Abu Dhabi National Oil Company (Adnoc) has agreed to acquire German chemical producer Covestro AG in a deal valued at approximately €11.7 billion ($13 billion). This acquisition marks the largest Middle Eastern purchase of a European company and underscores Adnoc’s aggressive push into global markets.
The deal, priced at €62 per share, requires Adnoc to secure at least 50% plus one share through its tender offer. This move will place the Abu Dhabi oil giant in control of a major European industrial player, with roots stretching back to the 19th century.
Adnoc’s CEO, Sultan Al Jaber, has been actively seeking global acquisitions, capitalizing on the company’s substantial oil revenues. In recent months, Adnoc has invested heavily in gas projects in the US and Mozambique. Chemicals are a focal point in Adnoc’s strategy, as the company sees significant growth potential in materials used to produce plastics, even as global oil demand growth slows due to the energy transition.
This acquisition comes more than a year after initial discussions between the two companies. Adnoc’s initial offer of €55 per share was raised several times before the two sides agreed to the final offer. The agreed price reflects an 11% premium over Covestro’s closing price on Monday and a 54% premium on June 19, 2023, the day before Bloomberg News disclosed Adnoc’s initial approach.
“What attracted us to Covestro was the alignment between their strategy and ours,” said Khaled Salmeen, head of Adnoc’s downstream division, in a Bloomberg TV interview. “We took the necessary time to build trust and develop a shared vision for the future.”
Covestro’s shares surged as much as 4% following the announcement, trading at €58.06 in Germany by mid-afternoon. Both Covestro’s management and supervisory boards are backing Adnoc’s offer, reinforcing the likelihood that the deal will close successfully. Advisory firm MKP Advisors noted the strategic importance of the deal from both corporate and political perspectives, stating it is “highly likely to close.”
As part of the agreement, Adnoc will subscribe to a capital increase, injecting €1.2 billion in fresh capital into Covestro post-completion. While Adnoc has no immediate plans for a domination agreement, which would grant it extensive control over Covestro, it signaled that a delisting or a minority shareholder squeeze-out could be on the table in the future.
Adnoc plans to finance the acquisition with available cash reserves, highlighting the strength of its financial position.
Morgan Stanley acted as an advisor to Adnoc, while Covestro received advisory support from Goldman Sachs Group Inc. and Perella Weinberg Partners. The supervisory board of Covestro sought advice from Rothschild & Co. and Macquarie Group Ltd.
Expanded Analysis: This acquisition by Adnoc represents a strategic shift for the company as it diversifies beyond its core oil business, focusing on sectors like chemicals that provide long-term growth potential. By acquiring Covestro, Adnoc gains access to advanced materials and products vital to industries like automotive, construction, and electronics. This acquisition aligns with the broader trend of national oil companies diversifying their portfolios to hedge against declining fossil fuel demand.
Investors have responded positively to the deal, seeing it as a clear commitment from Adnoc to invest in future-facing industries. Covestro’s strong balance sheet and global market presence make it an attractive target, while Adnoc’s financial strength provides stability during the integration process.
The deal also underscores the growing influence of Gulf state companies in global markets. With oil revenues providing substantial liquidity, firms like Adnoc are well-positioned to make strategic acquisitions, particularly in Europe, where valuations are attractive, and industrial know-how is plentiful.
For shareholders, this deal presents a significant premium on Covestro’s stock price. With the potential for future delisting or minority shareholder buyouts, investors are closely watching for further developments. Additionally, the infusion of €1.2 billion in fresh capital is expected to strengthen Covestro’s operations and provide opportunities for expansion.
