German Chemical Major Covestro to Hold Talks with Adnoc on Takeover Bid

Covestro AG has agreed to get discussions going with Abu Dhabi National Oil Co. (Adnoc) on the oil and gas giant's offer to acquire the German chemical heavyweight, after Adnoc reportedly raised its offer to $12.7 billion.

Covestro had rejected state-owned Adnoc's initial offer of about $12 billion, or around $53.62 (EUR 50) per share, as too low, Bloomberg reported June 22 citing people with knowledge of the proposal and who asked not to be named as the information was confidential. Covestro's confirmation of the talks comes after Adnoc reportedly indicated willingness to raise the price on the condition the former agrees to formal talks.

"The Board of Management of Covestro AG has today decided, in view of the interest in Covestro expressed by Abu Dhabi National Oil Company, to enter into open-ended discussions with Adnoc", Covestro said in a statement on its website Friday.

Adnoc had "verbally signaled" to Covestro it could increase its offer to $12.7 billion, or around $64.34 (EUR 60) per unit, if Covestro agrees to get discussions moving, Bloomberg wrote August 14 citing unnamed people familiar with the matter.

Covestro reported $49.33 million (EUR 46 million) in net income for the second quarter with earnings per share of $0.26 (EUR 0.24), recovering from losses in the first quarter. It projected earnings before deductions at $1.18 billion-1.72 billion (EUR 1.1 billion-1.6 billion) for the whole year. It had a total net debt of $3.37 billion (EUR 3.145 billion) as of the end of the first half of 2023.

Covestro's statement said, "Whether, in which form and, if applicable, at which conditions an agreement between the parties will be reached is open and will depend on the course of the forthcoming discussions".

Covestro manufactures chemicals for adhesives, high-performance plastic polycarbonate, polyurethane foams, sealants and films.

Covestro chief executive Markus Steilemann said in a statement, "The interest of Adnoc in our company underlines our strong position as one of the world’s leading manufacturers of high-quality polymer materials and as a leader in the shift towards a circular economy".

"Beyond current headwinds in our industry, we are optimally positioned to unlock significant long-term value in highly attractive industries underpinned by strong secular growth trends".

'Sustainable Future'

Covestro indicated key to the success of the takeover talks would be assurance from Adnoc of the continuity of the former's sustainability policy.

"During the discussions, Covestro’s Board of Management will in particular also address the safeguarding of the further implementation of its future- and sustainability-oriented corporate strategy, including corresponding corporate governance provisions", the statement said.

Steilemann said, "Regardless of the talks with Adnoc, we will remain fully focused on pursuing our successful 'Sustainable Future' strategy in order to unfold our full potential and further drive the transformation towards the circular economy”. 

Sphere of Influence

Before the confirmation of the talks, Steilemann expressed concern about the economic clout of autocratic regimes.

"You only have to think about what it means for the entire Western world if this trend continues unabated and conflict breaks out", Steilemann told local financial newspaper Handelsblatt in German when asked about Adnoc's takeover bid in an interview published August 1.

The Covestro said the company wanted to stay in Germany. "We come from here, we operate from here and we want to continue working at a strong German location in the future", Steilemann told Handelsblatt.

Adnoc's Chemical Expansion

Adnoc had already scored a chemical expansion in Germany with the signing of a deal with Currenta GmbH & Co. OHG and the government of North Rhine-Westphalia for "the creation of a low-carbon ammonia value chain" in the German state.

"The primary focus of the agreement will be the production and transportation of low-carbon ammonia and its application as a fuel in energy generation, including industrial-scale testing at Currenta’s site in Dormagen, Germany", Adnoc said in a press release March 27.

Adnoc is also in talks with Austria's OMV AG on a potential merger of the two companies' shareholding in Borealis AG and Borouge PLC. "The potential merger would mark the next transformative milestone in ADNOC’s ongoing value creation and chemicals growth strategy", Adnoc said in a press release July 15.

In 2021 Adnoc announced it had inked an agreement with Reliance Industries Ltd. to build a global-scale facility in Abu Dhabi to produce chlor-alkali, ethylene dichloride and polyvinyl chloride (PVC). "Production of these chemicals will create opportunities for local industry to source critical raw materials in the UAE for the first time, creating additional opportunities for In-County Value", it said in a media release June 29, 2021. "For example, chlor-alkali will enable production of caustic soda, essential for the production of aluminum. Ethylene dichloride and PVC have a wide range of applications across housing, infrastructure and consumer goods".

On January 14, 2021 Adnoc said the United Arab Emirates and Japan had entered a collaboration pact on advancing fuel ammonia and carbon recycling technologies following a memorandum of understanding signed between Adnoc and Japan's Economy, Trade and Industry Ministry.

Energy Crisis

Germany has been Europe's top chemicals producer, accounting for $240.92 billion (EUR 224.657 billion) of the region's $1.05 trillion (EUR 976.619 billion) of the sector's turnover 2022, based on data from the German Chemical Industry Association published August 18. In terms of global chemicals turnover, Europe's biggest economy accounted for four percent of the total, on par with Japan but below the USA (10.8 percent) and China (42.5 percent), according to the same source.

However, the energy crisis induced by Russia's invasion of Ukraine February 2022 has threatened Germany's chemicals sector. Chemicals manufacturing relies on oil and gas as fuel and raw material. Germany’s chemical production sector consumed 9,823 terajoules of oil (1.61 million barrels of oil equivalent) and 437,376 terajoules of natural gas (71.5 million barrels of oil equivalent) last year, according to the figures published by the association.

Germany's imports of Russian mineral fuels fell about 38 million tons (278.54 million barrels of oil equivalent) to around 91.58 million tons (671.28 million barrels of oil equivalent) in 2022 compared to 2021, according to data from Germany’s statistics agency Destatis. Destatis’ database showed imports of these commodities stopped May 2023.

In response to the invasion, the European Union declared March 11, 2022 the phaseout of Russian fossil fuels by 2027 and on May 18, 2022 launched the REPowerEU outlining strategies toward that goal.

Meanwhile in February Adnoc said it had delivered the first liquefied natural gas (LNG) from the Middle East to Germany.

"Produced by ADNOC Gas at Das Island, Abu Dhabi, the shipment of 137,000 cubic meters of LNG is the commissioning cargo for the new floating LNG terminal in Brunsbuettel and the first-ever LNG cargo to be shipped to Germany from the Middle East", Adnoc Gas said February 15, a month after Adnoc's gas marketing unit became operational.

To contact the author, email jov.onsat@rigzone.com