deal done,” London-based Berenberg Bank analyst Alistair Campbell said by phone. “They are still going to be exposed to the performance of Covestro for the next year at least, but what it does do is give them a bit of balance sheet flexibility.”

Other German companies preparing IPOs have been affected by the rout in Volkswagen shares, with auto-parts supplier Schaeffler AG fielding questions from investors about the impact of the scandal facing its biggest customer. Schaeffler said Friday it’s pushing ahead with its offering and will announce the price range, timetable and other information on Monday.

Deutsche Bank AG and Morgan Stanley are managing the Covestro sale, with seven other banks also participating. The IPO is the seventh biggest on record in Germany, according to data compiled by Bloomberg.

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