Covestro opens books to ADNOC for takeover

The German polymer producer Covestro has given Abu Dhabi National Oil Company (ADNOC) access to its books and agreed to enter “concrete negotiations” for a takeover by the Middle Eastern energy giant.

The agreement follows an improved offer by ADNOC to buy Covestro for $12.5 billion after more than a year of courtship. Speculation that ADNOC was seeking to acquire the chemical maker surfaced a year ago, when media reports suggested it was willing to pay $11 billion. The two parties entered open-ended discussions in September.

Covestro now says it believes the two sides could “reach a common understanding” regarding core aspects of the takeover, “including support for Covestro’s further growth strategy.”

The company says talks will proceed “in a timely manner” and that there is no certainty of an agreement on what would be Europe’s biggest chemical industry takeover this year. But the lengthy discussions would suggest that final negotiations could wrap up soon, a Jefferies Group analyst says in a note to clients.

Covestro has 50 production sites and 18,000 employees. It posted sales of $15.9 billion in 2023, an almost 20% decline from 2022. Its shares jumped 6.8% after the ADNOC announcement on June 24.

Middle Eastern oil and gas majors are interested in European chemical businesses for multiple reasons, says Ruirui Zong-Rühe, a partner at the consulting firm Roland Berger. Among them is the long-term decline in demand for fuels, which is forcing energy companies to look for a more resilient outlet for their hydrocarbons.

ADNOC does have chemical operations, but they are concentrated in commodity petrochemicals, whereas Covestro’s polyurethane and polycarbonate products are highly specialized. “The petrochemicals business is a highly cyclical business. The shift from basic chemicals to specialties will create a more resilient and profitable chemicals portfolio,” Zong-Rühe says.

ADNOC has been pursuing several European chemical firms. In December, it agreed to buy the Dutch firm OCI’s stake in the ammonia and urea producer Fertiglobe for $3.6 billion.

It has also been in talks with Austria’s OMV to merge two petrochemical businesses: ADNOC-majority-owned Borouge and OMV-majority-owned Borealis. A bid to acquire control of the Brazilian petrochemical maker Braskem fell through in May.

Meanwhile, Covestro revealed a cost-cutting program the day after it announced progress in its talks with ADNOC. The Bayer spin-off will aim for annual savings of $427 million in material and personnel costs by the end of 2028. The restructuring is the result of a “challenging” few years for the firm, Covestro CEO Markus Steilemann says in a statement.