The UAE’s Adnoc has agreed to buy German chemicals producer Covestro for ($18 billion (Dh66.11 billion) including debt, the state oil giant said on Tuesday, representing its largest acquisition to date.
The deal is one of the biggest foreign takeovers by a Gulf state as Abu Dhabi and other countries in the region seek to reduce their economies’ heavy dependence on oil in the face of the global energy transition.
It follows protracted negotiations between the two companies and will see Adnoc pay 62 euros per Covestro share, equal to 14.7 billion euros including about 3 billion euros in debt.
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Adnoc added it would also buy 1.17 billion euros worth of new shares in Covestro, a former Bayer unit, from a capital increase to improve funding of the takeover target.
Covestro shares jumped 3.7% to a three-year high of 58 euros.
Dr. Sultan Ahmed Al Jaber, Minister of Industry and Advanced Technology, Adnoc Managing Director and Group CEO, 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.
This strategic partnership is a natural fit and aligns seamlessly with Adnoc’s ongoing smart growth and future proofing strategy and our vision to become a top five global chemicals company. 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. 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.”
This landmark agreement marks a step-change in Adnoc’s international growth strategy as the company delivers on its ambitious international expansion with a focus on gas, LNG, chemicals and low carbon energies, aligned with its Board-mandated strategy.
Subject to successful completion of the transaction, this acquisition will support Adnoc’s goal to become a top five global chemicals player.
Adnoc has also been in talks with Austria’s OMV for more than a year 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.
Covestro, which makes plastics and chemicals for the automotive, construction and engineering sectors, was created in 2015 after being spun off from Bayer. It opened its books to Adnoc in June — a year after Adnoc’s initial interest was reported.
The public takeover offer will be subject to a minimum acceptance threshold of 50% plus one share of Covestro’s capital.
Wide-ranging concessions
The deal could reignite a debate about Germany’s blue-chip companies facing foreign takeover overtures because of a weak economy.
Italy’s UniCredit is seeking to merge with Commerzbank after snapping up a stake in its German rival, drawing criticism from Germany’s political establishment, who want to keep the lender independent.
Covestro, however, said it won wide-ranging concessions to limit the buyer’s control of the company.
Half of the seats on its supervisory board would continue to be held by labour representatives, as is the norm at German listed companies, and two members of the board’s shareholder representatives will remain independent of Adnoc.
Adnoc pledged not to sell, close or significantly reduce Covestro’s business activities and it would “protect Covestro’s technology and intellectual property”, Covestro said.
It added that its management board would stay in charge of management and strategic direction.
Covestro reported a net loss of 72 million euros in the first six months of the year, compared with 46 million euros profit in the previous year.
It is the Middle East’s second biggest acquisition after Israel’s Teva Pharmaceuticals’ acquisition of Allergan’s generic drugs business for around $40 billion in 2015, according to Dealogic data.
Petrochemical demand is expected to increase by a compound 2% between 2024 and 2050. It is expected that the chemicals market will double by 2050, yielding attractive economic returns.