Mergers & Acquisitions
September 18, 2020
Covestro Stock Jumps
Covestro stock jumps on Apollo’s potential takeover but probability of deal still low
Author: Morgan Condon
2020/09/18
LONDON (ICIS)–Covestro shares jumped on Friday as US investment fund Apollo could be eyeing a takeover of the German chemicals major, although the probability of a deal is still very low, according to chemicals equity analysts.
Covestro’s shares rose nearly 10% in Friday morning trading although they were on course to close trading with an increase of around 5%.
Apollo would be eyeing to take over Covestro’s full capital structure in a $10bn transaction, according to Bloomberg late on Thursday, citing unidentified sources familiar with the matter.
APOLLO ‘HUNTING SCHEME’
European chemicals equity analysts have said the transaction would make sense considering Apollo’s deep pockets and experience in petrochemicals acquisitions.
Following the 2008 financial crisis, Apollo acquired US major producer LyondellBasell.
Covestro, headquartered in Leverkusen, produces polycarbonates (PC) and polyurethanes (PU), among other materials.
It posted second-quarter falling sales and earnings on the back of pandemic-induced lockdowns, but analysts have said it would be one of the first companies to recover.
“Covestro would fit into Apollo’s hunting scheme – it is a producer which has known good cash flow, and earnings are at the trough so the timing would make sense,” said Baader Bank’s analyst Markus Mayer.
“Covestro has already done a lot of restructuring and are already by far more efficient than many other chemicals companies; I am not sure how much a private equity company [Apollo] could restructure further.”
However, the jump in the stock on Friday automatically made Covestro more expensive, which in the end may end up working against a potential transaction.
Warburg Research analyst Oliver Schwarz said that the takeover could “fizzle because the rumour came out too early” although he said Covestro would be still undervalued after the heavy falls in March-April.
“This is more or less a story of Apollo taking on an interesting asset that they envisage is undervalued, taking it out of the market for two-three years and bringing it back at a significantly higher price,” said Schwarz.
Covestro had not responded to a request for comment at the time of writing.
Apollo refused to comment.
A DIFFERENT TAKEOVER?
While investment funds tend to take over companies to often divide them and sell the different divisions, with short-term expectations focused on a quick return, analysts think this time round Apollo may have different intentions.
“I can see Apollo’s angle as they had a very illustrious past with regards to making a huge amount of money in acquisitions in petrochemicals, especially in polyols; however, this is not what is driving the Covestro story,” said analyst Oliver Schwarz of Warburg Research.
“LyondellBasell and Covestro are active in petrochemicals and both companies are active in PU, but that is where the resemblance really stops everything else is different.”
The pandemic has brought several headwinds to the chemicals industry, but Covestro seems to be weathering the storm well.
That makes it unlikely it would need investors to bail it out from under any financial burdens, said the analysts.
Even without taking into account Covestro’s shares jump on Friday, investors’ confidence in the firm’s stock has been gaining traction after the sharp falls in March, when the pandemic hit Europe.
The producer’s CEO Markus Steilemann has also said third-quarter financial results are tipped to be better than initial expectations.
“Covestro has made a huge run from the low point, in March where share prices were somewhere around €25/share. Now we are talking about a company that is trading almost double that price,” said Schwarz.
“This not only reflects hope of financial recovery but also a better performance in the second quarter, most likely the benefit of a tailwind of production issues led to a tight market, subsequent higher prices and inflated company margins for the short term.”
Competitors struggling with production issues in the toluene diisocyanate (TDI) market could have been a key component of Covestro’s portfolio providing buoyancy but is not the only positive indicator going forwards.
Mayer added that tailwinds could also come from restocking of polycarbonate (PC) as inventory levels in the automotive industry are relatively low.
CHANCES STILL LOW
Covestro’s recent strong performance on the stock market may even be the factor which diminishes the prospect of Apollo taking over the producer.
Mayer placed the probability of the transaction finally happening at around 30%.
“It’s not zero, but it is not at 50%. However, private Investment takes a longer view than the corporate market thinking one quarter to another so this could be a fair as a mid to long term strategy for Covestro,” said Mayer.
