BASF: Our Evonik merger maths works, but the equity story becomes more complicated

It's official: BASF have made a takeover proposal to Evonik (NC). We've used the weekend to run the numbers on a combination. And while the maths appears attractive, we worry that some of the synergy potential could be offset by a more European-focused equity story, a more complicated portfolio, and merger execution risk, given BASF has not attempted an acquisition of this size in the last 20 years. There is a price / synergy level where the logic for this transaction could be compelling - German labour unions would likely need to co-operate. Assuming BASF pay a 50% premium for Evonik (offer price ~€27), that cost synergies are 5% of Evonik sales phased over three years, and that Evonik's main holder RAG Stiftung is paid in shares, we see notable c. 25%+ Adj. EPS accretion versus BASF ex-Agricultural Solutions in Years 1-3 post completion. ROIC and ROCE also improve. Leverage is close to 2x on completion post Ag IPO. But there is multiple risk versus synergy delivery;