Abu Dhabi National Oil Co. (ADNOC) has reportedly made a significant offer exceeding €10 billion ($10.9 billion) to acquire Covestro AG, a leading chemicals giant. The news of the potential takeover caused Covestro’s stock to surge, with shares jumping by double digits. ADNOC, traditionally an oil and gas producer, aims to diversify its portfolio and gain access to advanced materials by expanding into the chemical industry.
Expanding into Advanced Materials:
ADNOC’s informal offer for Covestro, at a per-share price in the mid-50 euros, marks an attempt to broaden its reach into the realm of advanced materials. Covestro, known for being a major supplier of polycarbonate, offers a range of core products including insulation chemicals, upholstery foam, and polycarbonate itself. This acquisition would grant ADNOC access to innovative materials used in electric vehicles, thermal insulation for buildings, as well as coatings, adhesives, and engineering plastics.
Vertical Integration and Strategic Importance:
The integration of Covestro’s product offerings aligns with ADNOC’s interest in vertical integration. Oil serves as a vital base product for several of the categories in which Covestro operates. By incorporating a chemicals company into its portfolio, ADNOC can enhance its control over the value chain, ensuring a steady supply of crucial materials while exploring new market opportunities.
Political Implications and German Government: While Covestro currently lacks any shareholders with a stake of 3% or more, which simplifies the takeover process, there are political considerations at play. The German government has typically adopted a cautious approach towards foreign mergers and acquisitions, particularly in industries it deems strategically significant. Given the chemical industry’s importance, certain members of the German administration may closely scrutinize ADNOC’s bid.