The Abu Dhabi National Oil Company (Adnoc) is closing in on a €14.4 billion agreement to acquire Covestro, the German chemicals giant.
This potential deal marks a significant step for the Gulf state-owned energy producer as it seeks to broaden its international presence.
Covestro Agrees to “Concrete Negotiations”
Following Adnoc’s increased offer of €62 per share, Covestro has consented to enter “concrete negotiations” for the potential takeover. This revised offer represents a step up from Adnoc’s previous bid of €60 per share.
The news of these negotiations sent Covestro’s share price soaring by 6% to €54.52 on Monday afternoon in Frankfurt. This acquisition, if successful, would be the largest in Europe this year and the biggest all-cash deal in the chemicals sector.
Impact and Due Diligence
This potential acquisition would also mark the first successful takeover of a German DAX 40 company by a Gulf state-owned entity. Both parties have agreed to conduct confirmatory due diligence, and Covestro has canceled its planned capital markets day. Talks between the two companies began in September 2023, following an initial informal offer from the Gulf sovereign wealth fund.
Covestro initially rejected offers below €60 per share and expressed concerns that its sustainability efforts might be compromised under ownership by Adnoc.
However, with the new offer of €62 per share, the company has agreed to move forward with negotiations. This price serves as the starting point for discussions, valuing Covestro at an enterprise value of approximately €14.4 billion, including debt.
Adnoc’s Diversification Strategy
Adnoc, aiming to increase its oil production to 5 million barrels per day by 2027, is actively pursuing global acquisitions to diversify its interests in gas, chemicals, and renewable energy. This strategy aligns with a $150 billion capital spending plan approved in November 2022, transforming the company from a traditional state oil firm into a global energy player.
Covestro, spun off from Bayer in 2015, produces chemicals used in a wide range of products, from building insulation and refrigerators to smartphone cases and credit cards. However, the European energy crisis following Russia’s invasion of Ukraine, coupled with overcapacity in the Chinese chemicals industry, has posed significant challenges for Covestro and its competitors.
Outlook and Future Considerations
Despite recent sales volume growth, Covestro’s margins have been squeezed due to price pressure. The company has set a target for earnings before interest, tax, depreciation, and amortization (Ebitda) between €1 billion and €1.6 billion.
While CEO Markus Steilemann expresses optimism about the ongoing negotiations with Adnoc, he also cautions that there is no guarantee the talks will result in a sale.