ADNOC makes $13 billion offer for Germany’s Covestro AG
(WO) - Abu Dhabi’s state energy company is making its biggest global move yet by acquiring a key chemical-maker in Europe’s heartland, and is wagering the deal will help it weather the energy transition.
Abu Dhabi National Oil Co. offered nearly $13 billion to buy Germany’s Covestro AG in what’s set to be the largest Middle Eastern acquisition of a European firm. The takeover would give the state behemoth control over a pioneering company that supplies materials for some of the world’s most prominent phone and car makers, a bet that growth in demand for products like plastics will outlast that for oil.
“We think as a strategic investor,” said Khaled Salmeen, Adnoc’s head of the downstream business who led negotiations for the deal. “We don’t think in quarters, we think in years and decades.”
The deal would be a key signpost for Adnoc in its push for global expansion — and the influence it brings — as the company puts to use the vast revenue from selling oil. The firm wants to buy natural gas and chemicals assets and participate in renewables projects around the world, and a Covestro acquisition shows Adnoc’s ability to pay up to match those goals.
The potential acquisition comes more than a year after talks first started, with Adnoc bumping up its offer almost 13% from its initial bid. The UAE company has also said it will protect German jobs and keep Covestro’s management strategy in place. The German company’s management and supervisory boards support Adnoc’s offer.
Company Makeover
Until about 2016, Adnoc mostly relied on making money by shipping crude to Asia. Its stodgy reputation got a makeover when Chief Executive Officer Sultan Al Jaber was tasked with building the company that would rival the world’s biggest oil companies.
Six years later, Adnoc laid out a $150 billion budget to speed up an increase in oil-production capacity at home and expand in related businesses overseas. It’s bought gas assets in the US and Africa in recent months, and is among the most-active energy dealmakers in the world.
Al Jaber also flexed the company’s financial muscles by raising the UAE’s oil-production capacity to nearly 5 million barrels a day and deciding to build a new liquefied natural gas production plant in the country. Chemicals are a big part of the global expansion plans.
But the industry’s cyclical nature makes it complicated. European chemical makers have suffered a combination of rising energy costs and slumping consumer demand that’s hit profit. Covestro’s unique technology and product range gives it a better chance to ride markets swings, Adnoc’s Salmeen said.
“We believe the company can go through the cycle with no issues,” he said. “It was a clear realization that there is a lot of value in this company.”
That’s the justification for Adnoc’s offer for €62 a share, representing about a 54% premium to Covestro’s closing on June 19, 2023, the last full trading day before Bloomberg News revealed Adnoc’s initial approach. Rival German chemical-maker BASF SE’s shares have increased about 6% in the period while Lanxess AG has dropped 11%.
Despite the Covestro move, which still requires some regulatory approvals, Adnoc has struggled to close other deals. It abandoned a bid for Brazil’s Braskem in May, and talks with Austria’s OMV AG about combining two chemical companies in which they both own stakes have been put on hold because of elections in the European country. Salmeen said Tuesday that talks with OMV are still ongoing.
Adnoc aims to be competitive in different aspects of the chemicals industry and the Covestro deal would give it capacities for specialty polymers that it previously didn’t possess, Salmeen said. “Covestro is definitely one of the global leaders.”
