Abu Dhabi targets biggest foreign takeover ever with €14.7bn bid for Germany’s Covestro

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The United Arab Emirates launched the biggest takeover deal in its history after Abu Dhabi’s state oil company made a €14.7bn bid for German chemicals company Covestro on Tuesday.

Abu Dhabi National Oil Company said Covestro’s board recommended its offer of 62 euros per share, a premium of more than 50 percent to the company’s share price, before talks between the two sides were disclosed about 16 months ago follow. Adnoc will also inject around €1.2bn of new money into Covestro as part of the deal.

Frankfurt-listed Covestro is a gem of German industry that was spun off from conglomerate Bayer in 2015. The company is a leader in the production of polyurethane foam, which is ubiquitous in household appliances and insulation, as well as polycarbonate, a lightweight product , but durable plastic, which is widely used in the automotive industry.

“For us, it’s a massive deal, a step change. It’s part of securing the future of our business,” said Khaled Salmeen, chief executive of Adnoc’s downstream business.

Adnoc, which pumps almost three times more crude every day than Shell, is in the process of diversifying its business to prepare for a world that relies less on oil for fuel but has a growing appetite for petroleum products. , such as plastics.

Covestro’s main products are rigid and soft polyurethane foams used for everything from refrigerator insulation to seat cushions and polycarbonates that are used for car interiors and exteriors, as well as electric vehicle battery housings.

Adnoc said it will spend $150 billion between 2023 and 2027 on capital expenditure and is in the process of building both its gas business, which it believes will be in high demand as Asian countries move from the use of coal for gas in power plants, as well as the chemical arm.

“What we are trying to create is a global company that is capable of being in the top five of the (chemicals) sector. Economies of scale and the ability to have a growth platform are important,” Salmeen said.

As well as needing approval from Berlin regulators, the deal is likely to be scrutinized in Brussels, where EU officials could seek commitments that state-owned Adnoc will not inject funds into Covestro, giving it an unfair advantage compared to European competitors such as BASF. , three people with knowledge of EU thinking said.

Salmeen said Adnoc was confident the deal would be approved by all regulators. “We will go through the regulatory process, but we are not in the polycarbonate or polyurethane business, this is a new value chain (for us). I don’t see how the competition should be that way, given that we don’t operate in that vertical.”

The cyclical nature of the chemicals industry, which is currently suffering from overcapacity as Chinese competitors bring new plants online and due to falling demand in Europe, means Covestro’s share price has not traded above Adnoc’s bid for more than three years.

But Salmeen said Covestro is not counting on the weak European market. “It is a global company, split almost equally between North America, Europe and Asia. You need to be with your customers doing research and development together. A lot of the things you see in cars today were developed four or five years ago,” he said.

Covestro CEO Markus Steilemann said: “With the support of Adnoc International, we will have an even stronger basis for sustainable growth in highly attractive sectors and will be able to make an even greater contribution to the ecological transformation.”

Adnoc said it has asked Covestro’s management team to stay on after the deal closes. It also said it would support “commitments made to Covestro employees and is committed to supporting the existing works council, collective bargaining and similar agreements.”