Adnoc nears €14.4bn takeover of Covestro

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The Abu Dhabi National Oil Company is nearing a €14.4bn agreement to take over the German chemicals group Covestro, setting up the Gulf state-owned energy producer to expand its overseas holdings.

Covestro has agreed to enter “concrete negotiations” after the UAE’s Adnoc boosted its proposal to €62 per share. Adnoc had previously offered €60 per share.

The news sent Covestro’s share price 6 per cent higher to €54.52 by early afternoon in Frankfurt on Monday in what would be the largest acquisition in Europe this year and the biggest all-cash deal in the chemicals sector.

The deal would also represent the first successful takeover of a German Dax 40 company by a Gulf state-owned group. 

The two sides have agreed to conduct confirmatory due diligence, and Covestro said in a statement that it would cancel its capital markets day scheduled for Thursday.

The two sides have been in talks since the Gulf sovereign wealth fund made an initial informal offer in September 2023.

Covestro initially rejected offers of below €60 a share and then debated whether its sustainability drive would be undermined by ownership by Abu Dhabi’s state oil company Adnoc. 

The chemicals company said a price of €62 per share was the “starting point for negotiations”, giving the company an enterprise valuation of about €14.4bn, which includes debt.

“We have made good progress in our discussions with Adnoc,” said Markus Steilemann, chief executive of Covestro. But the company warned there was still “no certainty” that the talks would lead to a sale.

Adnoc, which wants to pump 5mn barrels of oil a day by 2027, nearly three times the current production of Shell, is on a global acquisition hunt to diversify into gas, chemicals and renewable energy. 

In November 2022, a board meeting chaired by UAE president Mohamed bin Zayed approved a five-year capital spending plan of $150bn to transform the company from a traditional state oil firm into an international energy company. 

Covestro, which was spun out of the pharma giant Bayer in 2015, makes the chemicals used by factories to produce everything from building insulation to refrigerators to smartphone cases to credit cards. In the European football championships this summer, the outer coating of the balls is printed with paint made by Covestro. 

Its biggest customers are the automotive, construction and furniture sectors and its main competitors are China’s Wanhua Chemicals, BASF, Dow Chemical and Saudi Arabia’s SABIC. 

But the energy crisis in Europe after the invasion of Ukraine hit Covestro hard, along with the rest of Germany’s gas-reliant industrial sector.

In an interview last week with the weekly German business magazine Wirtschaftswoche, Steilemann said any profits made by German chemical companies were being made outside Europe.

“In Germany, on the other hand, the results are mostly deeply in the red,” he said. “I do not expect the environment for the chemical industry in Germany and Europe to improve sustainably in the coming years.”

In response, Covestro cut more than 500 jobs last year and has closed some of its businesses. Steilemann added that Covestro was preparing for more of its industrial customers to leave Europe in the future.

This year, the company said the volume of its sales has been growing, but at the expense of its margins, as overcapacity in the Chinese chemicals industry is driving down prices.

It has set a target for earnings before interest, tax, depreciation and amortisation (Ebitda) of between €1bn and €1.6bn.

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