ADNOC closes in on deal to buy Covestro

Covestro, the German polymer producer, has agreed to “open-ended” discussions that could result in it being acquired by Abu Dhabi National Oil Company (ADNOC), the state-owned oil company of the United Arab Emirates.

Once part of Bayer, Covestro generated sales of $18.9 billion and operating profits of $259 million in 2022. It has 50 production sites and 18,000 employees. One of its main businesses is polyurethane chemicals.

Speculation that ADNOC was seeking to acquire Covestro surfaced in June. Media reports at the time suggested ADNOC was willing to pay $11 billion. Given price escalation since then, the purchase would represent a 40% premium on a typical commodity chemical deal, analysts at Berenberg Bank say in a note to investors.

There are multiple reasons an oil and gas major would buy a chemical business, says Mark Porter, head of the chemical practice at the consulting firm Bain & Company. They include generating greater economic value from natural resources, highly skilled jobs, and the opportunity to increase home country investment.

ADNOC’s motivation to buy Covestro may also be linked to carbon reduction efforts. “Several scenarios for net zero call for a near total reduction in non-abated combusted hydrocarbons, yet leave significant opportunities for hydrocarbons to be used in materials and chemicals,” says David Rabley, global energy transition and strategy lead for Accenture’s energy business.

Covestro is not the only chemical firm ADNOC has been eying. Since July, ADNOC has been in talks with OMV to merge two petrochemical businesses: ADNOC-majority-owned Borouge and OMV-majority-owned Borealis. And earlier this year, ADNOC participated in a bid to acquire a controlling stake in the Brazilian petrochemical maker Braskem.

Middle Eastern oil companies have a history of buying European chemical producers. One of the largest such deals in the past decade was Saudi Aramco’s acquisition of Lanxess’s synthetic rubber operation—another business that was once part of Bayer—for roughly $3 billion.