Bayer Reaches Covestro IPO Target After Price Cut to Offset VWby
Proceeds target cut by EU1b; orders received for full amount
Capital market situation has deteriorated `significantly'
Bayer AG cut the amount it wants to raise from the initial public offering of its plastics unit by 1 billion euros ($1.1 billion) to generate sufficient investor appetite amid a slump in global stock markets and the Volkswagen AG emissions scandal.
Two hours after lowering the stock pricing to 21.50 euros to 24.50 euros per share for Covestro AG, which makes plastics used in car bumpers, enough investors had submitted orders to cover the IPO, according to two people familiar with the situation. Covestro is now seeking to sell 1.5 billion euros of shares, down from 2.5 billion euros, Leverkusen, Germany-based Bayer said in a statement on Thursday.
Bayer’s decision to spin off plastics to focus on drugs and agrochemicals coincided with an 8.8 percent tumble in the Stoxx 600 Index of European companies in the third quarter, as concern over China’s economic growth and confusion over the trajectory of U.S. interest rates stoked market volatility. In Germany, the admission by Volkswagen that it cheated on emissions tests in the U.S. has weighed on stock prices.
“It was a good decision to go ahead even with lower proceeds,” said Ulrich Huwald, an analyst at MM Warburg, who rates Bayer stock hold. “They’ve prepared for it for a long time and it will allow Bayer to go ahead with divestment once the market has improved.”
Market Debut Delayed
Bayer shares were little changed at 114.35 euros at 12:26 p.m. in Frankfurt. The stock has gained 1.2 percent this year, giving the drugmaker a market value of 95 billion euros.
The subscription period for the shares had been extended by a day, to noon tomorrow for individuals and 1 p.m. the same day for institutional investors. Trading on the Frankfurt Stock Exchange, which had been slated to begin Friday, is now set for Tuesday.
Covestro, which makes foam ingredients for mattresses as well as polycarbonates for car parts and medical devices, will use the cash to pay down debt to its parent company.
To make up for the reduced proceeds from the sale, Bayer will increase the amount it’s contributing to Covestro by 1 billion euros, the company said. That means Covestro’s net debt together with pension liabilities will remain unchanged at 4 billion euros, according to the statement.
Chemical makers have suffered from slowing economic growth, especially in China, with overcapacities for some products pushing down prices and hurting margins. BASF SE, the world’s biggest chemical maker, abandoned targets for 2020 earlier this week, saying it will deepen a savings drive and may sell assets.
Covestro’s IPO comes as German auto-parts supplier Schaeffler AG and Hamburg-based shipping line Hapag-Lloyd AG also prepare to sell shares. Like other suppliers to the car industry, Schaeffler is fielding questions from investors over the scandal facing Volkswagen, its biggest customer.
“Management is good,” Warburg’s Huwald said of Covestro. “It’s a market leader in its area. The blame clearly lies in the current market situation.”