M&As: Covestro reconsiders Adnoc’s EUR12 bn takeover bid; Berry Global considering sale of health/hygiene/specialties segment

German materials firm Covestro said its management board has decided to enter “open-ended discussions” over a potential takeover by United Arab Emirates' energy giant Abu Dhabi National Oil Co (Adnoc).

"Whether, in which form and, if applicable, at which conditions an agreement between the parties will be reached is open and will depend on the course of the forthcoming discussions," the German firm said in a statement.

Covestro's change in stance comes after two top-15 investors told Reuters last month that the plastics and chemicals maker should engage in formal takeover talks in the interest of its shareholders.

Adnoc, which is trying to diversify and develop its downstream and renewable energy operations, made a non-binding offer for Covestro of EUR55 per share in June, which was rejected.

In August, Adnoc had indicated to Covestro that it could raise its informal offer to EUR60 conditional on the German company entering formal talks, Reuters had reported.

That non-binding offer would value Covestro, a maker of chemicals used in insulation, upholstery foams, coatings and transparent engineering plastics, at about EUR11.6 billion.

Covestro CEO Markus Steilemann said Adnoc's interest in the German firm "underlines our strong position as one of the world's leading manufacturers of high-quality polymer materials and as a leader in the shift towards a circular economy".

In August, Covestro warned demand was not improving this year as customers continue to draw down existing inventory rather than order new chemicals. The energy-intensive sector has been hit hard after Russia invaded Ukraine and slashed deliveries of crucial natural gas to Germany.

The CEO of larger rival BASF has described the reported approach as a sign that the European chemical industry, due to cost inflation and a weak economy, needs support from lawmakers to become more competitive.

In other news, US-based Berry Global Group has announced that it has initiated a formal process to evaluate strategic alternatives for its Health, Hygiene and Specialties segment (HH&S). The segment accounted for 22% of consolidated net sales for the container and packaging firm in fiscal 2022 but for the third quarter ended June, the HH&S segment saw a 7% decline in volumes due to lower demand.

HH&S is a provider of nonwovens, specialty films, and tapes for a broad range of end markets, including healthcare, hygiene, consumer, building and construction, and industrials.

The company says it is considering a wide range of available alternatives to maximise shareholder value, including a sale, strategic partnership or joint venture, spin-off to shareholders, or other separation transaction for some or all of the businesses within HH&S. Importantly, the company adds it expects current members of the HH&S leadership team will continue to lead the business in any anticipated outcome.

The company has been focusing on high-growth markets such as foodservice, health and beauty, dispensing and pharmaceuticals, while reducing capital and labour costs as it deals with declining volumes amid a weak market for consumer goods.

“An ongoing objective of the Berry Board is to constantly look for ways to drive long-term value for our stakeholders, which includes continuously evaluating our portfolio to ensure the Company is best positioned to execute on its strategic objectives,” said Tom Salmon, Berry Chairman/CEO. “Following an extensive analysis by the Board and management team, with support from our incoming CEO Kevin Kwilinski, we have decided to explore strategic alternatives for the HH&S businesses as we continue to seek to enhance value through strategic portfolio management. As always, we will be disciplined throughout this process and will only take actions that we believe are in the best interest of the Company and our stakeholders.”

There is no deadline or definitive timetable set for completion of the strategic alternatives process. There can be no assurance any proposal will be made or accepted, any agreement will be executed, or any transaction will be consummated, in connection with this review.

Berry adds it does not intend to make further announcements regarding the review of strategic alternatives unless and until the Board approves a specific transaction or otherwise determines further disclosure is appropriate or necessary.

(PRA)

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