Adnoc to takeover Covestro for EUR14 bn; Adnoc to diversify into chemicals

State-owned Abu Dhabi National Oil Co. (Adnoc) has made an offer to takeover Germany-based materials firm Covestro AG for a total of EUR14.7 billion, including debt, in its biggest acquisition. The agreement stipulates that Adnoc will make a public takeover offer for all outstanding shares of Covestro at a price of EUR62 per share, at approximately EUR11.7 billion, including about EUR3 billion in debt, making the total bid by Adnoc to around EUR14.7 billion.

At the same time, the Board of Management and the Supervisory Board of Covestro decided that the share capital will be increased by 10% (18 million shares), with a further injection of EUR1.17 billion by Adnoc, upon completion of the planned acquisition. This would raise Adnoc’s eventual total investment in Covestro to about EUR15.9 billion if it proceeds to completion. “At an offer price of EUR62, this will result in EUR1.17 billion proceeds, which Covestro will use to foster the further implementation of its strategy,” Covestro said in a statement.

Adnoc International Ltd., a subsidiary of Adnoc Group, and its own subsidiary Adnoc International Germany Holding AG signed the agreement with Covestro. The deal stipulates that the bidder will make a public takeover offer for all outstanding shares of Covestro at EUR62 per share. Adnoc has committed to fully support Covestro’s sustainability strategy, it said.

The offer price represents a premium of approximately 54% to Covestro shares’ unaffected closing price on 19 June 2023, which Covestro said was the day prior to any media coverage of a potential transaction between the two companies. It also represents a premium of 21% to the closing price on 23 June 2024, the last trading day prior to Covestro announcing the beginning of the confirmatory due diligence and the start of concrete negotiations, it said.

The offer will be subject to a minimum acceptance level of 50% plus one share and customary closing conditions, including merger control, foreign investment control and EU foreign subsidies clearances, Covestro said.

Meanwhile, Covestro said that there are no plans to sell, close or significantly reduce its business activities as part of the transaction, adding that Adnoc has given an undertaking in the offer agreement “not to initiate any of the above.”

In 2023, Covestro generated sales of EUR14.38 billion, down 20% compared with the previous year, and a net loss of EUR198 million, compared to the loss of EUR272 million in 2022.

At the end of 2023, Covestro had 48 production sites worldwide and employed approximately 17,500 personnel. The deal also contains a commitment to protect the firm’s technology and intellectual property, it said and Covestro will remain headquartered at Leverkusen, Germany.

Covestro adds that with Adnoc's support, it will gain “an even stronger foundation for sustainable growth in highly attractive sectors.” 

For Adnoc it will mean the addition of new products to its expanding downstream value chain, including isocyanates, polyurethanes, polycarbonates and polyols, as part of the company’s drive to diversify away from its traditional reliance on crude oil and natural gas operations in line with its policy of decarbonisation of its portfolio.

Dr. Markus Steilemann, CEO of Covestro, said: “We are convinced that the agreement reached with Adnoc International is in the best interest of Covestro, our employees, our shareholders, and all other stakeholders. We regard Adnoc International as a financially strong and long-term oriented partner with whom we will further drive our successful “Sustainable Future” strategy in all market conditions. Our complementary growth strategies, shared commitment to advanced technologies, innovation and sustainability are key cornerstones of our partnership.” 

Meanwhile, Ahmed al-Jaber, CEO of Adnoc, said, “As a global leader and industrial pioneer in chemicals, Covestro brings unmatched expertise in high-tech specialty chemicals and materials, using advanced technologies including AI.” He added that the strategic partnership is a “natural fit” and aligns seamlessly with Adnoc’s ongoing smart growth and future proofing strategy. “It represents a pivotal step for both organisations and embodies our disciplined approach to investing in strategic assets that drive long-term value and unlock new growth opportunities, while reinforcing our commitment to diversifying Adnoc’s portfolio,” stated Jaber.

He furthered, “Our aligned strategies uniquely position us to meet the growing global demand for energy and chemical products, while accelerating the transition to a circular economy.” 

In the joint investment agreement, which runs until the end of 2028, Covestro and certain entities of the Adnoc Group, including Adnoc International, have agreed on the main cornerstones of the partnership. In particular, the agreement contains several obligations on the part of Adnoc International to maintain Covestro's existing business activities, corporate governance and organisational business structure. 

Adnoc has also committed to recognising German governance regulations and to retaining a co-determined supervisory board, according to Covestro. Two members of Covestro’s supervisory board on the shareholder representatives’ side will remain independent of Adnoc after the takeover offer has been completed, it said. The agreement also confirms Adnoc’s “explicit recognition of the existing general works agreements, collective bargaining agreements and the rights of the works councils in Germany,” Covestro said.

Covestro’s management has agreed to support a delisting offer and/or squeeze-out if Adnoc intends to execute either, it said. However, the investment agreement stipulates that if there is a delisting and/or a squeeze-out, Covestro will “continue to be managed as a stock corporation under German law with the same governance as before,” it added. That would also include a co-determined supervisory board with two members remaining independent of Adnoc.

Covestro, which produces polymers and chemicals mainly for the automotive, construction and engineering sectors, was created in 2015 after being spun off from Bayer AG. It is the world’s biggest producer of bisphenol A and polycarbonates.

Covestro’s main products are polyurethane (PU) intermediates such as methylene di-para-phenylene isocyanate, toluene diisocyanate and polyether polyols, as well as key raw material aromatics including toluene and benzene.

The company is targeting net-zero Scope 1 and Scope 2 emissions by 2035, and Scope 3 emissions to be climate neutral by 2050

Meanwhile, Adnoc has also been in talks with Austria's OMV to merge their petrochemical joint ventures Borealis and Borouge. Adnoc took a 24.9% stake in OMV from Abu Dhabi sovereign fund Mubadala in February.

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