Bayer cuts Covestro stake in $1.6 billion market transaction

Industry:    March, 2017

German drugmaker Bayer (BAYGn.DE) was looking to place about 1.5 billion euros ($1.6 billion) worth of shares in its chemicals subsidiary Covestro (1COV.DE) late on Tuesday, a person familiar with the open market transaction said.

Bayer, which had 64.2 percent stake in Covestro prior to the transaction, is in the process of securing funding for its $66 billion takeover of seeds maker Monsanto (MON.N), the biggest deal ever to be paid for in cash.

Bayer said in a statement earlier it had placed shares but declined to specify how many beyond saying it would retain a majority stake in Covestro for now.

The source, who asked not to be named, said the German drugmaker placed about 22 million Covestro shares, or more than 10 percent of its equity capital,

Covestro shares dropped 4.3 percent to 68.22 euros apiece in local Frankfurt trading after ending the official market session at 71.07 euros. The lower price would value the block of shares placed by Bayer at about 1.5 billion euros.

More details on pricing and the allocation of the shares would be published on Wednesday, a Bayer spokesman said, declining to comment on precise figures.

Bayer reiterated that it intends to sell all of its Covestro shares over the next few years.

Shares in Covestro, a maker of transparent plastics, foam chemicals and coatings ingredients that Bayer listed in October, hit a record high of 73.27 euros last week, more than three times their initial offer price of 24 euros.

The proceeds will come in handy as Bayer is working on debt and equity financing for the Monsanto deal.

Bayer placed 4 billion euros in mandatory convertible notes in November, part of a plan to raise $19 billion worth of fresh equity capital.

Covestro has benefited from high investment under Bayer’s ownership and an increase in demand for its chemicals has translated into higher utilisation rates at its factories.

In addition, rivals in foam chemicals have suffered technical setbacks and outages, in turn boosting global prices.