By Sarah Sloat

Shares in Covestro AG tumbled early Wednesday after Bayer AG placed a Covestro stake worth almost 1.5 billion euros ($1.59 billion) ahead of its planned acquisition of Monsanto Co.

Bayer sold 22 million shares at EUR66.50 to institutional investors and retains a majority stake of 53.3% in the plastics company, it said. Prior to the placement it held 64.2% in Covestro, listed in Germany's MDAX index of mid-cap companies.

Covestro shares dropped 8.5% at the open to EUR65.00, compared with Tuesday's EUR71.07 close. Bayer gained 1.2% to EUR105.00 within the first minutes of trading.

Bayer is in the midst of financing its $57 billion acquisition of U.S. seed company Monsanto, which it intends to pay for in cash. Last week, Chief Financial Officer Johannes Dietsch told The Wall Street Journal that Bayer would stick to its plan to raise $19 billion in equity before moving on to a rights and bond issue.

Although the Covestro placement will help Bayer finance Monsanto, the proceeds are "a drop in the bucket," a trader said.

As previously announced, Bayer said it intends to sell off its Covestro holding entirely in the coming years. It took the opportunity to place the share block at this time because of favorable market conditions and the Covestro share's appreciation since its listing, Bayer said. Compared with Tuesday's closing price, Covestro's share price almost tripled since its October 2015 listing at EUR24 per share.

Bayer spun off Covestro, formerly Bayer Material Science, in an initial public offering in 2015. Covestro employed 15,600 people in 2016 and had sales of about EUR11.9 billion.

-Write to Sarah Sloat at sarah.sloat@wsj.com

(END) Dow Jones Newswires

March 01, 2017 03:43 ET (08:43 GMT)