The world of chemicals is about to get a whole lot more interesting. Adnoc, the Abu Dhabi National Oil Company, has just made a massive move, acquiring a majority stake in Covestro, a German polymer giant, for a whopping €11.6 billion ($12 billion). This deal is sending shockwaves through the industry, signaling a major shift in the global chemical landscape.
A Power Play:
Adnoc is not just dipping its toes into the chemical industry; it’s diving headfirst. This acquisition is the first step in their ambitious plan to become a top player in the global chemical market. By acquiring Covestro, Adnoc gains access to a vast portfolio of advanced materials, including those used in electric vehicles, thermal insulation, and technical plastics. This move puts Adnoc in a prime position to capitalize on the growing demand for these materials.
XRG: A New Force in Chemicals:
To spearhead this ambitious venture, Adnoc has established XRG Investment Company, a dedicated entity focused on building a global chemical powerhouse. XRG is aiming to become a leading player in the industry, leveraging its expertise and resources to drive growth and innovation. The acquisition of Covestro is a major step in this journey, providing XRG with a strong foundation for expansion and success.
The Future of Covestro:
Covestro’s board of directors and supervisory board have wholeheartedly endorsed the acquisition, recommending that shareholders accept the offer. This indicates confidence in Adnoc’s vision and the potential for Covestro to thrive under its new ownership. After the acquisition is complete, Covestro is expected to play a pivotal role in Adnoc’s global chemical expansion, contributing its expertise and technology to the growing XRG portfolio.
A Game-Changer for the Industry:
This deal is not just a financial transaction; it’s a strategic move with far-reaching implications for the global chemical industry. Adnoc’s entry into the market is a sign of the growing importance of chemicals in a world transitioning to cleaner energy and advanced technologies. This acquisition is likely to spark a wave of consolidation and innovation as other players seek to compete with Adnoc’s growing influence.
A New Era in Chemicals
Adnoc’s acquisition of Covestro is a landmark event in the chemical industry, signaling a major shift in the global landscape. This deal is a testament to Adnoc’s ambition and its commitment to becoming a leading player in the world of chemicals. As the world transitions to a more sustainable future, the chemical industry is poised for significant growth and innovation, and Adnoc is positioning itself to be at the forefront of this exciting change.
The acquisition of Covestro is Adnoc’s first step towards becoming a top alliance in the chemical industry
Arab Oil Company Abu Dhabi National Oil Company Adnoc It has acquired a majority stake in German polymer manufacturer Covestro. As Adnoc announced on Monday, at the end of the initial acceptance period on November 27, the minimum acceptance threshold of 50% plus one share specified in the voluntary public takeover offer was exceeded. The shares submitted during the initial acceptance period and the shares acquired by XRG together account for approximately 69.94% of Covestro’s total outstanding shares.
Shareholders who have not yet submitted their shares may still accept the offer during an additional acceptance period, which lasts until December 16, 2024. This is the deadline within which Covestro shareholders can still benefit from the takeover offer and accept it. Adnoc plans to announce the final outcome of the offer after the end of the additional acceptance period on December 19, 2024.
In a joint statement of reasons issued on November 7, 2024, the Board of Directors and the Supervisory Board of Covestro recommended that shareholders accept the acquisition offer.
As the new major shareholder of Covestro AG in the future, Adnoc’s newly established investment company XRG is expected to become one of the world’s top five chemical companies, marking an important milestone in its international growth strategy.
Completion of the tender offer is still subject to the satisfaction of further regulatory conditions, including merger controls, foreign investment controls and EU foreign subsidy regulatory approval, which conditions were set out in the offer documents related to the takeover bid. XRG is now fully focused on meeting these remaining conditions, with the transaction expected to close in the second half of 2025.
Following the successful completion of the tender offer, the Covestro Board of Directors has agreed, subject to the discharge of its fiduciary responsibilities, to support a delisting and/or a squeeze-out of Covestro if XRG intends to pursue either of these. Adnoc has promised to Covestro that it will not enter into a control and/or profit and loss transfer agreement during the term of the investment agreement (which will expire on December 31, 2028).
Adnoc thus takes a decisive step in the acquisition process, which may become a milestone in the history of German economics in several respects.
This will be the first major acquisition of DAX by a Gulf state investor and the largest deal in the European chemicals industry in many years, with a transaction value of 11.6 billion euros. Adnoc regards the acquisition of Covestro as the first step towards becoming a top alliance in the global chemical industry.
Since Adnoc has not yet actively participated in Covestro’s business and market, there should not be any problems from an antitrust perspective. At the same time, the deal must also be scrutinized by a number of countries under their applicable foreign corporate direct investment rules, such as whether a country’s security interests object to the sale.
Federal government expected to approve Covestro deal
In Germany, the federal economics ministry has blocked several announced deals – most of which were IT companies that were supposed to be sold to Chinese rivals. The federal government wants to stop the flow of unique technology from Germany to China.
But it is foreseeable that the sale will not fail due to government investment controls. Covestro’s technologies and polymer products are not considered safety-related infrastructure.
There have been recent suggestions within the government that the deal will be criticized. However, Adnoc has been a reliable partner and maintains a trusting cooperation with the federal government, and the company supplies LNG to Germany.
