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Abu Dhabi National Oil Company is closing in on a €14.4 billion deal to take over German chemicals group Covestro, creating a state-owned Gulf energy producer to expand its foreign holdings.
Covestro agreed to enter into “concrete negotiations” after Adnoc SAE raised its proposal to €62 per share. Adnoc had previously offered EUR 60 per share.
The news sent Covestro’s share price up 6 percent to €54.52 early Monday afternoon in Frankfurt, in what would be the biggest acquisition in Europe this year and the biggest cash deal in the chemicals sector.
The deal would also mark the first successful takeover of Germany’s Dax 40 by a Gulf state group.
The two sides 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 its first informal offer in September 2023.
Covestro first rejected bids below 60 euros a share and then debated whether its sustainability efforts would be undermined by ownership of Abu Dhabi’s state oil company Adnoc.
The chemicals company said the price of €62 per share was the “starting point for negotiations”, giving the company an enterprise valuation of around €14.4 billion, including debt.
“We have made good progress in our discussions with Adnoc,” said Markus Steilemann, CEO of Covestro. But the company warned there was still “no certainty” the talks would lead to a sale.
Adnoc, which wants to pump 5 million barrels of oil a day by 2027, nearly three times Shell’s current output, is looking for global acquisitions 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, $150 billion capital expenditure plan to transform the company from a traditional state-owned oil firm to an international energy company.
Covestro, which was spun off from pharmaceutical giant Bayer in 2015, makes chemicals used by factories to make everything from building insulation to refrigerators to smartphone cases to credit cards. At the European Football Championship this summer, the outer coating of the balls is printed with paint from 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.
However, the energy crisis in Europe following the invasion of Ukraine hit Covestro hard, along with the rest of Germany’s gas-dependent industrial sector.
In an interview last week with the German business magazine Wirtschaftswoche, Steilemann said that all the profits of German chemical companies were made outside of Europe.
“In Germany, on the other hand, 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 improve permanently in the coming years.
In response, Covestro last year cut more than 500 jobs and closed some of its businesses. Steilemann added that Covestro is preparing for more of its industrial customers to leave Europe in the future.
This year, the company said its sales volume is growing, but at the expense of margins, as overcapacity in China’s chemical industry pushes prices down.
It set a target for earnings before interest, taxes, depreciation and amortization (Ebitda) of between €1 billion and €1.6 billion.