The Urethane Blog

Covestro IPO Scheduled for Q4

Bayer to list Covestro in fourth quarter

Andrew Ward, Pharmaceuticals Correspondent


Bayer has shrugged off volatility in the stock markets to give the go-ahead for the multibillion-euro flotation of its plastics business.

The German group said it would proceed with an initial public offering for its materials division through an issues of new shares in the fourth quarter of this year.

A listing of the arm, recently renamed Covestro, has been “>long in the planning but market turmoil triggered by concerns over the Chinese economy had raised doubts over the timing.

Marijn Dekkers, Bayer chief executive, insisted on Friday that the spin-off would go ahead. “We have been evaluating the optimal way for the separation of the material science business and believe that an IPO delivers clear benefits for both Bayer and Covestro and their stakeholders,” he said. “This transaction will allow both businesses to pursue their strategic goals.”

Analysts have predicted that the division, to be listed on the Frankfurt stock exchange, could be valued at more than €10bn.>The >IPO will free Bayer to focus on its healthcare and crop science businesses which offer higher returns on investment, while allowing Covestro to chart its own course as an independent company.

“It will give us the opportunity to build our position as a pure-play polymers producer with strong competitive advantages,” said Patrick Thomas, Covestro chief executive.

The business, which makes products ranging from foam for mattresses to high-tech plastics for cars, had revenues of €11.8bn in 2014 and earnings before interest, tax, depreciation and amortisation of €1.16bn. It employs 16,000 people.

Covestro planned a dividend payout ratio of between 30 and 50 per cent of net income from 2016 onwards. The company would use proceeds from the IPO to repay intercompany debt to Bayer, targeting an investment-grade credit rating with net debt including pension liabilities at 2.5 to 3 times adjusted ebitda.

Deutsche Bank and Morgan Stanley are acting as joint global co-ordinators for the IPO, together with Bank of America Merrill Lynch, Citi, Credit Suisse, JPMorgan and UBS as joint bookrunners.