Covestro opens door to ADNOC deal after it raises bid to $12.5 billion

By Ludwig Burger, Emma-Victoria Farr and Patricia Weiss

FRANKFURT (Reuters) -Germany's Covestro said on Monday it was stepping up talks with ADNOC after the Emirati energy company made an improved 11.7 billion euro ($12.5 billion) takeover bid following more than a year of pursuing the chemicals firm.

Covestro, which makes plastics and chemicals for construction and engineering, said it was opening its books to ADNOC and believed the two sides could "generally reach a common understanding regarding core aspects of a possible transaction including support for Covestro's further growth strategy".

Talks, which had previously been described as open-ended, will now be "concrete negotiations", with Covestro saying it will provide Abu Dhabi National Oil Co with due diligence information after it made a 62 euros per share offer.

That was up from 60 euros previously, based on what people familiar with the talks had told Reuters.

Shares in Covestro, which said talks would proceed "in a timely manner" and there was no certainty of an agreement, were up 6% to 54.3 euros at 1356 GMT.

"We welcome the fact that Covestro is now negotiating with ADNOC," said Arne Rautenberg, fund manager at Union Investment, which LSEG data shows as one of Covestro's top-10 shareholders.

"But from an investor's point of view, there is still room for improvement regarding the 62 euros-per-share offer price."

It has taken more than a year to get to this stage. ADNOC's initial informal offer was reported in June 2023, but it was not until September last year that the Covestro entered into talks.

"We look forward to jointly working with Covestro to swiftly progress due diligence for this important transaction," an ADNOC spokesperson said, adding that this was a final offer.

The length of talks would suggest that many of issues are likely to be well advanced, Jefferies analyst said in a note.

Covestro said it had postponed until further notice its capital markets day scheduled for June 27 "in light of the recent developments".

ADNOC has been pursuing several European targets.

It has also been in talks with Austria's OMV to create a chemicals giant with combined annual sales of more than $20 billion.

And in December, it agreed to buy European chemical producer OCI's stake in ammonia and urea producer Fertiglobe for $3.6 billion. Reuters reported in April that it had for a while considered buying Britain's BP.

($1 = 0.9327 euros)

(Reporting by Ludwig Burger, Emma-Victoria Farr, Patricia Weiss, Yousef Saba and Ron Bousso; Editing by Friederike Heine, Mark Potter and Alexander Smith)