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The Abu Dhabi National Oil Company is close to signing a 14.4 billion euro deal to take over the German chemical company Covestro. The energy producer from a Gulf state wants to use this to expand its foreign holdings.
Covestro has agreed to enter into “concrete negotiations” after the Emirati oil and gas regulator Adnoc increased its offer to 62 euros per share. Adnoc had previously offered 60 euros per share.
As a result of this news, the price of Covestro shares rose by six percent to 54.52 euros in Frankfurt on Monday afternoon. It would be the largest takeover in Europe this year and the largest cash deal in the chemicals sector.
The deal would also be the first successful takeover of a German DAX 40 company by a corporation from the Gulf state.
Both sides have agreed to conduct a confirmatory due diligence review. Covestro said in a statement that the company would cancel its capital markets day scheduled for Thursday.
The two sides have been in talks since the Gulf region’s sovereign wealth fund made an initial informal offer in September 2023.
Covestro initially rejected offers below 60 euros per share and then discussed whether its commitment to sustainability would be undermined by ownership by Abu Dhabi-based state-owned oil company Adnoc.
The chemical company said a price of 62 euros per share was the “starting point for negotiations”, giving the company a corporate valuation of around 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 was still “no certainty” that the talks would lead to a sale.
Adnoc aims to produce five million barrels of oil a day by 2027, almost three times Shell’s current production, and is on a global acquisition hunt 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 plan for $150 billion in investments to transform the company from a traditional state-owned oil company into an international energy company.
Covestro, which was spun off from pharmaceutical giant Bayer in 2015, makes chemicals that are used in factories that make everything from building insulation to refrigerators, smartphone cases and credit cards. At this summer’s European football championships, the outer coating of the balls will be printed with Covestro ink.
Its largest customers include the automotive, construction and furniture industries, and its main competitors are Chinese companies Wanhua Chemicals, BASF, Dow Chemical and Saudi Arabian company SABIC.
But the energy crisis in Europe following the invasion of Ukraine has hit Covestro and the rest of the German natural gas-dependent industry hard.
In an interview with the German weekly magazine “Wirtschaftswoche” last week, Steilemann said that all profits of German chemical companies were generated outside Europe.
“In Germany, on the other hand, the results are mostly deeply negative,” he said. “I do not expect the environment for the chemical industry in Germany and Europe to improve sustainably in the coming years.”
In response, Covestro cut more than 500 jobs last year and closed some of its business units. Steilemann added that Covestro is preparing for even more of its industrial customers to leave Europe in the future.
Sales volumes have increased this year, the company said, but at the expense of margins as overcapacity in the Chinese chemical industry led to falling prices.
The target for earnings before interest, taxes, depreciation and amortization (EBITDA) is between 1 and 1.6 billion euros.