Adnoc faces hurdles in completing ambitious European deals

Covestro

• Adnoc targeting two European deals
• Talks with OMV on hold
• First Covestro offers refused

Abu Dhabi state oil company Adnoc is facing challenges to a duo of major European deals it is trying to get over the finish line, according to media reports.

Talks with Austrian energy group OMV have been put on hold to allow parties to navigate a series of disagreements, the Financial Times reported on Friday.

The planned deal would combine Adnoc-controlled Borouge with OMV-controlled Borealis in a new petrochemicals holding entity worth more than $30 billion. It would allow the creation of a company with joined expertise across Europe and the Middle East.

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• Germany’s Covestro rejects takeover bid from Adnoc

Borouge is listed on the Abu Dhabi Securities Exchange. Adnoc owns 54 percent, Boreali 36 percent and 10 percent is held by retail and institutional investors.

Borealis is owned 75 percent by OMV and Adnoc holds the remaining 25 percent.

Reaching the deal is still possible if the discussions resume over the remaining blocking points, ranging from the name of the merged unit to the “more serious,” the report said. 

“The deal is complex,” Century Financial’s chief investment officer Vijay Valecha said.

Adnoc has also faced challenges over its $12 billion takeover of Covestro, as the German manufacturer of high-quality polymer materials rejected Adnoc’s previous offers of €55 and €57 per share last year.

It is working with a consulting company to improve its offer for Covestro to more than €60 per share, according to Bloomberg, although it is not certain if the open-ended discussions will lead to a deal.

Adnoc has started pushing deeper into the petrochemical sector as a part of a $150 billion larger business expansion strategy and to diversify its revenues.

“The energy transition poses new challenges for national oil companies, prompting many to venture into international projects as local industry landscapes transform,” said Valecha.

“The more strategic focus on the petrochemical business underscores how adaptable they are in their forward-looking Sultan Al Jaber strategy,” said Matt Stanley, energy expert at data and analytics Kpler. 

Adnoc is among the national oil companies in the Middle East seeking to diversify revenues. 

It may be an excellent time to enter the European petrochemical sector, which is struggling with the region’s feeble growth, industry observers say.

Performance at Borealis has been unimpressive. OMV also has less money for acquisitions than Adnoc.

Covestro will announce its 2023 results on February 29, and is expected to provide its outlook for 2024 and beyond as well.

“I expect more talks and new investments in other sectors and within the petrochemical industry,” said Stanley.