Evonik Rejects BASF's €10.3bn Bid: Why a Deal Clears at €24 to €25

BASF's roughly €22.15-a-share, €10.3 billion approach was rejected as too low to open Evonik's books. Breakingviews' return math puts BASF's walk-away price near €27 a share. The desk expects a deal, if one comes, at €24 to €25, where BASF still keeps a margin over its cost of capital.

Evonik has rejected BASF's approach as too low to warrant due diligence, according to people familiar with the matter, as the FT first reported. The rejection names Evonik's price without closing the door. BASF can pay more, though not much more, and the desk expects any agreed deal to land at €24 to €25 a share.

BASF's non-binding proposal values Evonik at roughly €22.15 a share, a €10.3 billion equity check and a 29% premium to where the stock traded on September 21, before takeover speculation began. Both companies declined to comment on the numbers. Evonik's board said the price did not clear the bar for opening the company's books, but the more important issue is who else has to sign off. Evonik's own share price is the most useful vote so far: it closed Monday at €19.86, up 2.5% on the day but 11% below the offer the board rejected. Investors are pricing a real chance that no deal happens. RAG-Stiftung owns about 44% of Evonik, and its purpose has little to do with chemicals.

RAG-Stiftung exists to pay for a hole in the ground. Since German hard-coal mining ended in 2018, the foundation has carried the Ewigkeitslasten, the perpetual cost of pumping water out of the old Ruhr coal mines and keeping the land from subsiding, running to roughly €300 million a year with no end date. Evonik's dividends are its main source of income against that bill. A foundation funding an eternal liability needs a continuing payout, so it is negotiating from a different position than an ordinary shareholder base.

The form of consideration matters alongside the price. Cash would give RAG a lump sum to reinvest if it wants to match Evonik's dividend yield, adding market risk against a liability that never matures. BASF stock, or a cash-and-shares blend, would keep RAG inside a chemicals payout stream resembling the one it already relies on. RAG is likely to negotiate structure as hard as size, which could slow a deal after the headline number is agreed.

Breakingviews argues the deal gets done because the industrial logic is strong: Evonik's roughly 13% Ebitda margin against BASF's core 9%, overlap in polyurethanes and animal feed, and Bernstein's estimate of €700 million a year in savings, about 5% of Evonik's sales. On that math, a 30% premium plus Evonik's €3.6 billion of net debt puts enterprise value near €14.6 billion. Add €1.1 billion of expected 2028 group Ebit and tax it at 30%, and BASF earns roughly an 8.5% return against Evonik's 7.8% cost of capital. The deal clears its hurdle rate by 0.7 percentage points, leaving little room for a higher price.

Each additional euro costs BASF about €465 million. €10.3 billion divided by €22.15 implies close to 465 million Evonik shares outstanding. The after-tax profit in the calculation is about €1.26 billion a year. Dividing by Evonik's 7.8% cost of capital puts the maximum enterprise value, before the deal earns anything above its funding cost, at about €16 billion. Strip out the net debt and the equity value is roughly €12.5 billion, or about €27 a share. At €25 the return is still near 8.3%; at €27 it is gone. BASF therefore has about €5 a share of theoretical room, but its chief executive needs to preserve a margin for his own investors. €24 to €25 leaves a visible spread over the cost of capital. €27 leaves none.

BASF's own shareholders have already signaled how much room exists. The stock is down about 5% since BASF confirmed the talks on Friday, while Evonik's rose about 7%. Markus Kamieth, chief executive since 2024 and mid-way through cost cuts and a planned Agricultural Solutions IPO meant to sharpen a roughly €45 billion company, is being told by the market that a large, debt-funded acquisition is not what his investors signed up for. A CEO who overpays into a falling stock spends capital needed for the rest of his restructuring.

Bankers pitching a higher number will argue that the desk and Breakingviews are underpricing the synergies and overpricing German caution. Bernstein's €700 million figure assumes cost savings alone; a combination with overlap in polyurethanes and personal-care ingredients could extract more through shared procurement and R&D, particularly if Brussels, warmer to European industrial champions than it was five years ago as the sector struggles, clears the antitrust review quickly. That could lift the walk-away price above €27. The industrial math may support the challenge, but it does not change RAG-Stiftung's yield requirement or a BASF share price already discounting the deal at current levels.

European chemicals has been consolidating under pressure since energy costs spiked in 2022. The Iran war, weak demand and cheaper output from Asia have squeezed margins further this year. AkzoNobel and Axalta are merging. ADNOC has already bought Covestro. Evonik, cutting thousands of jobs in its own restructuring before a bidder appeared, fits the pattern as a target. The issue is the price at which the industrial math and the politics agree.

The next step matters more than public statements. A revised written proposal in the €24 to €25 range, weighted toward cash but structured to protect RAG-Stiftung's income, would still clear Breakingviews' return hurdle with half a point to spare. It is also a number Evonik's board could defend to a foundation funding a liability that outlives everyone now negotiating it. If Kamieth lets the approach go quiet past Evonik's next set of results, the deal is dead for this cycle and Evonik's rerating becomes a restructuring story.