BASF's Evonik Bid: Why an All-Share Deal Suits RAG-Stiftung and BASF
Evonik has confirmed a non-binding approach but says no talks are under way. The deal will be decided by the coal foundation that owns 44% of it, and BASF's €2.25 dividend floor is the one thing it can offer that Evonik cannot.
The key investor in any BASF deal for Evonik is a foundation set up to pump water out of abandoned coal mines. RAG-Stiftung owns about 43.8% of Evonik and uses the dividends to pay for the permanent upkeep of the Ruhr's closed pits. On Friday it confirmed that BASF had shown interest in a voluntary public takeover. Evonik confirmed a non-binding approach at 15:12 and said that no talks are taking place. BASF declined to comment. The two companies had combined revenue of about €74 billion last year.
Evonik's statement is a negotiating position, not a veto, if RAG-Stiftung engages. We think a deal is more likely than the market implies and that BASF will pay mostly in shares. BASF cannot comfortably afford cash, while RAG-Stiftung has little reason to prefer it.
The price gap provides the industrial logic. Before the report, Evonik was worth about €8.4 billion, or roughly €12 billion including net debt, according to Reuters. Evonik raised its 2026 guidance in August to adjusted EBITDA of €2.0 billion to €2.2 billion. At the midpoint, that puts it on under 6 times EBITDA. BASF, with a market value near €46 billion and €17 billion of net debt against trailing EBITDA of €7.3 billion, trades at close to 9 times. A buyer valued at 9 times can buy earnings at 6 times, pay a premium in its own shares and still come out ahead.
Put numbers on it. A 40% premium to the undisturbed price of about €18 a share gives roughly €25, or about €11.6 billion for the equity. Add the debt and the enterprise value is around €15 billion, or a little over 7 times this year's EBITDA. That is still cheaper than BASF itself. Paid in BASF shares at Friday's price, it would mean issuing roughly 225 million new shares, a quarter more than BASF has today. Evonik's investors would own about a fifth of the combined company.
The cash alternative is where the deal gets hard. BASF's free cash flow was negative €1.6 billion in the first half, and its net debt is already about 2.4 times EBITDA. It has promised shareholders at least €12 billion between 2025 and 2028, including a dividend of at least €2.25 a share each year. A banker quoted by ION Analytics this week said BASF is cash-constrained and would want its agricultural IPO done first. That matters if the offer is cash. It matters far less if BASF pays in stock.
RAG-Stiftung's needs are unusual. Its perpetual obligations run at roughly €250 million to €300 million a year, and Evonik has been its main source of income. Evonik cut its dividend for 2025 to €1.00 from €1.17 and moved to paying out 40% to 60% of adjusted net income from 2026. The foundation has already warned that its dividend income will fall. On about 205 million shares, a €1.00 dividend brings in about €205 million, below the bill it has to pay every year.
Swap those shares for BASF stock on the terms above and RAG-Stiftung would receive about 99 million BASF shares. At the €2.25 floor that is roughly €220 million a year, more than it gets now, with a published minimum attached. It would also become BASF's largest shareholder with about 9% of the combined group, a stake liquid enough to sell down through exchangeable bonds, a tool it already uses on Evonik. For a foundation that has to meet a fixed annual bill forever, a larger, steadier dividend beats a one-off cash premium it would then have to reinvest.
The cost to BASF shareholders is substantial. Honouring €2.25 on 225 million extra shares costs about €500 million a year in cash. Evonik's new payout policy implies adjusted net income of only about €640 million this year. BASF would be committing most of what it buys to dividends before a euro of savings shows up, and the floor expires after 2028. BASF fell only about 2% on Friday, however, suggesting investors see the deal as portfolio repair rather than a leap. Kamieth said in June that the business environment was the hardest in at least 25 years, and the industry association VCI expects German chemical output to fall 1.5% this year. Kamieth has spent two years selling things: the coatings business went to Carlyle at a €7.7 billion enterprise value, and agricultural solutions is heading for a listing in 2027. Evonik's specialty additives, care ingredients and animal nutrition businesses are the higher-margin mix BASF has said it wants, bought at a lower multiple than BASF's own.
Competition law is a smaller hurdle than the headlines suggest. The overlaps sit mainly in personal care and cosmetic ingredients, a business the regulators know how to fix with targeted disposals. Brussels cleared DSM-Firmenich and let ADNOC take Covestro. A German champion built to face Chinese capacity fits the Commission's current industrial-policy mood.
The harder clearance is political. RAG-Stiftung's board of trustees includes federal and state politicians and the head of the IG BCE chemical workers' union. Evonik is headquartered in Essen and its biggest site is Marl, both in North Rhine-Westphalia. Any offer will need job and site commitments at Marl and Essen that BASF can live with, and those commitments will shape the terms as much as the price. German takeover rules impose no put-up-or-shut-up deadline, so this can run for months.
European chemical consolidation has a record of approaches that die quietly, from Clariant's failed Huntsman merger to repeated rounds of talk about German mid-caps. Here, the seller's largest owner has an income shortfall that the buyer's dividend can fill. The negotiation is therefore about terms, not principle.
The desk expects RAG-Stiftung to engage within weeks and a mostly-share offer, with a modest cash element to keep BASF's gearing flat, to be announced before the end of the year at around €25 a share. Evonik's board will ask for more and get a little. BASF's third-quarter results in late October are the first place to watch: if Kamieth talks up share buybacks, the market should read that as a sign the currency is changing to cash, and the odds are falling.