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Norbert Sparrow
October 1, 2024
3 Min Read
INA FASSBENDER/AFP via Getty Images
Covestro AG announced today that it has signed an investment agreement with certain entities of the Abu Dhabi National Oil Co. (ADNOC), including ADNOC International Ltd. and its subsidiary, ADNOC International Germany Holding AG, in a deal valued by Seeking Alpha at €15.9 billion.
Commitment to Covestro's sustainability strategy
ADNOC will make a public takeover offer for all outstanding shares of Covestro at a price of €62 per share, Covestro said in a news release, and will fully commit to supporting the company's "Sustainable Future" strategy. Covestro’s management and supervisory boards decided that upon completion of the transaction, the company's share capital shall be increased by 10% (18.900.000 shares) and that, at, and subject to closing, the new shares shall be issued to ADNOC against payment of a price per share equal to the offer price based on an offer price of €62 against a total amount of €1.17 billion, under simplified exclusion of subscription rights.
The arc of the deal
ADNOC made a €10 billion offer back in June 2023 to take over Covestro, but it was reportedly rebuffed as too low. In September of last year, we reported that Covestro was reconsidering the deal after ADNOC upped the ante to €11.6 billion. Covestro then entered into “concrete negotiations” with ADNOC starting in late June 2024.
The deal provides Covestro with a stronger foundation for “sustainable growth in highly attractive sectors,” said CEO Dr. Markus Steilemann in a prepared statement. As for ADNOC, the partnership is described by ADNOC Managing Director and Group CEO Dr. Sultan Ahmed Al Jaber as a natural fit that “aligns seamlessly with ADNOC’s ongoing smart growth and future-proofing strategy and our vision to become a top five global chemicals company.”
After the announcement, Covestro shares rose as much as 4% in European trading, its highest point since October 2021, reports Seeking Alpha. The company had a net loss in H1 2024 as sales fell 3.5% year-on-year to €7.2 billion.
Potential controversy
The deal could spark controversy about Germany’s blue chip companies facing foreign takeover overtures because of a weak economy, although Covestro said it won concessions to limit the buyer's control of the company, writes Seeking Alpha. These include:
A commitment to the main cornerstones of the joint investment agreement, which runs until the end of 2028, that contains several obligations on the part of ADNOC International to maintain Covestro's existing business activities, corporate governance, and organizational business structure.
Recognition of German governance regulations and retention of the co-determined supervisory board. An important component, said Covestro, is the commitment that two members of the supervisory board on the shareholder representatives' side will remain independent of ADNOC Group after the takeover offer has been completed.
An explicit recognition of the existing general works agreements, collective bargaining agreements, and the rights of the works councils in Germany.
No plans to sell, close, or significantly reduce Covestro's business activities as part of the transaction.
Protection of Covestro's technology and intellectual property.
Covestro will continue to be managed as a stock corporation and that no domination and/or profit and loss transfer agreement will be concluded with Covestro.
In compliance with the German Securities Acquisition and Takeover Act (Wertpapiererwerbs- und Übernahmegesetz, WpÜG), the offer document, which is expected to be available within six weeks, and other information pertaining to the Bidder’s public takeover offer will be made available on the Covestro website after approval by BaFin (Bundesanstalt für Finanzdienstleistungsaufsicht).
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