Commerzbank, Desert Gold, Covestro – Potential check for takeover candidates

Commerzbank – Will UniCredit make a move?

UniCredit caused a stir on September 11, 2024, when it acquired a significant 9% stake in Commerzbank to expand its market position. This move, made possible in part by the German government selling shares, cost around EUR 1.4 billion. UniCredit CEO Andrea Orcel sees a potential merger as an opportunity to add significant value. On September 23, UniCredit increased its stake to 21% through derivatives, sparking a heated debate about the takeover approach in Germany. Despite resistance from Berlin, UniCredit is seeking to increase its stake further to 29.9% to avoid triggering a mandatory takeover offer.

The increase in UniCredit's stake has met with a political response, with Chancellor Olaf Scholz skeptical of the Italians' strategic ambitions. Nevertheless, UniCredit is counting on the European Central Bank (ECB) to approve the increase in its stake. At the same time, speculative investors such as D.E. Shaw rushed onto the trading floor to profit from the turmoil. Analysts believe the regulatory process could go in UniCredit's favor, significantly strengthening the bank's market position. Given these uncertainties, the outcome of the power play for Commerzbank remains open for the time being.

Amid the takeover speculation, Commerzbank is pushing ahead with its own strategy to hedge against potential takeovers. Under CEO Bettina Orlopp, the focus is increasingly on expansion and acquisitions, for which a new division has been created. The recently announced acquisition of Aquila Capital shows that Commerzbank wants to broaden its base to become less dependent on interest rate developments. These measures are part of a long-term strategy that aims not only to defend but also to grow. There could be more insight into the plans on November 6, when the quarterly figures are presented. The stock is currently trading at EUR 16.35.

Desert Gold – Potential takeover candidate

The current high of the gold price, which is currently over USD 2,700 per troy ounce, is putting gold explorers like Desert Gold in the spotlight. As an emerging player in gold mining, the Company could become particularly attractive to larger corporations given the increasing demand for the precious metal. The Canadians own a 440 km2 strategically located land package in West Africa, adjacent to industry giants such as Barrick Gold. More than 1.1 million ounces of gold have been identified here to date, and additional resources have since been uncovered. The low production costs compared to other countries are attracting additional attention from major gold producers.

Desert Gold Ventures plans to begin gold production in the second half of 2025. In Phase 1 of its mine plan, it plans to operate two open-pit mines, focusing on approximately 200,000 ounces of near-surface oxide gold. The plan is to use heap leaching to extract the ore. Production costs are expected to be between USD 800 and 1,300 per ounce. A preliminary economic assessment (PEA) is expected shortly and should provide clarity on the production details. If production begins next year, the Company will be able to self-finance future exploration on its extensive land package. This increases the likelihood of expanding production over time.

According to analysts, Desert Gold has the potential to experience significant value appreciation when gold production begins in late 2025. The low market capitalization creates room for speculative opportunities among investors, especially as forecasts by experts such as GBC Investment Research see a rise in the share price up to CAD 0.425. As production increases, dividends and share buybacks could also become attractive. Current market conditions and the strategic growth potential of Desert Gold Ventures make it an exciting investment option in the gold industry. The stock is currently trading at CAD 0.08.

Covestro – Takeover bid on the table

On October 1, the management of Covestro agreed to a takeover bid from the Abu Dhabi National Oil Company (ADNOC). The offer provides for a purchase price of EUR 62 per share, which corresponds to an enterprise value of around EUR 11.7 billion. This means that the offer price is 54% higher than the share price prior to the takeover rumors. ADNOC and Covestro have entered into an investment agreement that commits ADNOC to actively support Covestro's sustainable strategy. The Company will also subscribe for new shares worth EUR 1.17 billion after the takeover, which could provide Covestro with additional financial strength. A minimum acceptance threshold of 50% plus one share must be reached for the takeover to be successfully completed.

In the third quarter of 2024, Covestro reported sales of EUR 3.6 billion and slightly higher EBITDA of EUR 287 million despite challenging market conditions. Net profit increased to EUR 33 million compared to a loss in the previous year. However, the Free Operating Cash Flow dropped significantly to EUR 112 million due to lower operating cash flows. CEO Dr. Markus Steilemann emphasized the progress made in implementing the Company's sustainability strategy, though he acknowledged ongoing market challenges. Given the ongoing market environment, Covestro has revised its EBITDA forecast downwards for the full year.

The potential acquisition by ADNOC could provide Covestro access to new investment funds and strategic support to expand its position in attractive growth markets. ADNOC has pledged to support Covestro in further developing its "Sustainable Future" strategy, which could further strengthen its innovation and market leadership in sustainable chemicals. The Company is increasingly focusing on research and development, particularly in the areas of circular economy and digitalization. These measures should help Covestro to ensure its long-term competitiveness and accelerate the transition to climate-neutral production. The share is currently trading at EUR 58.22, below the takeover's offer price.

The starting positions are different for all three companies presented. Getting involved before a takeover offer can be advantageous as it often results in a stock price increase. UniCredit is seeking to increase its stake in Commerzbank but is still below the threshold that would trigger a takeover bid. Desert Gold is benefiting from the rising gold price and has significant growth potential due to its planned production start in 2025. Due to the large land package, the Company could fall into the sights of one of the major gold producers in the area. Covestro management has agreed to a takeover bid from ADNOC, the only question is whether enough shareholders will follow management's recommendation. Given that there is no active rumor currently driving up interest, Desert Gold appears to offer the most speculative potential among these options.