UAE’s Adnoc Nears $13 Billion Deal to Buy Germany’s Covestro
The tie-up dovetails with the Middle Eastern energy company’s push into chemical production
An oil producer from the United Arab Emirates is finally set to clinch a $13 billion-plus deal for Germany’s Covestro—a big bet on chemicals as part of its effort to transform into a fully integrated energy company akin to Exxon Mobil and other U.S. majors.
The details
Abu Dhabi National Oil Co., or Adnoc, is likely to announce the deal as soon as this week unless an unexpected snag emerges, people familiar with the matter said. Talks have continued for more than a year, extended by protracted negotiations over price, job protections for Covestro 1COV 1.86%increase; green up pointing triangle employees and other matters.
The takeover gives Covestro a market value of about 11.7 billion euros, equivalent to about $13.1 billion, making this one of the year’s largest deals. In June Covestro said the two sides were holding concrete talks with a possible offer price of €62 a share.
The rationale
Adnoc, which was founded in 1971, is a major producer of oil and gas. It also oversees a network of crude-oil refining facilities and trading and distribution operations, and has expanded into areas such as hydrogen production.
More recently, the company has focused on dealmaking, with mixed success, to push into chemical production as a new source of revenue.
Earlier this year, Adnoc acquired an almost 25% stake in European energy company OMV to accelerate the expansion of its chemicals business. But a bid for a controlling stake in Brazilian petrochemical producer Braskem collapsed in May.
The context
Covestro is one of the world’s biggest producers of polymer materials that are used across industries ranging from the automotive sector to healthcare. The materials are integral to the development of coatings, adhesives, and plastics, among other products. The company operates close to 50 production sites globally and employs almost 18,000, according to its website.
Adnoc’s challenge, though, will be reviving slumping sales and profits in the face of underwhelming demand and prices for Covestro’s products.
Covestro was spun off from Germany’s Bayer in 2015 and listed on the Frankfurt exchange. Sales in the first half of this year fell 3.5% to €7.2 billion from a year earlier and the company swung to a net loss. It said declining demand led to lower selling prices.