Covestro share price year to date
Click on image to enlarge
Source: Covestro
Front page picture: Covestro’s headquarters in Leverkusen
Source: Covestro
Focus article by Morgan Condon
September 18, 2020
Apollo Looking at Covestro
Apollo Said to Weigh Deal for $10 Billion Plastics Firm Covestro
Ed Hammond, Eyk Henning and Dinesh Nair, Bloomberg News
- (Bloomberg) — Apollo Global Management Inc., the buyout firm led by billionaire Leon Black, is exploring a takeover of German plastics maker Covestro AG, according to people with knowledge of the matter.
The New York-based investment firm contacted Covestro in recent weeks, said the people, who asked not to be identified as the information is private.
Covestro was spun out of the drugmaker Bayer AG in an initial public offering in October 2015. While the company’s shares have risen 68% since then, they have more than halved in price from a high in early 2018, giving it a market value of 8.2 billion euros ($9.7 billion).
Deliberations are at an early stage, and there’s no certainty they will result in a transaction, the people said. A representative for Apollo couldn’t immediately comment. A representative for Covestro declined to comment.
Apollo has broad experience in the plastics industry. Its prior investment in plastics-maker LyondellBasell Industries NV is still held up as a textbook model for a start-to-finish private equity transaction. Last year, it unsuccessfully targeted plastic-packaging maker RPC Group Plc.
Buying Covestro would mean the private equity firm once again enters highly-competitive markets like polycarbonates, used widely in the building and automotive industries. Leverkusen-based Covestro also manufacturers the more technically-challenging methylene diphenyl diisocyanate, or MDI, used to make polyurethanes for insulation. Its competitors include Huntsman Corp.
September 18, 2020
Apollo Looking at Covestro
Apollo Said to Weigh Deal for $10 Billion Plastics Firm Covestro
Ed Hammond, Eyk Henning and Dinesh Nair, Bloomberg News
- (Bloomberg) — Apollo Global Management Inc., the buyout firm led by billionaire Leon Black, is exploring a takeover of German plastics maker Covestro AG, according to people with knowledge of the matter.
The New York-based investment firm contacted Covestro in recent weeks, said the people, who asked not to be identified as the information is private.
Covestro was spun out of the drugmaker Bayer AG in an initial public offering in October 2015. While the company’s shares have risen 68% since then, they have more than halved in price from a high in early 2018, giving it a market value of 8.2 billion euros ($9.7 billion).
Deliberations are at an early stage, and there’s no certainty they will result in a transaction, the people said. A representative for Apollo couldn’t immediately comment. A representative for Covestro declined to comment.
Apollo has broad experience in the plastics industry. Its prior investment in plastics-maker LyondellBasell Industries NV is still held up as a textbook model for a start-to-finish private equity transaction. Last year, it unsuccessfully targeted plastic-packaging maker RPC Group Plc.
Buying Covestro would mean the private equity firm once again enters highly-competitive markets like polycarbonates, used widely in the building and automotive industries. Leverkusen-based Covestro also manufacturers the more technically-challenging methylene diphenyl diisocyanate, or MDI, used to make polyurethanes for insulation. Its competitors include Huntsman Corp.
August 28, 2020
Huntsman Takes Loss Divesting TiO2 Stake
Remember when ICI convinced Huntsman to buy the TiO2 business and the Wilton cracker in order to obtain the urethanes business back in 1999? So this divestiture finalizes the total change of Huntsman from a commodity polystyrene business to today’s entity that is now about 60% urethanes . . . A throwback article from the original sale is attached at the bottom.
Huntsman Agrees to Sell its Remaining Interest in Venator Materials PLC
Download as PDF August 28, 2020 5:16pm EDT
THE WOODLANDS, Texas, Aug. 28, 2020 /PRNewswire/ — Huntsman Corporation (NYSE: HUN) announced today that it has entered into a definitive agreement with funds advised by SK Capital Partners, LP to sell approximately 42.5 million of the shares it holds in Venator Materials PLC for a cash purchase price of approximately $100 million, including a 30-month option for the sale of the remaining approximate 9.5 million shares it holds at $2.15 per share. The transaction is subject to regulatory approvals and is expected to close near year-end.
Together with estimated cash tax savings of approximately $150 million anticipated by offsetting the capital loss on the sale of Venator shares against the capital gain realized on the sale of our chemical intermediates and surfactants businesses that closed this year in January, we expect to secure an aggregate total benefit of approximately $250 million in cash near year end.
