Abu Dhabi National Oil Company (Adnoc) is on the verge of acquiring the German chemical company Covestro for 14.4 billion euros. This would significantly advance the state-owned energy producer's expansion abroad.
Covestro has agreed to enter into "concrete negotiations" after Adnoc raised its offer to 62 euros per share. Previously, the offer was 60 euros per share.
This news sent Covestro's stock price up by 6 percent to 54.52 euros on Monday afternoon in Frankfurt. Should the takeover go through, it would be the largest acquisition in Europe this year and the largest cash transaction in the chemical sector.
It would also be the first successful takeover of a company from the German DAX 40 by a Gulf state group.
The two parties have agreed to conduct a final due diligence review. Covestro announced that it would cancel its capital markets day planned for Thursday.
Since September 2023, the two sides have been in talks, as the Gulf Sovereignty Fund made an initial informal offer.
Covestro initially rejected offers below 60 euros per share and discussed whether the sustainability goal would be compromised by the acquisition by the state oil company Adnoc from Abu Dhabi.
The company stated that a price of 62 euros per share would be the "starting point for negotiations," which would give Covestro an enterprise value of approximately 14.4 billion euros including debt.
We have made good progress in our talks with Adnoc," said Markus Steilemann, CEO of Covestro. However, the company warned that there is still "no certainty" that the talks will lead to a sale.
Adnoc, which aims to produce five million barrels of oil per day by 2027 – almost three times Shell's current production – is globally seeking acquisitions to diversify into gas, chemicals, and renewable energies.
In November 2022, a board meeting chaired by UAE President Mohamed bin Zayed approved a five-year capital expenditure plan of $150 billion to transform the company from a traditional state-owned oil company into an international energy company.
Covestro, which was spun off from the pharmaceutical giant Bayer in 2015, manufactures the chemicals that factories use to produce everything from building insulation and refrigerators to smartphone cases and credit cards. At the European Football Championship this summer, the outer coating of the balls was printed with paint from Covestro.
The company's largest customers include the automotive, construction, and furniture industries, and its main competitors are the Chinese Wanhua Chemicals, BASF, Dow Chemical, and Saudi Arabian SABIC.
The energy crisis in Europe following the invasion of Ukraine hit Covestro hard, as well as the rest of the gas-dependent German industrial sector.
Last week, in an interview with Wirtschaftswoche, Steilemann said that all profits of German chemical companies are made outside Europe. 'In Germany, however, the results are mostly deep in the red,' he said. 'I do not expect the environment for the chemical industry in Germany and Europe to sustainably improve in the coming years.'
In response to this, Covestro has cut more than 500 jobs and closed some of its businesses last year. Steilemann added that Covestro is preparing for the possibility that more of its industrial customers could leave Europe in the future.
This year, the company announced that sales volume was increasing, but at the expense of margins due to overcapacity in the Chinese chemical industry driving prices down.
Covestro has set a target for earnings before interest, taxes, depreciation, and amortization (EBITDA) of 1 to 1.6 billion euros.
