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German chemicals group Covestro said on Tuesday it has accepted a takeover offer from UAE state energy company ADNOC, as the crisis hits one of the key sectors of Europe’s largest economy.
Energy costs have skyrocketed in the wake of Russia’s invasion of Ukraine in 2022, weighing heavily on chemical manufacturers, which account for about 5% of Germany’s GDP.
The deal values plastics maker Covestro at about 12 billion euros ($13.3 billion), the German group said in a statement.
Under the terms of the agreement, which is valid until the end of 2028, Abu Dhabi National Oil Company (ADNOC) will purchase all remaining Covestro shares at a price of 62 euros per share.
The UAE’s state-run energy company also plans to inject around 1.2 billion euros into the chemical company through a new share issue once the deal is completed.
German Group CEO Markus Steilemann said in a statement that ADNOC’s participation will give Covestro “an even stronger foundation for sustainable growth.”
ADNOC is a “financially strong and long-term oriented partner,” Steileman said.
Covestro said the takeover offer is subject to a minimum acceptance criteria of “50% plus one share” and regulatory restrictions.
ADNOC’s bid for Covestro comes as the challenges facing Germany’s energy-intensive chemical industry show no signs of abating.
Germany’s chemical industry association VCI said in a report last month that the sector is “struggling in a difficult environment.”
Sluggish demand and high energy costs due to Russia’s invasion of Ukraine weighed heavily on producers, leading them to cut production in Germany.
Last month, BASF, the world’s largest chemical group, said it would cut costs and refocus on its “core business” as some of its German plants lacked competitiveness.
Meanwhile, Covestro said it was “making significant progress in its strategic transformation.”
The group, which makes chemicals used in everything from building insulation to electric cars, announced the savings plan in June while acquisition talks with ADNOC were underway.
Leverkusen-based Covestro, which was spun off from chemical giant Bayer in 2015, said it would cut material and labor costs in hopes of saving around 400 million euros a year.
With ADNOC’s support, Covestro “will be able to grow in a very attractive field and make an even greater contribution to the green transformation,” Steilemann said.
Covestro’s board of directors said it would recommend shareholders accept ADNOC’s offer based on the terms of the agreement.
The deal is a coup for ADNOC, which is looking to expand beyond oil, and, if completed, will be the first acquisition of a blue-chip German DAX index company by a Gulf state-owned company.
The energy giant’s CEO, Sultan Al Jaber, said in a statement that Covestro was a “natural fit” with ADNOC’s growth strategy.
Al Jaber, who chaired the COP28 climate change talks in Dubai last year, said the acquisition was a step towards “diversifying ADNOC’s portfolio”.
He said the deal was in line with ADNOC’s “forward-looking strategy and our vision to become one of the world’s top five chemical companies.”
Covestro said that under the terms of the deal, ADNOC was committed to maintaining the group’s “corporate governance and organizational business structure”.
ADNOC will also respect existing agreements with trade unions, but says it has “no plans to sell, close or significantly reduce Covestro’s business activities.”
Birdsea/MFP/LTH