Peter Huntsman, Chairman, President and CEO, further commented, “I am pleased to have reached an agreement to sell our remaining interest in Venator to SK Capital. We enjoy an ongoing relationship with SK Capital and their co-founder Barry Siadat. They are a great owner and operator of businesses and we are pleased for them to acquire Huntsman’s stake in Venator, a world class functional and specialty TiO2 business. The proceeds to be received will further bolster our balance sheet and only enhance our flexibility for further growth.“
News | May 4, 1999
ICI Divests Urethanes, Titanium Dioxide, Petrochemicals to Huntsman; Refinishing, Industrial Coatings to PPG
Imperial Chemical Industries (ICI, London, UK) continues to divest commodity chemicals in order to concentrate on specialty products. Its latest actions include the £1.7 billion sale of polyurethanes, titanium dioxide and selected petrochemicals businesses to Huntsman Chemical Corp. (Salt Lake City, UT). It will also sell most of its global automotive refinishing and industrial coatings units to PPG Industries Inc. (Pittsburgh, PA) for £425 million.
The first transaction includes polyurethanes, titanium dioxide, and paraxylene. It nearly doubles the size of Huntsman, North America’s largest privately owned chemical company, to more than $7.5 billion. The urethanes and titanium dioxide businesses both have solid technology positions and major global markets.
A German automotive refinisher repairs a car using a PPG waterborne system designed to reduce emissions to comply with increasingly stringent environmental regulations. The purchase of ICI’s global automotive refinish and industrial coatings operations augments PPG’s already-strong franchise in this field.
The deal suddenly makes Huntsman a major presence in 11 countries. It also increases Huntsman capacity by 8.7 billion lb/y, to more than 28 billion lb/y, and adds 7000 to its payroll, bringing it to 16,000. The companies expect to close the deal this summer. Huntsman also says it is interested in purchasing ICI’s acrylics business, which is also up for sale.
The purchase involves three segments:
- Polyurethane: ICI operates facilities in Wilton, UK; Rozenburg, the Netherlands; and Geismar, LA; with an aggregate net asset value of £523 million. Total capacity is just over 1 billion lb/y, mostly in MDI-based materials though ICI also manufactures some TDI-based materials as well as polyols. It has 50 sales/representative offices worldwide. In 1998, the business achieved a trading profit (after corporate charges) of £90 million on sales of £816 million.
- Titanium dioxide: ICI’s Tioxide titanium dioxide business has manufacturing sites in Canada, France, Italy, Spain, United Kingdom, and Malaysia, and joint ventures in South Africa and the United States. Its total nameplate capacity approaches 1.3 billion lb/yr with an asset value of £661 million. Trading profits were £58 million on sales of £574 million.
- Petrochemicals: Huntsman will purchase ICI’s aromatics business (primarily benzene and paraxylene, which is used in polyester and polyurethane production) and ICI’s share of olefins production (chiefly ethylene and propylene for polymers) from the cracker at Wilton, Teeside. The assets are valued at £96 million. The business lost £27 million on sales of £659 million in 1998.
Huntsman will acquire the businesses by forming a new company, Huntsman ICI Holdings (HICI) in partnership with ICI. HICI will include Huntsman’s US propylene oxide business, which earned $79 million on $339 million sales in 1998. ICI will retain a £300 million investment in the new business for a minimum of three years. It will use the remaining £1.4 billion from the transaction to reduce debt incurred with its £8 billion purchase of Unilever’s specialty chemical business in 1997.
https://www.chemicalonline.com/doc/ici-divests-urethanes-titanium-dioxide-petroc-0001
August 28, 2020
Huntsman Takes Loss Divesting TiO2 Stake
Remember when ICI convinced Huntsman to buy the TiO2 business and the Wilton cracker in order to obtain the urethanes business back in 1999? So this divestiture finalizes the total change of Huntsman from a commodity polystyrene business to today’s entity that is now about 60% urethanes . . . A throwback article from the original sale is attached at the bottom.
