Abu Dhabi's ADNOC to acquire German chemicals firm Covestro for $16.4 billion

Abu Dhabi's state-owned oil firm ADNOC on Tuesday said it has agreed to buy German chemicals firm Covestro for 14.7 billion euros ($16.4 billion).

ADNOC, short for the Abu Dhabi National Oil Company, will launch a 62 euros-per-share voluntary public takeover that implies an equity value for Covestro of around 11.7 billion euros and represents a premium of around 54% to Covestro's closing price on June 19, Covestro said in a statement.

Covestro shares were trading 3.7% higher as of 10:09 a.m. London time.

The deal represents an enterprise value of 14.7 billion euros, ADNOC said in a separate statement. It added that the transaction is key for the firm's international growth strategy of becoming a top-five chemicals player.

"As a global leader and industrial pioneer in chemicals, Covestro brings unmatched expertise in high-tech specialty chemicals and materials, using advanced technologies including AI," said Sultan Ahmed al-Jaber, group CEO and managing director of ADNOC.

Covestro, a former unit of Bayer, manufactures polymer materials for construction and engineering processes. Its products are used in sectors such as sports, telecommunications, as well as in the chemical industry.

As part of the deal, ADNOC also signed an investment agreement in which it pledged to provide additional funding by buying 1.17 billion euros worth of new shares of Covestro from a capital increase.

The deal followed "intensive" and "very constructive" discussions between the two parties, Covestro CEO Markus Steilemann told CNBC's "Street Signs Europe" on Tuesday.

"This is, at least to my knowledge, the largest deal that is about to happen, potentially, between a strategic investor from the Middle East and a German DAX-listed company. This is unprecedented, which means we put quality before time," Steilemann said.

Steilemann, who is also president of the German Chemical Industry Association, noted the challenges that the global and German chemicals sector has been facing and acknowledged that these headwinds won't disappear now that the company has a new owner.

"I think with a stronger partner at our side we can accelerate the implementation of our sustainable future strategy throughout all overall economical conditions, and from that perspective I'm exhausted and at the same time excited that we have reached that milestone," the CEO told CNBC.

The German materials giant opened its books to ADNOC in June, following reports of takeover interest. ADNOC has been looking to increase its footprint in the chemicals sector as it seeks to diversify its portfolio.

Earlier this year the UAE oil giant closed a deal acquiring a 24.9% stake in Austrian chemicals firm OMV. At the end of 2023, ADNOC also became a majority shareholder in ammonia producer Fertiglobe after agreeing to buy OCI's stake in Fertiglobe for $3.62 billion.

Analysts at Jefferies said in a Tuesday note that they expect limited antitrust and regulatory risk from the deal, given the "limited operational overlap.8

Covestro said that its management and supervisory board assume they will recommend the transaction to the firm's shareholders, subject to an offer review.