One market analyst sees several benefits to Abu Dhabi National Oil Co.'s $13 billion proposal to buy materials giant Covestro AG.
Phil Karig said that with Adnoc agreeing to support Covestro's sustainability strategy and to retain several board members independent of Adnoc, Covestro "would receive some beneficial future commitments beyond just additional resources" from the deal.
Karig, principal of the consulting firm Mathelin Bay Associates in St. Louis, added that Adnoc's commitment not to close production plants is "also a benefit to Covestro but is, of course, subject to changing business circumstances in the future."
He also said that, from a purely financial perspective, the premium above recent Covestro share prices is a big plus. For example, Karig explained that Covestro would receive a premium of more than 20 percent to its share price in late June, while the increase in the DAX40 Index on the Frankfurt Stock Exchange is only up about 5 percent over the same time period.
Leverkusen, Germany-based Covestro announced Oct. 1 it signed an investment agreement with the United Arab Emirates oil company for a public takeover for all outstanding shares at a price of 62 euros per share, which will add up to 11.7 billion euros ($12.9 billion).
Rumors of the companies' acquisition talks surfaced in June 2023. "Concrete negotiations" were happening by June 2024, Covestro said.
Covestro said in a statement that "there are no plans to sell, close or significantly reduce Covestro's business activities as part of the transaction." In the investment agreement, Adnoc undertakes not to initiate any of these activities.
The agreement also contains Adnoc's explicit recognition of the existing general works agreements, collective bargaining agreements, and the rights of the works councils in Germany.
"We are convinced that the agreement reached today with Adnoc International is in the best interest of Covestro, our employees, our shareholders and all other stakeholders," Covestro CEO Markus Steilemann said in a news release.
"With Adnoc International's support, we will have an even stronger foundation for sustainable growth in highly attractive sectors and can make an even greater contribution to the green transformation," he said.
The parties' investment agreement also stipulates that Adnoc commit itself to fully supporting Covestro's Sustainable Future strategy. Covestro aims to achieve climate neutrality for its Scope 1 and Scope 2 emissions by 2035, and the group's Scope 3 emissions are also set to be climate neutral by 2050.
"We regard Adnoc International as a financially strong and long-term oriented partner with whom we will further drive our successful Sustainable Future strategy in all market conditions," Steilemann added. "Our complementary growth strategies, shared commitment to advanced technologies, innovation and sustainability are key cornerstones of our partnership."
Covestro said cash raised through the sale will go to "foster the further implementation of its growth strategy."