Investing in the chemical industry, which contributes to the reduction of carbon emissions and supports the circular economy, demonstrates the growing interest of successful corporations in sustainable development and environmental projects. An example of such promising collaboration was the business tandem formed recently between Abu Dhabi National Oil Co., the state-owned oil company of the United Arab Emirates, and Covestro, a German chemical company specializing in the production of high-tech polymers.
ADNOC made a deal about the purchase of Covestro AG for approximately 11.7 billion euros (that’s $13 billion), which will be the largest acquisition of a European company by a Middle Eastern business
What are the participants of the agreement
ADNOC – one of the largest oil and gas companies in the world, engaged in production, processing and sale of oil and gas. The company is also actively investing in the chemical industry and other industries to diversify its activities.
Covestro was part of Bayer until 2015, after which it became independent. Covestro manufactures polyurethanes, polycarbonates and other materials used in automotive, construction, electronic and other industries.
The energy giant from Abu Dhabi is looking for new acquisitions around the world. Thanks to significant oil revenues, ADNOC has become one of the most active energy companies investing in gas projects in the US and Mozambique. An important area for the company is the chemical industry, as it sees prospects in products for the production of plastics, especially against the background of slowing growth in oil demand due to the energy transition.
The takeover values the German company at €62 per share and is contingent on the Abu Dhabi oil producer acquiring at least 50% plus one share in a tender offer. The deal will be ADNOC’s largest acquisition and will give it control of a strategic European industrial company with roots dating back to the 19th century.
The agreement between ADNOC and Covestro was reached after more than a year of negotiations. ADNOC initially offered 55 euros per share, but raised this amount several times. The final offer represents an approximately 11% premium to Covestro’s Monday closing price and a 54% premium to the June 19, 2023 share price. ADNOC plans to invest 1.2 billion euros in Covestro’s equity, but does not plan to enter into a dominance agreement.
Why ADNOC chose Covestro for acquisition
Covestro is at the forefront of global high-tech polymer production, making it an attractive asset for ADNOC. Covestro is known for its innovations and technologies that will help Abu Dhabi National Oil Co implement its own innovations and increase production efficiency. In addition, the wide geography of the German manufacturer’s presence on the world market will allow the Middle Eastern buyer to expand its presence in new markets.
And most importantly, Covestro is an environmentally responsible business working to reduce emissions and implement practices that are in line with ADNOC’s environmental goals.
The impact of the agreement on the economy of the UAE and the world economy
This deal is expected to impact both the UAE economy and the global economic landscape. The acquisition of Covestro AG will help Abu Dhabi National Oil Co. diversify its assets, reducing dependence on oil and gas and expanding its presence in the chemical industry.
This acquisition could stimulate further investment in the UAE economy by attracting foreign capital and technology. ADNOC’s expansion into the chemical industry can create new jobs and support local infrastructure development.
The agreement with Covestro AG will strengthen the position of the oil giant UAE in the global chemicals market, increasing competition and fostering innovation.
In addition, the increase in ADNOC’s production capacity can contribute to the stability of the supply of chemical products to the global market, which is important for many industries, including automotive and construction. The oil company plans to support Covestro’s environmental goals, which could help reduce emissions and shift to more sustainable production practices.
Features that make this absorption specific
Upon completion of the deal, ADNOC will subscribe to Covestro’s capital increase, which will provide the company with around €1.2 billion of new capital. In addition, Abu Dhabi National Oil Co. has no plans to enter into a dominance agreement that would give them broad control over Covestro. The acquiring company has signaled that in the future it may delist Covestro or squeeze out minority shareholders. Finally, ADNOC said it would finance the takeover with available funds.
The deal between ADNOC and Covestro AG: what important global economic trends are at stake
It is worth noting that the agreement between ADNOC and Covestro AG reflects several important global economic trends. Traditional oil companies such as ADNOC are actively investing in the chemical industry and related industries to reduce dependence on oil and gas. This helps them adapt to changes in the energy market and prepare for a low-carbon future.
The acquisition of a European company in the Middle East demonstrates the growing influence of the Persian Gulf countries on the world stage. It also shows their ability to make large investments abroad.
Investments in the chemical industry, which supports decarbonization and the circular economy, reflect the growing focus on sustainable development and environmental initiatives.
These trends indicate that major energy companies are seeking to adapt to new challenges and opportunities in the global economy.
It is worth noting that the agreement between ADNOC and Covestro AG is a unique example of business diversification through the green transition. Other companies also choose a similar strategy. Among others, it is Saudi Aramco, which is actively investing in the chemical industry and renewable energy sources to reduce its dependence on oil. BP, which announced plans to reduce oil and gas production by 40% by 2030 and increase investment in renewable energy sources. TotalEnergies is also actively investing in renewable energy sources and the chemical industry to reduce its dependence on traditional hydrocarbons.
These companies are looking to adapt to changes in the energy market and prepare for a low-carbon future, just like ADNOC.
Tatyana Morarash
