ADNOC Nears $16.4 Billion Deal to Acquire German Chemicals Firm Covestro

Abu Dhabi National Oil Company (ADNOC), the state-owned oil giant, is poised to acquire German chemical firm Covestro for €14.7 billion ($16.4 billion). This marks ADNOC's largest acquisition to date and is part of its strategy to expand its international footprint in the chemicals sector, reducing reliance on its traditional oil-based revenue streams.

The comprehensive deal involves a cash offer of €62 per share, representing a 54% premium on Covestro's June 19 closing price, and includes taking on around €3 billion in debt. Additionally, ADNOC committed to buying €1.17 billion in new Covestro shares to support the company's future growth and innovation. This acquisition aligns with ADNOC's vision to become a top-five player in the global chemicals industry.

Covestro, headquartered in Leverkusen, Germany, specializes in high-tech polymers and materials used across various sectors, including construction, automotive, sports, and telecommunications. The firm's expertise will provide ADNOC an opportunity to leverage advanced technologies, including artificial intelligence, to drive further innovation in the chemicals arena.

ADNOC's decision to acquire Covestro followed intensive and constructive discussions, highlighting the importance of this transaction for both companies' strategic objectives. The acquisition is seen as a platform for sustained growth, with ADNOC’s group CEO Sultan Ahmed al-Jaber emphasizing Covestro's unmatched expertise in specialty chemicals and materials.

The deal underscores a growing trend of Middle Eastern companies investing heavily in European assets, driven by attractive valuations and an accommodating regulatory environment. It is expected to proceed with limited antitrust or regulatory hurdles due to the minimal operational overlap between the two entities.

Covestro management and supervisory boards are expected to recommend the offer to its shareholders, given the substantial premium and strategic benefits. However, the acquisition could also ignite debate in Germany regarding foreign ownership of key domestic companies amid a fragile economic climate.

Upon completion of the transaction, Covestro will maintain some degree of operational autonomy. Its supervisory board will retain a significant number of independent and labor representatives, and company management will continue to steer the firm's strategic direction. CEO Markus Steilemann, who will remain in his role through 2028, expressed optimism about the deal's potential to place Covestro on a fast-growth trajectory.

This acquisition follows ADNOC’s earlier moves to strengthen its chemical portfolio, including purchasing a 24.9% stake in Austrian chemicals company OMV and becoming the majority shareholder in Fertiglobe. The focus on chemicals and advanced materials represents ADNOC’s broader strategy to diversify and ensure growth amidst the global shift towards cleaner energy.

The ADNOC-Covestro deal is a noteworthy example of increasing cross-border investments, demonstrating the Gulf state's ambition to play a significant role in the global energy and chemicals market. By integrating Covestro into its operations, ADNOC aims to enhance its presence in sectors driven by advanced materials and cutting-edge technologies. This acquisition complements ADNOC's ongoing efforts to transition into a diversified energy and chemicals giant with a stronger, more resilient portfolio.