Dusseldorf, Frankfurt The move by the Arab oil producer Adnoc to take over the plastics manufacturer Covestro is still at an early stage. According to information from the Handelsblatt from financial circles, a concrete offer is not yet available. However, that could happen in a few months, the circles said on Wednesday.
In any case, the interest of the state-owned company from Abu Dhabi is great. Among other things, the Arabs wanted to secure access to future technologies in chemistry.
According to the circles, Adnoc is therefore currently looking for takeover objects in Europe. In the short term, the Arabs are interested in manufacturing capacities in which the output of their huge petrochemical plants can be processed into higher-quality plastics. In the long term, however, Adnoc also wants to secure expertise in chemical recycling and for the circular economy, in which materials are reused in the best possible way.
Both are trends that experts believe will change the chemical industry in the coming decades. Covestro owns large plants for the production of plastics that are currently based on fossil raw materials. In the long term, however, the Leverkusen-based company is aiming for a complete conversion to recycling management and alternative raw materials and is investing heavily in the necessary technology.
The German Dax group is therefore an attractive target for Adnoc. The Arabs want to buy more chemicals and green technology, using the strong financial power they gained from the oil business. Adnoc recently expressed interest in Covestro in Leverkusen, as several people familiar with the matter confirmed to the Handelsblatt.
However, there are no concrete negotiations with Adnoc. Otherwise, Covestro would have had to confirm this in an ad hoc announcement to the capital market. Covestro did not want to comment on Wednesday either.
Covestro emerged in 2015 from the spin-off of Bayer AG’s plastics business. The group is one of the world’s largest manufacturers of soft and hard foams used in furniture, car seats and facade insulation. In addition, Covestro produces the transparent plastic polycarbonate, for example for car headlights. In 2023, sales reached around 18 billion euros.
Since the initial listing, Covestro shares have experienced ups and downs on the stock exchange – depending on the global economic situation. In 2018 the high was 90 euros, in 2022 it was around 55 euros at its peak, before the share recently dropped to around 40 euros. “The current valuation is attractive for a prospective buyer,” says Markus Mayer, analyst at Baader Bank.
Especially since the disappointing economic situation is putting pressure on the prices of chemical companies. After the profit warning from competitor Lanxess on Tuesday, Covestro shares first fell by six percent and later soared by twelve percent to 46 euros after Adnoc’s interest in buying became known.
Covestro has blocked takeover attempts several times
According to the circles, Adnoc would be willing to pay 55 euros per Covestro share, which would correspond to a total volume of around eleven billion euros. Analysts expect that an offer would only be attractive and convincing from 60 euros.
The Arabs shouldn’t be welcomed with open arms in Leverkusen anyway. In the past, Covestro has warded off takeover requests several times and underlined its desire for independence. The financial investor Apollo 2020, experienced in the chemical industry, knocked on the door of the group, but the talks got lost.
The Dax group has fended off several takeover attempts.
(Photo: Covestro)
According to industry and financial circles, Adnoc could possibly make a concrete offer to Covestro with a partner. After that, the Arabs could bid together with the Austrian oil company OMV. OMV did not want to comment on the market rumors.
Adnoc and OMV are already linked at several levels. Both of them own the Austrian plastics manufacturer Borealis. At the beginning of this year, the oil company from Abu Dhabi also took a direct stake in OMV with around a quarter of the shares and is supporting the strategic restructuring of the Austrians.
OMV presented a new strategy in spring 2022, which industry expert Mayer believes a company like Covestro would be a good fit for. The Viennese group wants to move away from oil and gradually transform itself into a chemical and materials manufacturer. These businesses are to become growth drivers and be significantly strengthened and supplemented, as the company explained.
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The goal: OMV should achieve a leading global position in solutions for the circular economy, including the use of renewable raw materials, bioplastics and the development of circular solutions. The core of this plan is the plastics subsidiary Borealis, which is operated together with Adnoc.
Covestro already uses renewable raw materials. The group sees itself as a technological leader in the recycling of the greenhouse gas CO2 in plastics production. The Leverkusen-based company is developing processes for chemical recycling that can be used to break down complex plastic mixtures back into raw and basic materials and reuse them again.
This is considered to be one of the most important key technologies in the green change in chemistry. It is initially surprising that an oil company like Adnoc is interested in this: in a fully circular economy, oil and gas would ultimately be needed far less than they are today. But the Arabs are aware of the long-term change and want to prepare for it with investments.
Other Arab companies are also involved
Adnoc is one of the most important vehicles in the United Arab Emirates (UAE). The sheikhs have turned the oil company into a strategic investment company. It is led by Sultan Ahmed Al Jaber, the “Minister for Industry and Advanced Technologies” of the United Arab Emirates. He was “UAE Special Envoy on Climate Change” and is now Chair of the UN Climate Change Conference COP28, which will be held in Dubai in winter 2023. His appointment had caused criticism in many countries because of its proximity to the oil industry.
The Adnoc boss is also in charge of the forthcoming world climate conference in Dubai.
(Photo: imago images/Xinhua/Avalon.red. )
Adnoc is not the only Arab oil company that is penetrating into the processing of specialty chemicals. The margins are higher there and the business is closer to the end customers, for example from the automotive and electronics industries. Saudi Arabia is pursuing a similar strategy, which is buying into chemical companies via state-owned companies, primarily in Europe, where specialty chemicals are well represented in business and research.
The Saudi Sabic Group has a 31.5 percent stake in the Swiss specialty chemicals manufacturer Clariant. From 2018 to 2022, both companies had regulated their cooperation in a “governance agreement”. The Arabs hoped to gain access to technology and skills in joint projects. But the relationship quickly proved difficult and culminated in a dispute in 2020 that ended with the CEO being fired.
Since the “governance agreement” expired in May 2022, Sabic has had the option of taking over the entire Schweizer. According to Clariant CEO Conrad Keijzer, the Arabs are not planning to increase their stake. Sabic himself does not comment on this.
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