Adnoc enters ‘concrete negotiations’ with Covestro for €14.4bn buyout

Covestro

AFTER more than a year of courting, the Abu Dhabi National Oil Company (Adnoc) has entered “concrete negotiations” with German chemicals company Covestro for a takeover potentially worth €14.4bn (US$15.4bn).

Covestro says it has reached “a common understanding” on the transaction, with the company promising further information of financial records to Adnoc with the incentive of a €62 per share offer.

Though a secure deal has not been finalised, the company says the share offer is a “starting point” in negotiations.

Covestro, which develops polycarbonate and polyurethane products that can be used in a variety of cosmetics and paints, including the print used for footballs in this year’s Euros, is currently trading at around €54 a share, up markedly from its €29 per share slump in mid-2022.

Tough financial year for Covestro

Adnoc initially offered Covestro a €60 per share proposal in June 2023, which the company rejected. However, in September of the same year, they entered into talks, reports Reuters.

Though a German Dax 40 company, with a current market cap of €10.3bn, Covestro has seen a decrease in profits, as measured in earnings before interest, taxes, depreciation and amortisation (EBITDA), since 2022.

In its recent annual report, the company’s EBITDA went from €1.6bn in 2022 to €1bn in 2023, a change of -33.2%, and an even more significant drop from 2021, when annual earnings were at €3bn. The company also cut around 500 jobs from its workforce last year.

Richard Pott, chair of supervisory board at Covestro, attributed the downturn to Russia’s invasion of Ukraine, where a spike in natural gas prices in 2022 led to lower demand from customers.

Adnoc’s €150bn expenditure budget

Adding Covestro to its burgeoning portfolio would further Adnoc’s goal to become a leading international energy company.

Recently, Adnoc announced its goal to increase crude oil production capacity to 5m b/d by 2027,  expanding its capital expenditure to US$150bn from 2023 to 2027, with plans for further exploration and production of crude oil.

The company is not stopping there, and is also expanding  its investment into chemicals and low-carbon energy solutions.

In February, the company secured a 24.9% stake in Austrian petrochemical OMV, following on from its US$3.6bn acquisition of OCI’s entire stake in ammonia producer Fertiglobe.