ADNOC raised Covestro's offer to $12.4 billion

Abu Dhabi National Oil Co. (ADNOC), a energy giant seeking to expand its chemical business through a series of ambitious deals, has raised its offer to acquire Covestro AG to approximately €11 billion ($12.4 billion), according to people familiar with the matter.

The state-owned firm has increased the purchase price to around €57 per share, hoping to persuade the German company to enter into negotiations. This is higher than the initial informal offer of about €55 per share.

The sources, who requested anonymity because the information is private, said the company has confidence in Covestro's strategy and management.

Covestro's stock price fell 2.9% in Frankfurt trading on Wednesday, valuing the company at €9.4 billion. The shares briefly jumped on Tuesday evening following Bloomberg's report of ADNOC's increased bid, closing at the highest level since February 2022.

People familiar with the matter at the time said Covestro, based in Leverkusen, rejected ADNOC's earlier proposal last month, considering the bid too low. Covestro also raised questions about ADNOC's plans for its specialty products business.

ADNOC CEO Sultan Al Jaber has been busy seeking deals to better compete with Saudi Aramco and its Sabic chemical division. The Abu Dhabi company is also in separate talks with Austria's OMV AG to discuss a potential merger of their supported companies, Borouge Plc and Borealis AG, to create a chemical and plastics giant valued at more than $30 billion.

These proposed deals align with broader plans by the United Arab Emirates to attract investment and technology, establish new industries, and manufacturing capabilities. ADNOC has been expanding its refining and chemicals hub in Abu Dhabi to find more outlets for its oil and gas production, while also producing plastics for consumer goods.

ADNOC is trying to address Covestro's concerns about its bid, including how it can help the German company's management develop its specialty chemicals business. If negotiations are successful, ADNOC's offer may be further increased.

Ben Kelly, an analyst at Louis Capital Markets, said ADNOC may still need to offer a higher price to win Covestro's approval.

"Knowing that ADNOC can go higher, Covestro is likely to wait and see," Kelly said. "An improved bid of €61.50 is equivalent to eight times EV/Ebitda and, in our view, more likely to be accepted by Covestro's board."

Discussions are ongoing, and it is unclear how Covestro will respond to the latest offer.

ADNOC produces almost all of the oil in the UAE. The company plans to invest $150 billion to expand its crude oil, natural gas, and chemicals production. It has also made investments in low-carbon energy.