Yahoo Finance Covestro Enters Formal Talks With Adnoc on €12 Billion Deal
(Bloomberg) -- Covestro AG said it’s entering concrete negotiations with suitor Abu Dhabi National Oil Co. on a potential takeover that could value the German chemical company at about €11.7 billion ($12.5 billion).
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The Middle Eastern energy giant indicated to Covestro it’s considering a potential offer of €62 per share, subject to confirmatory due diligence, according to a statement Monday that confirmed an earlier Bloomberg News report. The German company said that level is the “starting point” for the negotiations over an investment agreement.
Covestro agreed to exchange information with Adnoc to help it firm up the bid. Adnoc said in a separate statement that the potential bid of €62 per share is its final offer, indicating it won’t be raising any further after already bumping several times over the course of a year from its first proposal of €55 per share.
A final deal would represent Adnoc’s biggest-ever acquisition. Backed by tens of billions of dollars of oil money, the UAE state company has been scouring the world for deals. Chemicals is a big part of that push as the company sees demand for products that are used to make goods such as plastics continuing to rise over the coming decades even as the energy transition is likely to slow oil demand.
Arne Rautenberg, a portfolio manager at Union Investment who owns Covestro shares, said the potential offer of €62 per share is a “reasonable basis” for entering into concrete negotiations.
“From an investor’s perspective, however, there is still room for improvement,” Rautenberg said. “Covestro is in a better position in negotiations today than it was a year ago. The chemical industry is recovering globally, and so are the profit prospects for manufacturers.”
Bloomberg News reported earlier Monday that Covestro’s supervisory board was discussing its next move after Adnoc sent a formal letter of its intention to sweeten its bid to €62 per share, from €60 apiece, if in-depth due diligence goes well.
Shares of Covestro jumped as much as 7.3% in German trading Monday, hitting the highest intraday level since February 2022. They were up 6% to €54.34 at 3:35 p.m. in Frankfurt.
In recent days, Adnoc received the green light from senior government officials to boost its offer under the condition that it successfully conducts in-depth due diligence, people with knowledge of the matter said.
“We welcome Covestro AG’s decision to commence confirmatory due diligence on the basis of our final offer,” Adnoc said in an emailed statement. “Adnoc is a value-adding, responsible, long-term partner and growth-oriented investor, and we look forward to jointly working with Covestro to swiftly progress due diligence for this important transaction.”
Willingness to Raise
Adnoc had already verbally indicated its willingness to increase its latest bid of €60 per share, worth about €11.3 billion in total, Bloomberg News reported earlier this month. However, Covestro executives were seeking more formal, written assurances from the potential buyer before moving forward, some of the people said.
Covestro said Monday it intends to proceed with the deal negotiations in a timely manner.
“The discussions so far have shown that Covestro and Adnoc can generally reach a common understanding regarding core aspects of a possible transaction including support for Covestro’s further growth strategy,” Covestro said in the statement.
The Leverkusen-based plastics company and Adnoc have been in talks for a year now over a potential transaction that would be the largest acquisition of a European firm by a Middle Eastern buyer. Adnoc first informed Covestro’s management about its takeover interest mid-last year and subsequently improved its initial, non-binding offer of €55 per share to €57 and then to €60 per share, Bloomberg News has reported.
Adnoc has been pushing ahead with other deals in recent weeks. Last month it picked up stakes in gas projects in the US and Mozambique, and has ambitions to expand in chemicals and trading operations globally. It’s also increasing oil production capacity at home.
Other bids to buy Brazilian chemical company Braskem SA collapsed while plans to take out an Israeli company were suspended following the war in the Gaza Strip. Talks with Austria’s OMV AG about combining their units to create a €30 billion giant have been on hold ahead of Austrian elections later this year. These had given rise to speculation that Adnoc’s dealmaking had lost momentum.
Klaus Froehlich, the former Morgan Stanley banker spearheading most of Adnoc’s international expansion plans, defended Adnoc’s position in an interview last month, saying the company was still pushing ahead with deals.
He added that Covestro was “a great platform with a fantastic management team,” saying his company is a “firm believer in the future of the chemicals industry.”
--With assistance from Anthony Di Paola, Vinicy Chan and Crystal Tse.
(Updates with fund manager quote from fifth paragraph.)
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