Huntsman Agrees to Sell its Remaining Interest in Venator Materials PLC
Download as PDF August 28, 2020 5:16pm EDT
THE WOODLANDS, Texas, Aug. 28, 2020 /PRNewswire/ — Huntsman Corporation (NYSE: HUN) announced today that it has entered into a definitive agreement with funds advised by SK Capital Partners, LP to sell approximately 42.5 million of the shares it holds in Venator Materials PLC for a cash purchase price of approximately $100 million, including a 30-month option for the sale of the remaining approximate 9.5 million shares it holds at $2.15 per share. The transaction is subject to regulatory approvals and is expected to close near year-end.
Together with estimated cash tax savings of approximately $150 million anticipated by offsetting the capital loss on the sale of Venator shares against the capital gain realized on the sale of our chemical intermediates and surfactants businesses that closed this year in January, we expect to secure an aggregate total benefit of approximately $250 million in cash near year end.
Peter Huntsman, Chairman, President and CEO, further commented, “I am pleased to have reached an agreement to sell our remaining interest in Venator to SK Capital. We enjoy an ongoing relationship with SK Capital and their co-founder Barry Siadat. They are a great owner and operator of businesses and we are pleased for them to acquire Huntsman’s stake in Venator, a world class functional and specialty TiO2 business. The proceeds to be received will further bolster our balance sheet and only enhance our flexibility for further growth.“
News | May 4, 1999
ICI Divests Urethanes, Titanium Dioxide, Petrochemicals to Huntsman; Refinishing, Industrial Coatings to PPG
Imperial Chemical Industries (ICI, London, UK) continues to divest commodity chemicals in order to concentrate on specialty products. Its latest actions include the £1.7 billion sale of polyurethanes, titanium dioxide and selected petrochemicals businesses to Huntsman Chemical Corp. (Salt Lake City, UT). It will also sell most of its global automotive refinishing and industrial coatings units to PPG Industries Inc. (Pittsburgh, PA) for £425 million.
The first transaction includes polyurethanes, titanium dioxide, and paraxylene. It nearly doubles the size of Huntsman, North America’s largest privately owned chemical company, to more than $7.5 billion. The urethanes and titanium dioxide businesses both have solid technology positions and major global markets.
A German automotive refinisher repairs a car using a PPG waterborne system designed to reduce emissions to comply with increasingly stringent environmental regulations. The purchase of ICI’s global automotive refinish and industrial coatings operations augments PPG’s already-strong franchise in this field.
The deal suddenly makes Huntsman a major presence in 11 countries. It also increases Huntsman capacity by 8.7 billion lb/y, to more than 28 billion lb/y, and adds 7000 to its payroll, bringing it to 16,000. The companies expect to close the deal this summer. Huntsman also says it is interested in purchasing ICI’s acrylics business, which is also up for sale.
The purchase involves three segments:
- Polyurethane: ICI operates facilities in Wilton, UK; Rozenburg, the Netherlands; and Geismar, LA; with an aggregate net asset value of £523 million. Total capacity is just over 1 billion lb/y, mostly in MDI-based materials though ICI also manufactures some TDI-based materials as well as polyols. It has 50 sales/representative offices worldwide. In 1998, the business achieved a trading profit (after corporate charges) of £90 million on sales of £816 million.
- Titanium dioxide: ICI’s Tioxide titanium dioxide business has manufacturing sites in Canada, France, Italy, Spain, United Kingdom, and Malaysia, and joint ventures in South Africa and the United States. Its total nameplate capacity approaches 1.3 billion lb/yr with an asset value of £661 million. Trading profits were £58 million on sales of £574 million.
- Petrochemicals: Huntsman will purchase ICI’s aromatics business (primarily benzene and paraxylene, which is used in polyester and polyurethane production) and ICI’s share of olefins production (chiefly ethylene and propylene for polymers) from the cracker at Wilton, Teeside. The assets are valued at £96 million. The business lost £27 million on sales of £659 million in 1998.
Huntsman will acquire the businesses by forming a new company, Huntsman ICI Holdings (HICI) in partnership with ICI. HICI will include Huntsman’s US propylene oxide business, which earned $79 million on $339 million sales in 1998. ICI will retain a £300 million investment in the new business for a minimum of three years. It will use the remaining £1.4 billion from the transaction to reduce debt incurred with its £8 billion purchase of Unilever’s specialty chemical business in 1997.
https://www.chemicalonline.com/doc/ici-divests-urethanes-titanium-dioxide-petroc-0001
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