Covestro buys DSM's resins unit for 1.6 billion euros

FRANKFURT (Reuters) - Germany's Covestro 1COV.DE will buy Dutch peer DSM's DSMN.AS Resins and Functional Materials business for about 1.6 billion euros ($1.88 billion), banking on a rebound of a global economy depressed by the coronavirus pandemic.

FILE PHOTO: The logo of German chemicals maker Covestro is pictured outside its headquarters in Leverkusen, Germany, July 26, 2019. REUTERS/Wolfgang Rattay

The deal, which will likely be wrapped up by March 2021, adds products such as coatings for optical fibres, buildings and cars, recyclable carpets and printable plastics.

The new business will add about 1 billion euros in revenues to Covestro’s Coatings, Adhesives, Specialties (CAS) division, it said in a statement on Wednesday.

The company has swiftly rebounded from a slump due to the coronavirus pandemic earlier this year, and finance chief Thomas Toepfer expected that trend would continue into the fourth quarter.

Covestro has shunned larger takeovers since it was spun off from Bayer BAYGn.DE in 2015, mainly because expanding its two main units - makers of transparent polycarbonate plastics as well as chemicals for insulation slabs and upholstery foams - would trigger antitrust pushback.

The smaller but more profitable CAS unit makes additives for coatings and adhesives, competing with DSM, Evonik EVKn.DE, Vencorex of France and Wanhua Chemical 600309.SS.

For its part, DSM said it would hone in on its nutrition and health business, with products such as vitamins, baby formula and animal feed accounting for two thirds of its 2019 group sales of 9 billion euros.

Covestro shares fell 6.8% at 0915 GMT as analysts said the deal’s merit depends on ambitious annual synergies of 120 million euros targeted by Covestro by 2025, 80 million from lower costs and the remainder from new revenue opportunities. DSM stock gained 4.3%.

CFO Toepfer said exclusive talks with DSM had allowed Covestro to have 150 experts scan the target for synergies.

“We are convinced these are ambitious but absolutely realistic numbers,” he said.

The buyer plans to sell new shares worth 450 million euros to help fund the deal.Covestro this month said it was not in talks to be taken over by Apollo Global Management APO.N, reacting to a report that the private equity firm was exploring a takeover.

Barclays BARC.L acted as financial advisor to Covestro.

Additional reporting by Bart Meijer, Patricia Weiss, Arno Schuetze; Editing by Riham Alkousaa and Elaine Hardcastle