Over 10 Billion US Dollars! ADNOC to Raise Bid for Covestro

The UAE's ADNOC is preparing to raise its initial offer for Covestro AG, according to media reports. After many previous offers were rejected, ADNOC decided to make concessions again.

ADNOC plans to submit a new offer of about 60 euros per share in the future, which would value Covestro at about 11.3 billion euros ($12.3 billion), according to people familiar with the matter. The company also plans to commit several years of job security and an investment of about $8 billion after the deal is completed, the person said.

Discussions are still ongoing and ADNOC may choose to wait until early 2024 before submitting a revised offer.

As early as June 2023, ADNOC made a preliminary acquisition offer for Covestro. The initial potential offer was 50 euros per share, and was subsequently increased to 55 euros and 57 euros. However, Covestro has always rejected the acquisition proposal on the grounds that the offer was too low. The two parties then began open-ended negotiations on a potential acquisition in September 2023.

Covestro was formerly a materials technology company under the German Bayer Group. It was independently listed after being split from the Bayer Group in September 2015. The company makes foam used in car seats, components for mattresses and polycarbonate used in medical devices.

As of the end of 2022, Covestro has production capacity including approximately 1.77 million tons of MDI, approximately 800,000 tons of TDI, approximately 1.42 million tons of polyether, and approximately 1.6 million tons of PC. The operating income for the whole year of 2022 reached approximately 18 billion euros. Among them, MDI production capacity ranks third in the world, TDI and PC production capacity ranks first in the world, and polyether ranks second in the world.

ADNOC has been looking to wean itself off its reliance on the crude oil business, and the decision to pursue the acquisition of Covestro is part of its diversification efforts. Other Middle Eastern companies are following this strategy and embarking on global acquisitions.

ADNOC has previously offered to acquire a stake in Brazilian petrochemical producer Braskem SA and is in the process of reaching an agreement with Austrian oil company OMV AG to create a petrochemical company worth more than 30 billion euros.

However, post-acquisition integration to revitalization and development is a long process. An analysis report pointed out that taking Saudi Aramco’s acquisition of ARLANXEO as an example, Aramco became the sole shareholder of ARLANXEO at the end of 2018. It then took four years to complete the internal integration. It was not until May this year that the expansion plan was announced, and the expansion plan will be put into production in the year 2027.

The analysis report also stated that ADNOC’s ability to empower Covestro is limited. The former’s main advantages lie in capital and cheap raw materials. However, similar forms of cooperation have precedents in the Sadara project jointly owned by Aramco and Dow. The Sadara project continued to suffer huge losses until 2020, and only became profitable in 2021.