ADNOC buying Covestro for $12.9B

Abu Dhabi National Oil Co. (ADNOC) will buy materials giant Covestro AG in a deal valued at nearly $13 billion.

The two companies started talks for a potential acquisition in 2023. Leverkusen, Germany-based Covestro announced Oct. 1 it signed an investment agreement with the United Arab Emirates' oil company for a public takeover for all outstanding shares at a price of 62 euros per share, which will add up to 11.7 billion euros ($12.9 billion).

Rumors of the companies' acquisition talks surfaced in June 2023. "Concrete negotiations" were happening by June 2024, Covestro said.

Covestro said in a statement that "there are no plans to sell, close or significantly reduce Covestro's business activities as part of the transaction." In the investment agreement, ADNOC undertakes not to initiate any of these activities.

The agreement also contains ADNOC’s explicit recognition of the existing general works agreements, collective bargaining agreements, and the rights of the works councils in Germany.

“We are convinced that the agreement reached today with ADNOC International is in the best interest of Covestro, our employees, our shareholders, and all other stakeholders,” Covestro CEO Markus Steilemann, said in a news release.  “With ADNOC International's support, we will have an even stronger foundation for sustainable growth in highly attractive sectors and can make an even greater contribution to the green transformation.”

The parties’ investment agreement also stipulates that ADNOC commit itself to fully supporting Covestro’s "Sustainable Future" strategy. Covesto aims to achieve climate neutrality for its Scope 1 and Scope 2 emissions by 2035, and the Group’s Scope 3 emissions are also set to be climate neutral by 2050.

“We regard ADNOC International as a financially strong and long-term oriented partner with whom we will further drive our successful ‘Sustainable Future’ strategy in all market conditions,” Steilemann added. “Our complementary growth strategies, shared commitment to advanced technologies, innovation and sustainability are key cornerstones of our partnership.” 

Covestro said cash raised through the sale will go to "foster the further implementation of its growth strategy."ADNOC’s offer will be subject to a minimum acceptance level of 50 percent plus one share and customary closing conditions, including merger control, foreign investment control, EU foreign subsidies clearances.

Covestro has already announced cost cuts in June when it entered concrete negotiations with ADNOC. It then said it wants to save €400 million ($443 million) in material and personnel costs globally by 2028.

Germany will be the most affected market, with €190 million ($210 million) of cost saving measures planned for Covestro’s home country.

The plans were announced as part of a new "global transformation program" called Strong. It aims to make the company more efficient and drive digitalization forward amid a "rapidly changing market environment."

Covestro said doing so requires "making production, administrative units and other areas as efficient as possible and continuously expanding the innovation pipeline."

Covestro also previously announced it would centralize its Europe, Middle East, and Africa business at its headquarters in Leverkusen. It closed its Swiss sales office during the 2024 fiscal year. 

Covestro is a global supplier of polycarbonate resins and films, thermoplastic PU, PU materials and foams, and other specialty chemicals and materials. The firm posted losses of €124 million ($137 million) in its 2023 fiscal year, compared to €316 million ($351 million)in the previous year.

Like with many other producers, its margins have been under pressure from a combination of weak demand and price pressure from low-cost imports.

The terms of the investment agreement also stipulate that ADNOC will retain the 12 members of the co-determined supervisory board of Covestro. Two members of the board on the shareholder representatives' side should also remain independent of ADNOC Group after the takeover offer has been completed. ADNOC further commits itself to recognizing German governance regulations.