07:59 AM | September 30, 2020 | Sotirios Frantzanas
DSM has reached an agreement to sell its resins and functional materials to Covestro for an equity value of €1.6 billion ($1.9 billion). Completion of the transaction is expected in first half 2021, subject to customary conditions and approvals.
The businesses, which includes the associated businesses DSM Niaga, DSM additive manufacturing, and the coatings activities of the DSM advanced solar business, represented €1.01 billion of DSM’s 2019 total annual net sales and €133 million of DSM’s 2019 total EBITDA, the company says. DSM will provide restated figures for its materials cluster ahead of its third-quarter results, it says.
Meanwhile, DSM anticipates a book profit on the transaction to be recognized on closing. It expects to receive approximately €1.4 billion in cash following closing, including repayment of the net debt of the businesses being sold to Covestro, and after transaction costs and capital gains tax.
“This sale builds on our approach of actively managing our businesses, as DSM continues to evolve as a purpose-led, science-based company operating in the fields of nutrition, health, and sustainable living. The deal delivers strong value to DSM and is strategically attractive for all parties,” say Geraldine Matchett and Dimitri de Vreeze, co-CEOs of DSM.
Covestro says that the acquisition creates one of the leading suppliers in the field of sustainable coating resins. The integration of DSM’s resins and functional materials businesses is a substantial opportunity to expand annual revenue at Covestro’s coatings, adhesives, and specialties segment by more than 40% to about €3.4 billion, on a 2019 pro-forma basis, Covestro says. The company expects cost savings to build up to about €120 million on an annualized basis from full integration by 2025.
“This acquisition is an important step for our corporate strategy. [It] enhances the growth trajectory of our business. By combining our strong innovation capabilities, sustainable product portfolios, as well as complementary technologies and customer industries, we will unlock significant value. At the same time, it is also a key step to drive innovation for the transition towards a circular economy,” says Markus Steilemann, CEO of Covestro.
Covestro says the transaction will be financed with a combination of equity, debt instruments, and own cash generation, consistent with the company’s commitment to maintaining a solid investment-grade rating. For this purpose, Covestro is planning to utilize its existing, authorized share capital for an equity issuance to raise approximately €450 million, it says.