Adnoc to buy German chemicals company

Jochen Tack/Alamy via Reuters Connect

• $18bn agreed for Covestro
• Shares jump 3.7%
• Adnoc to pay €62 per share

Abu Dhabi’s Adnoc has agreed to buy German chemicals producer Covestro for €15.9 billion ($18 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 per Covestro share, equal to €14.7 billion including about €3 billion in debt.

Adnoc added it would also buy €1.17 billion worth of new shares in Covestro from a capital increase to improve funding of the takeover target.

Covestro shares jumped 3.7 percent to a three-year high of €58.

The deal is a cornerstone for Adnoc’s plans to grow its petrochemicals business along with gas and renewable energy.

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 percent 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 percent 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.

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 in the first six months of the year, compared with €46 million 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.