Bayer Boosts Finances With $2.6 Billion Covestro Stake Sale

May, 2018

Bayer sold 14% of its remaining stake in Covestro AG, rising 2.2 billion euros ($2.6 billion). The transaction began after markets closed on Thursday(3rd May 2018) and was managed by Bank of America Corp. and JPMorgan Chase and Co. The Germen drugmaker’s action of selling off Covestro AG stake was inspired by the planned $66 billion purchase of genetically modified seeds supplier Monsanto Co.

After selling the stake, Bayer now holds 6.8 percent of Covestro shares. The proceeds will affect Bayer’s balance sheet as it shoves to complete the Monsanto deal. It will potentially reduce the size of a capital increase as part of a financing package that’s under consideration. On Thursday, the drugmaker cut its forecast for the year, predicting sales would drop below last year’s 35 billion euros. And also said that, while earnings will decline by a low-single-digit percentage, hit by the strength of the euro.

Covestro shares, which climbed 32 percent in 2017, have drooping 11 percent this year. It is because of investor fears that floating markets for the polyurethanes and polycarbonates (which shall impact many markets such as elastomeric sealant, elastomeric foam, acoustic foam among many others). Production of polyurethanes and polycarbonates may be reaching a peak. The Leverkusen, Germany-based company last month reported first-quarter profit about 6 percent higher than estimates, yet it signalled prices will normalize over 2018 with full-year profit only matching 2017’s record result. Shares of Covestro fell 0.3 percent to 76.50 euros at the close Thursday(3rd May 2018).

- Khushboo Pandey,
Research Analyst,
Infoholic Research