Covestro Holder Union Investment Hails Move to Engage With Adnoc

Union Investment, one of Covestro AG’s top 20 shareholders, welcomed the German chemical company’s move to engage with Abu Dhabi National Oil Co.

(Bloomberg) — Union Investment, one of Covestro AG’s top 20 shareholders, welcomed the German chemical company’s move to engage with Abu Dhabi National Oil Co. 

It’s “very pleasing” that Covestro has entered into negotiations with Adnoc, Union Investment portfolio manager Arne Rautenberg said in an emailed statement Monday. The move is a “good sign” showing that management is acting in the best interests of shareholders, he said. 

“Covestro’s favorable valuation is currently nothing unusual, as many German chemical companies are currently very attractively valued,” Rautenberg said. “On the one hand, this is due to the weak economic cycle, but also to structural uncertainties in connection with the difficult energy situation in Germany.” 

It will be important to evaluate both the offer price as well as plans on the future strategic direction, guarantees on company location and other issues, Rautenberg said. Shares of Covestro rose as much as 5% in Frankfurt trading Monday. 

Funding Investments

“Adnoc welcomes Covestro’s decision to enter into discussions about a potential transaction and we look forward to a constructive engagement,” an Adnoc spokesperson said in an emailed statement Monday.

Covestro said late Friday its management board decided to enter “open-ended discussions” over a potential takeover by Adnoc, confirming an earlier Bloomberg News report. The German firm said its management board will seek corporate government provisions to protect its future strategy and sustainability.

The decision to entertain Adnoc’s takeover approach paves the way for Covestro executives to begin detailed negotiations. It comes after weeks of discussions between the companies’ advisers over a potential deal that could value the firm at €11.6 billion ($12.4 billion) or more.

State-backed Adnoc has signaled its willingness to fund roughly $8 billion in investments at Covestro after a deal is completed, a move that could help win over executives and labor representatives, according to people familiar with the matter, who asked to not be identified because the matter isn’t public. 

Deal Push

Adnoc verbally signaled to Covestro in mid-August that it’s willing to make a fresh written proposal of €11.6 billion, or €60 per share, if it would help get negotiations started, people familiar with the matter said at the time. That would improve on previous informal bids of €55 and €57 per share, which Covestro saw as too low.

In addition to price, Adnoc has been trying to address Covestro’s other concerns about a transaction, including how it would help the German company’s management develop the specialty chemical operations, Bloomberg News reported previously.

Adnoc Chief Executive Officer Sultan Al Jaber has been busy hunting for deals to better compete with Saudi Aramco and its Sabic chemical unit. The Abu Dhabi firm is in separate talks with Austria’s OMV AG about a potential merger of two companies they back, Borouge Plc and Borealis AG, to form a chemicals and plastics giant worth more than $30 billion. 

The potential transactions dovetail with a wider plan by the United Arab Emirates to attract investment and technology, as well as build new industries and manufacturing capabilities. Separately, Adnoc has started delivering liquefied natural gas to Germany, stepping in to help the country wean itself off of Russian supplies. 

Adnoc, which produces almost all the oil in the United Arab Emirates, plans to invest $150 billion to expand production capacity for crude, natural gas and chemicals. It’s also investing in low-carbon energy.

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