Lanxess Warns on Earnings as Buyout Talk Circles Covestro

22.06.2023 - Two former spinoffs from Bayer were competing for headlines on Jun. 19 and 20, as specialty chemicals company Lanxess issued a profit warning amid rumors that Middle East chemicals and energy behemoth Abu Dhabi National Oil Company (ADNOC) had made a takeover offer for engineering plastics producer Covestro.

As could be expected, the two companies’ respective share price — both are listed on the German stock exchange DAX, with Lanxess in the medium-sized company index — bounced all over the charts on the double news.

On Jun. 19, Cologne-based Lanxess announced it was revising its 2023 forecast downward, with second-quarter EBITDA pre-exceptionals likely to come in at €100 million, below market expectations.

Should trading not improve, the company said full year 2023 could see EBITDA of only €600- 650 million pre-exceptionals, down from the € 850-950 million forecast earlier.

CEO Matthias Zachert cited continued customer destocking effects, with demand from construction and E&E, along with the usually stable consumer sector, as exceptionally weak. A recovery within the month of June is not visible, he said.

Market watchers pointed to China’s slow-motion economic recovery from the coronavirus pandemic as a major cause of Lanxess’ depressed outlook, which Zachert said would be felt most severely in Germany, due to the twin disadvantages of high energy prices and “massive bureaucracy."

”In times of weak demand, Germany as an industrial location is just not competitive,” he added.

Earlier this year, Lanxess merged its engineering plastics portfolio into the 40:60 joint venture Envalior, which is consolidated by private equity investor Advent International. The new company also incorporates DSM’s engineering plastics arm.

As the profit warning sank in, many Lanxess shareholders ran for the exit, and in subsequent trading the paper fell from around €34 to just over €26-per share In contrast, Leverkusen-headquartered Covestro’s share gained €2.70 to touch the €47-per share mark.

Covestro Seen as ADNOC Takeover Target

Multiple news agencies quickly picked up and ran with the news — from anonymous sources —  that United Arab Emirates state-owned ADNOC had held initial talks with Covestro to feel out its interest in a deal.

The news agencies’ sources said the two sides were discussing a potential takeover offer in the mid-€50-per share range. This would imply a premium of nearly 40% over the share’s last close, valuing the polycarbonate and polyurethanes specialist at nearly €11 billion.

Unsurprisngly, Covestro has declined to comment on the rumors and no insiders have yet come forward with insights into how its management might react. Some research analysts have speculated that the final offer price could settle in the mid-60s range, where the plastics maker traded before the 2022 energy crunch.

ADNOC has been stretching feelers in several directions and most recently seen as teaming up with private equity group Apollo to bid for Brazilian chemical group Braskem. The Abu Dhabi group already owns 25% of olefins and polyolefins giant Borealis and is due to pick up just under 25% of Borealis’ parent, oil group OMV, both based in Vienna. Picking up Covestro would be its first foray into higher-end plastics.

Author: Dede Williams, Freelance Journalist