German chemical group Covestro rejects €13bn Abu Dhabi approach

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German chemical company Covestro has rebuffed a €13bn approach from the Abu Dhabi National Oil Company, putting pressure on the state-owned energy company to raise its bid if it wishes to pursue a transaction.

Adnoc’s bid of roughly €13bn, which would have been one of the largest deals this year, was rejected by Covestro on Thursday, according to people familiar with the matter. Covestro did not rule out further engagement, the people said.

The offer valued Covestro’s shares at about €55 each, about a 40 per cent premium to its undisturbed share price of about €39 per share. That is equivalent to an almost €11bn valuation for the company’s equity, before taking debt and other factors into account.

The oil company would be supportive of management strategy, one person close to the transaction said.

Covestro and representatives for Adnoc both declined to comment.

It comes as the oil-rich emirate flexes its financial muscle, deploying years of excess hydrocarbon revenues into sectors that could help the state wean itself off oil dependency.

Covestro, one of Germany’s largest companies, is an insulation foam specialist that could help Adnoc expand its chemicals business as part of a broader diversification strategy. Adnoc, under the leadership of Sultan al-Jaber, who is also in charge of UAE’s hosting of the COP28 climate summit, has sought to maximise the value of the Gulf state’s resources by expanding in downstream production.

The oil company has also been trying to make its large energy-intensive plants less dependent on fossil fuels, investing in green technologies and recycling solutions that are increasingly attractive as demand grows for less environmentally hazardous components.

The rise in energy prices that has buoyed fossil fuel companies has presented the opposite challenge to chemical companies such as Covestro. In March, the company warned that profits this year would be “well below” those in 2022.

Last year, its earnings before interest, tax, depreciation and amortisation were €1.6bn, almost half the figure from the year before. “The sharp rise in energy and raw material prices during the year, especially in Europe, put a strain on the company,” Covestro said at the time.

The European gas crisis, which hit Germany particularly hard, prompted concern about the future of energy-intensive industries such as chemicals on the continent. BASF, the world’s largest chemical company by revenue, last year announced it would “permanently” downsize operations in Germany.

Shares in Covestro, which was spun out of Bayer in 2015, have roughly halved since a peak five years ago. They stood at €47.90 on Thursday afternoon, up by almost 20 per cent since the start of the week following reports from Bloomberg about Adnoc’s approach. The shares had gained about 1.6 per cent by Thursday afternoon.

Adnoc has earmarked $150bn to invest in natural gas, chemicals and clean energy, as companies transition away from relying on fossil fuels. The state-owned company is committed to expanding domestic production of crude oil, natural gas and related products, such as plastics.

It already owns a majority stake in Borouge, a joint venture with Austria’s Borealis.