Adnoc’s acquisition of Covestro comes at the perfect time. According to industry sources, Adnoc had identified DAX Group as a potential acquisition target a few years ago. Covestro’s share price fell sharply after the economic downturn in 2022/23.
Adnoc began informal talks with Covestro in June 2023. As the economy continues to weaken a year later, and with it Covestro’s profit outlook, the acquisition price does not have to exceed the announced 62 euros per share.
The companies do not expect the transaction to close until the second half of 2025. That will usher in a new era for Covestro: the company was spun off from Bayer in 2015. Since then, Covestro has been fending off takeovers from financial investors.
Covestro has 17,500 employees and produces plastic intermediate products for the automotive, furniture, household appliances and construction industries. Through this acquisition, Adnoc will gain access to more advanced materials for electric vehicles, insulation materials and technical plastics.
Covestro’s board of directors fully supports Adnoc’s proposal, and the investment agreement gives the company the greatest guarantees:
Covestro’s key role: Adnoc sees Covestro as a platform for further growth in its chemicals business. As a division of the newly formed subsidiary XRG, Covestro will play a central role in Adnoc’s expansion of its materials business including plastics and specialty chemicals. Markus Steilemann, CEO of Covestro The acquisition and investment advantages that Adnoc brings as a partner were highlighted. Adnoc is committed to providing funding and expertise – regardless of the current economic downturn;
Further acquisitions: Covestro is only part of XRG, and the new company will also invest in other chemical businesses and hydrogen projects. To become one of the world’s five largest chemical companies, XRG must have sales of more than $45 billion, of which Covestro only contributes a third. Therefore, further transactions are foreseeable;
Other platforms: Adnoc is currently in talks with Austrian oil company OMV over the restructuring of its basic and specialty chemicals division, in which Adnoc has a stake. Adnoc has acquired a majority stake in fertilizer company Fertiglobe. The Middle East’s largest nitrogen fertilizer producer will expand into a platform for Adnoc’s green ammonia business. Ammonia is considered an energy-efficient transport carrier for hydrogen;
Green transition: Covestro is a leader in future chemical technologies that are no longer based on fossil raw materials and should use renewable raw materials instead of oil and gas – including a circular economy where new raw materials are derived from plastic waste. This is interesting for Adnoc as the company prepares for the era after oil and gas production declines.
Covestro can continue in its current form with Adnoc as owner and partner for at least the next four years. Adnoc provided it with broad assurances: Covestro will remain a co-determined German joint stock company and will be managed in accordance with German domestic corporate governance principles.
Covestro’s board of directors is retained, while Adnoc will have four seats on the 12-member supervisory board, one of whom will serve as chairman. The investment agreement does not actually include the relocation of factories or headquarters. Covestro employees in Germany will not be laid off for operational reasons until 2032.
It remains to be seen whether Adnoc will implement other plans with Covestro after the investment agreement expires. The idea of moving production to the Middle East, where energy is cheaper and more cost-effective, is likely to encounter significant resistance in Germany.
However, Covestro CEO Markus Steilemann does not expect this. “Energy costs are only one of the factors when deciding on a production base. Being close to customers and the market is very important,” he said in an interview with the media. “We are a European supplier with very low costs and close to large industrial customers. These customer markets do not exist in the Middle East.”
After ADNOC acquires Covestro, its specific impact on the global chemical market is mainly reflected in the following aspects:
- Geographic shift of the chemical industry : This acquisition reflects the gradual shift of the chemical industry from developed countries in Europe and the United States to developing countries. This transfer is not only the flow of capital, but also involves the spread of technology and the internationalization of management systems.
- Industrial upgrading and technology accumulation : By acquiring Covestro, ADNOC immediately acquired the technology, market and management system accumulated by Covestro over the years. This will bring new changes to the future development of the acquired company, especially in advanced technologies such as polyurethane. intensive and capital-intensive industries.
- Changes in the market competition pattern : Acquisitions may change the market pattern of the polyurethane industry, especially for other major competitors in the industry, such as Wanhua Chemical, which require re-evaluation of market positioning and competitive strategies.
- Growth in demand for chemical products : ADNOC’s acquisitions show expectations for growth in demand for chemical products, especially in the field of foam materials, which are increasingly in demand in industries such as construction and automobiles.
- Energy transition and sustainable development : After acquiring Covestro, ADNOC will be better able to meet global demand for energy and chemical products and accelerate the transition to a circular economy, in line with the increasing emphasis on environment, society and governance in global governance structures (ESG) standards.
- Expansion of influence in the global chemical market : This acquisition marks the first acquisition of a German DAX40 constituent company by a Gulf country, which will enhance ADNOC’s influence in the global chemical field.
- Diversification of investment portfolio : ADNOC further promoted its plan to shift its economic focus away from energy by acquiring Covestro and diversified its investment portfolio.
- Market expectations and stock price impact : Completion of the takeover bid is still subject to further regulatory conditions, including merger controls, foreign investment controls and EU foreign subsidy regulatory approvals. This could have an impact on market expectations and affect Covestro’s share price.
- M&A activities in the global chemical industry : This acquisition may stimulate M&A activities in the global chemical industry and form a new market competition pattern.
To sum up, ADNOC’s acquisition of Covestro will have a profound impact on the global chemical market. It will not only involve changes in the industry structure, but may also promote technological progress and sustainable development of the chemical industry.