Evonik rejects BASF's €22.15-a-share offer as too low; its stock closes 10% below the bid

Evonik Industries has rejected a takeover proposal from BASF worth about €10.3 billion, or roughly €22.15 a share, because it was too low to justify negotiations or due diligence, the Financial Times reported, according to RTTNews. Reuters also reported the rejection, citing sources, and put the bid at $11.7 billion. Including Evonik's debt, the proposal valued the company at about €14.2 billion.

Both companies had confirmed on Friday that exploratory contact was under way. BASF said it was holding discussions with Evonik and with the RAG Foundation, Evonik's largest shareholder, European Coatings reported. We covered the initial approach on Friday.

What the share price says

Evonik closed Monday in Frankfurt at €19.84, up 2.4% from Friday's €19.37, according to Yahoo Finance data. BASF closed at €50.28, down from €52.30 last Thursday before the approach became public.

The obvious reading of Monday's rise is that investors expect BASF to come back with more. That is part of it. But at €19.84, Evonik still trades 10.4% below the rejected €22.15. If the market were confident of any deal at or above that price, the gap would be much narrower. It is pricing a real chance that BASF walks away, alongside a chance of a higher bid.

The shareholder who decides

The RAG Foundation holds about 43% of Evonik and has said it intends to reduce that stake to 25.1% over time, according to European Coatings. At the rejected price, a 43% stake is worth roughly €4.4 billion by our calculation from the €10.3 billion equity value. Selling down to 25.1% would mean parting with about 18% of the company, roughly €1.8 billion at the offer price.

That is why the foundation, not only Evonik's management, will shape what happens next. A seller that already plans to shrink its holding has a reason to listen to a cash bid, but also every reason to hold out for a better one.

Why it matters beyond Germany

A combination would be the largest in German chemicals. The two companies had combined revenue of about €74 billion ($84 billion) last year, RTTNews reported. European Coatings said BASF's interest is partly driven by growing competition from Chinese suppliers, a pressure that also bears on U.S. chemical makers and on the manufacturers who buy from them.

What traders are watching: whether BASF returns with a higher proposal, any public statement from the RAG Foundation, and whether Evonik's share price moves closer to or further from €22.15. See more on the stocks page.

Sources: Financial Times via RTTNews; Reuters; European Coatings; Yahoo Finance price data. This is market information, not investment advice.