ADNOC Splashes €14.4 Billion to Target Covestro Again! Gulf Giant Strikes Twice, Financial Crisis Deepens for German Firms

According to foreign media reports, the United Arab Emirates National Oil Company (ADNOC) plans to make a formal takeover proposal for German chemical company Covestro, which involves a total value of up to 14.4 billion euros (about $16 billion) including debt. The move marks the second time ADNOC has made a takeover offer. If the deal goes ahead, it would be the biggest takeover in Europe so far this year and the first successful takeover of a German DaX-listed company by a state-owned Gulf state.

Since ADNOC first made an informal offer in 2023, companies from both sides have been in talks. In June 2023, ADNOC announced a preliminary informal offer of 55 euros per share. In September of the same year, Covestro announced that its Management Committee had decided to open public discussions on a potential acquisition proposed by ADNOC. After a year of negotiations, ADNOC entered into concrete talks with Covestro in June about a takeover. The negotiations resulted in a positive outcome and ADNOC gained Covestro's trust and was granted access to its ledger details. Following the completion of due diligence, ADNOC made a higher indicative offer of €11.7 billion or €62 per share.

In July, ADNOC Chief investment Officer Klaus Frohlich said it would maintain its independence after acquiring Covestro and respect the way it operates with shared decision-making on Germany's supervisory board. Covestro's share price has risen as the acquisition approaches. According to Covestro's financial report for the first half of 2024, Xetra's stock closed at 54.8 euros per share at the end of the first half of 2024, up 4.1% from the end of 2023. As of September 12, Covestro's share price was 55.96 euros/share, with a total market value of 10.56 billion euros.

However, it is worth noting that Covestro is currently facing greater financial pressure due to the impact of rising energy prices and weak European markets. In 2023, Covestro's sales fell 20% year-on-year to 14.4 billion euros and net profit was negative 198 million euros. In the first half, sales fell 3.5 per cent year-on-year to €7.2bn, while earnings before interest, tax, depreciation and amortisation (EBITDA) fell 11.6 per cent year-on-year to €593m.

Covestro is one of the world's leading polymer companies, formerly a subsidiary of the Bayer Group, independently listed in 2015 and employs around 17,500 people worldwide, nearly 7,000 of whom work in Germany. Covestro's business is mainly concentrated in Europe and China. In 2023, Covestro achieved sales of 3.1 billion euros in China, accounting for about 20% of the total sales. By the end of 2023, Covestro has invested more than 4 billion euros in China.

ADNOC is the largest oil company in the United Arab Emirates, founded in 1971, with proven oil reserves of 137.9 billion barrels, ranking fourth in the world. In recent years, ADNOC has been looking for investment opportunities outside the oil business and pushing for international expansion plans, particularly in the natural gas, liquefied natural gas, chemicals and renewable energy sectors.

In 2016, Sultan Ahmed Al Jaber, a key member of the UAE royal family who also holds positions such as UAE Minister of State and Federal Cabinet member, UAE Minister of Industry and Advanced Technology, took the helm of ADNOC, driving a series of changes at the company. In 2022, the company announced capital expenditures of $150 billion over the next five years.