A year after Covestro and Abu Dhabi National Oil (ADNOC) started talks on a potential acquisition of the German firm, the deal has finally been confirmed.
Covestro announced today that it has signed an investment agreement with the United Arab Emirates' oil company.
The agreement stipulates, amongst other things, that ADNOC will make a public takeover offer for all outstanding shares of Covestro at a price of €62.00 per share. This price implies an equity value for Covestro of approximately €11.7 billion.
On June 25, 2024, ADNOC’s offer for Covestro hit €13.5. billion as the companies entered ‘concrete negotiations’. Previous ADNOC offers for Covestro had been estimated at €10.3 billion and €11.2 billion. Covestro said the €11.7 billion offer it has now accepted represents a premium of approximately 54% to the unaffected closing price on June 19, 2023, the day prior to any media coverage of a potential transaction, and a premium of 21% to the closing price on June 23, 2024.
“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,” said Dr. Markus Steilemann, CEO of Covestro. “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.”
The parties’ investment agreement also stipulates that ADNOC commits itself to fully supporting Covestro’s ‘Sustainable Future’ strategy. Covesto 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 in a statement that it will use the €1.17 billion in proceeds from the acquisition to ‘foster the further implementation of its growth strategy’.
ADNOC’s offer will be subject to a minimum acceptance level of 50% plus one share and customary closing conditions, including merger control, foreign investment control, EU foreign subsidies clearances.
Supervisory Board to stay in place
The terms of the investment agreement also stipulate that ADNOC will retain the 12 members of the co-determined Supervisory Board of Covestro. Two members of the Supervisory Board on the shareholder representatives' side should also remain independent of ADNOC Group after the takeover offer has been completed. ADNOC further commits itself to recognising German governance regulations.
No plans to sell, close, or reduce business activity
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.
Cost cuts
Despite these provisions, Covestro has already announced cost cuts in June when it entered concrete negotiations with ADNOC. It then said it wants to save €400 million in material and personnel costs globally by 2028.
Germany will be the most affected market, with €190 million of cost saving measures planned for Covestro’s home country.
The plans were announced as part of a new ‘global transformation programme’ called Strong. It aims to make the company more efficient and drive digitalisation forward amid a ‘rapidly changing market environment’. Covestro said doing so requires ‘making production, administrative units and other areas as efficient as possible and continuously expanding the innovation pipeline’.
Last September, Covestro announced it would centralise its Europe, Middle East, and Africa business at its headquarters in Leverkusen, Germany. It closed down its Swiss sales office during the 2024 fiscal year.
Covestro is a global supplier of polycarbonate resins and films, thermoplastic PU, PU materials and foams, and other specialty chemicals and materials. The firm posted losses of €124 million in its 2023 fiscal year, compared to €316 million in the previous year.
Like with many other producers, its margins have been under pressure from a combination of weak demand and price pressure from low-cost imports.