State-owned Abu Dhabi National Oil Co. (ADNOC) has agreed to buy Covestro AG (Leverkusen, Germany) for a total of €14.7 billion, including debt, after more than a year of negotiations between the two companies, said the company.
ADNOC’s cash bid of €62 per share values Covestro at approximately €11.7 billion, according to a statement issued by Covestro today. Including about €3 billion in debt, the total bid by Adnoc equates to about €14.7 billion. In 2023, Covestro generated sales of €14.38 billion, down 20% compared with the previous year, and a net loss of €198 million, which narrowed from a loss of €272 million in 2022.
The takeover offer, which is supported by Covestro’s supervisory and management boards, also includes the planned acquisition by Adnoc on completion of the transaction of a further €1.17 billion in new Covestro shares via a 10% increase in Covestro’s share capital to inject additional cash into the firm. This would raise Adnoc’s eventual total investment in Covestro to about €15.9 billion if it proceeds to completion. “At an offer price of €62.00, this will result in €1.17 billion proceeds, which Covestro will use to foster the further implementation of its strategy,” Covestro said.
“There are no plans to sell, close or significantly reduce Covestro’s business activities as part of the transaction,” Covestro said. Adnoc has given an undertaking in the offer agreement “not to initiate any of the above,” it said. At the end of 2023, Covestro operated 48 production sites worldwide and employed approximately 17,500 personnel, according to the company. The deal also contains a commitment to protect the firm’s technology and intellectual property, it said. Covestro will remain headquartered at Leverkusen, it added.
Buying Covestro would see ADNOC add new products to its expanding downstream value chain, including isocyanates, polyurethanes, polycarbonates and polyols, as part of the company’s drive to diversify away from its traditional reliance on crude oil and natural gas operations and toward the decarbonization of its portfolio.
ADNOC International Ltd., a subsidiary of the Adnoc group, and its own subsidiary Adnoc International Germany Holding AG signed the agreement with Covestro. The deal stipulates that the bidder will make a public takeover offer for all outstanding shares of Covestro at €62 per share. Adnoc has committed to fully support Covestro’s sustainability strategy, it said.
The offer price represents a premium of approximately 54% to Covestro shares’ unaffected closing price on June 19, 2023, which Covestro said was the day prior to any media coverage of a potential transaction between the two companies. It also represents a premium of 21% to the closing price on June 23, 2024, the last trading day prior to Covestro announcing the beginning of the confirmatory due diligence and the start of concrete negotiations, it said.
The offer will be subject to a minimum acceptance level of 50% plus one share and customary closing conditions, including merger control, foreign investment control and EU foreign subsidies clearances, Covestro said.
A joint investment accord, which runs until the end of 2028, covers agreements by Covestro and Adnoc on the main cornerstones of the partnership, the companies said. This includes several obligations on the part of Adnoc to maintain Covestro’s existing business activities, corporate governance and organizational business structure. Adnoc intends to support Covestro fully in further executing its sustainability strategy, they said.
ADNOC has also committed to recognizing German governance regulations and to retaining a co-determined supervisory board, according to Covestro. Two members of Covestro’s supervisory board on the shareholder representatives’ side will remain independent of Adnoc after the takeover offer has been completed, it said. The agreement also confirms Adnoc’s “explicit recognition of the existing general works agreements, collective bargaining agreements and the rights of the works councils in Germany,” Covestro said.
The agreement expresses Adnoc’s “utmost trust and confidence in Covestro’s management team,” it said. Covestro’s current management board will continue to be responsible for the operational management and strategic direction of the company, it added.
Covestro’s management has agreed to support a delisting offer and/or squeeze-out if Adnoc intends to execute either, it said. However, the investment agreement stipulates that if there is a delisting and/or a squeeze-out, Covestro will “continue to be managed as a stock corporation under German law with the same governance as before,” it added. That would also include a co-determined supervisory board with two members remaining independent of Adnoc.
Covestro, which produces polymers and chemicals mainly for the automotive, construction and engineering sectors, was created in 2015 after being spun off from Bayer AG. It is the world’s biggest producer of bisphenol A and polycarbonates. Demand for some of its products is expected to grow as fast as 5% per year, according to S&P Global Commodity Insights data.
Covestro’s main products are polyurethane (PU) intermediates such as methylene di-para-phenylene isocyanate, toluene diisocyanate and polyether polyols, as well as key raw material aromatics including toluene and benzene. Demand for polyols is expected to grow at about 2.7% per year through 2028, faster than forecast global capacity growth of 2%, even though the market is currently oversupplied and is expected to stay that way through 2028, according to Commodity Insights.
Covestro has also been making strides in chemical recycling technologies for tires and PU mattresses, an area considered to hold strong growth potential.
The company is targeting net-zero Scope 1 and Scope 2 emissions by 2035, and Scope 3 emissions to be climate neutral by 2050. In its full-year 2024 guidance issued in February, the firm said that it expected the current weak demand environment in all regions to continue and that the outlook for its core end-user industries in the automotive, construction, furniture, and electrical and electronics sectors remained “depressed.” The company’s EBITDA guidance for 2024 is between €1.0 billion and €1.6 billion.
Goldman Sachs and Perella Weinberg are acting as financial advisors to Covestro’s management board on the transaction, with Linklaters acting as a legal advisor. For Covestro’s supervisory board, Rothschild & Co. and Macquarie Capital are acting as financial advisors, while SZA Schilling, Zutt & Anschutz is serving as a legal advisor.
Adnoc, meanwhile, remains in ongoing talks with OMV AG (Vienna) over a potential merger of their petrochemical joint ventures Borealis AG and Borouge PLC.
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