Covestro Signs an Investment Agreement with ADNOC Group

Covestro signed an investment agreement with several ADNOC Group firms, including ADNOC International Limited and its subsidiary, ADNOC International Germany Holding AG (Bidder). The agreement states, among other things, that the Bidder would make a public takeover bid for all existing shares of Covestro at €62.00 per share. In addition, ADNOC International has committed to fully supporting the Company's "Sustainable Future" agenda. At the same time, Covestro's Board of Management and Supervisory Board decided today that upon completion of the transaction, the Company's share capital shall be increased by 10% (18.900.000 shares) and that, at and subject to closing, the new shares shall be issued to the Bidder against payment of a price per share equal to the offer price, thus, based on an offer price of €62.00 against a total amount of €1.17 billion, under simplified exclusion of subscription rights. 

Dr. Markus Steilemann, CEO of Covestro, said: “We are convinced that the agreement reached today with ADNOC International is in the best interest of Covestro, our employees, our shareholders, and all other stakeholders. With ADNOC International's support, we will have an even stronger foundation for sustainable growth in highly attractive sectors and can make an even greater contribution to the green transformation. We regard ADNOC International as a financially strong and long-term oriented partner with whom we will further drive our successful “Sustainable Future” strategy in all market conditions. Our complementary growth strategies, shared commitment to advanced technologies, innovation and sustainability are key cornerstones of our partnership.” 

His Excellency Dr. Sultan Ahmed Al Jaber, ADNOC Managing Director and Group CEO, said: “As a global leader and industrial pioneer in chemicals, Covestro brings unmatched expertise in high-tech specialty chemicals and materials, using advanced technologies including AI. This strategic partnership is a natural fit and aligns seamlessly with ADNOC’s ongoing smart growth and future proofing strategy and our vision to become a top 5 global chemicals company. It represents a pivotal step for both organizations and embodies our disciplined approach to investing in strategic assets that drive long-term value and unlock new growth opportunities, while reinforcing our commitment to diversifying ADNOC’s portfolio. Our aligned strategies uniquely position us to meet the growing global demand for energy and chemical products, while accelerating the transition to a circular economy.” 

Key transaction details

The Bidder proposes to make a cash offer to Covestro shareholders of €62.00 per share. This price implies an equity value for Covestro of approximately €11.7 billion, a premium of approximately 54% to the unaffected closing price on June 19, 2023, the day before any media coverage of a potential transaction, and a premium of 21% to the closing price on June 23, 2024, the last share price prior to Covestro announcing the start of confirmatory due diligence and concrete negotiations.

The offer will be subject to a minimum acceptance level of 50% plus one share and standard closing criteria, such as merger control, foreign investment control, and EU foreign subsidy approvals.

In accordance with the German Securities Acquisition and Takeover Act (Wertpapiererwerbs- und Übernahmegesetz, WpÜG), the offer document, which is expected to be available within six weeks, as well as other information about the Bidder's public takeover offer, will be made available on the following website after approval by BaFin.

Following careful study, the Supervisory Board and Board of Management of Covestro welcome and endorse the Bidder's stated acquisition offer. Both boards will thoroughly evaluate the offer document upon its release and will submit reasoned remarks in accordance with Section 27 WpÜG immediately thereafter. Subject to a review of the offer document, the Board of Management and the Supervisory Board expect to propose that the offer be accepted by the Company's shareholders.

Partnership enables expansion of Covestro's excellent position in attractive growth markets

Covestro has a defined development plan and is currently making great headway in its strategic transformation, which will allow it to increase its strong position in attractive growth sectors. ADNOC International regards Covestro as the core platform of its Performance Materials and Specialty Chemicals business, and it is confident in Covestro's strategic view and aim to become completely circular.

Covestro and several ADNOC Group firms, notably ADNOC International, have agreed on the fundamental pillars of their relationship under the joint Investment Agreement, which continues until the end of 2028. In particular, the agreement requires ADNOC International to preserve Covestro's current commercial operations, corporate governance, and organizational business structure.

ADNOC International has told Covestro that it fully supports Covestro's "Sustainable Future" plan and wants to continue to help Covestro in implementing it. To that end, the Bidder will subscribe to new Covestro shares at the offer price through a 10% increase in the Company's share capital under simplified exclusion of subscription upon completion of the transaction, resulting in €1.17 billion proceeds at an offer price of €62.00, which Covestro will use to further implement its growth strategy.

In the agreement, ADNOC International agrees, among other things, to recognize German governance standards and to keep the co-determined Supervisory Board. An essential component is the guarantee that two Supervisory Board members representing shareholders would remain independent of ADNOC Group once the takeover deal is finalized.

The Investment Agreement also expresses ADNOC International's explicit endorsement of current general works agreements, collective bargaining agreements, and works council rights in Germany. Furthermore, there are no intentions to sell, shut, or severely curtail Covestro's business operations as part of the deal, and ADNOC International agrees under the Investment Agreement not to pursue any of the above. The Investment Agreement also includes a promise to preserve Covestro's technology and intellectual property.

Furthermore, ADNOC International agrees in the Investment Agreement that Covestro will continue to be operated as a stock business and that no domination or profit and loss transfer agreements will be entered into with Covestro.

The Investment Agreement and ADNOC International's obligations thereto demonstrate ADNOC International's complete faith and confidence in Covestro's management team. As a result, Covestro's present Board of Management will continue to be in charge of the company's operational management and strategic direction.

Covestro's Board of Management has decided, subject to fiduciary obligations, to support a delisting offer and/or squeeze-out if ADNOC International plans to implement either. However, the Investment Agreement states that even after a potential delisting and/or squeeze-out, Covestro will continue to be managed as a stock corporation under German law, with the same governance as before, a co-determined Supervisory Board with two Supervisory Board members who are independent of ADNOC International, and a registered headquarters in Leverkusen.

In connection with the conclusion of the Investment Agreement, the Board of Management has decided, with the support of the Supervisory Board, not to propose a dividend payment until the transaction is completed, the period for regulatory approvals expires, or the Investment Agreement is terminated.

Goldman Sachs and Perella Weinberg are serving as financial consultants to Covestro's Board of Management on the deal, while Linklaters is providing as legal counsel. Rothschild & Co. and Macquarie Capital are financial consultants to Covestro's Supervisory Board, while SZA Schilling, Zutt & Anschütz is the legal counsel.

Source: Covestro