Adnoc’s primary source of revenue until 2016 was the export of crude oil to Asia.
Abu Dhabi’s state energy company, Adnoc is making its largest global acquisition by purchasing a significant chemical manufacturer in Europe and is betting the acquisition will help it weather the energy transition.
Abu Dhabi National Oil Co. offered $13 billion to acquire Covestro AG company in Germany. It will be the biggest Middle Eastern acquisition of a European company. The takeover would give the state monopoly control over the firm that provides materials for some of the most well-known phone and automobile manufacturers, a wager that the need for plastics will continue to rise faster than oil.
As Adnoc uses the vast money it receives from the sale of oil, the agreement would be a significant milestone in the goal of worldwide expansion and the power it brings. A Covestro acquisition shows that Adnoc is willing to pay to support its goals, which include purchasing assets related to natural gas and chemicals and taking part in renewable energy initiatives globally.
More than a year after the initial discussions, Adnoc has increased its offer by over 13%, which indicates the likelihood of an acquisition. Also, the UAE-based business has committed to safeguarding German employment and maintaining the management approach in Covestro. The management and supervisory boards of the German company support the proposal of Adnoc.
Organizational Transformation
Adnoc‘s primary source of revenue until 2016 was the export of crude oil to Asia. When Chief Executive Officer Sultan Al Jaber was assigned the responsibility of creating a company that would compete with the largest oil companies in the world, its reputation transformed.
Adnoc announced a $150 billion budget six years later to expand allied industries abroad and accelerate the expansion of domestic oil production capacity. It is one of the busiest energy dealmakers in the world, having recently purchased gas assets in the US and Africa.
Al Jaber also demonstrated the financial strength of the company by deciding to construct a new liquefied natural gas production facility in the United Arab Emirates, raising the oil capacity of the United Arab Emirates to about 5 million barrels daily. Chemicals were heavily involved in the goals of worldwide expansion.
But, the periodic nature of the industry makes it complicated. Due to declining consumer demand and growing costs of European chemical manufacturers, profits were negatively impacted. According to Salmeen from Adnoc, Covestro has a greater chance of handling the market swings thanks to its unique technology and product line. He adds that he believes the company can go through the process without issues. It demonstrates that the company has a lot of value.
That is the reasoning behind the offer of Adnoc of €62 per share, approximately 54% more than the closing of Covestro on June 19, 2023, the final full trading day before the initial proposal of Adnoc was made public by Bloomberg News. The stock of the competitor of German chemical manufacturer BASF SE increased by almost 6% at that time, but the value of Lanxess AG has fallen 11%.
Even with the Covestro move, which still needs crucial regulatory approvals, Adnoc has had trouble closing other transactions. It ignored a bid for Braskem in Brazil in May, and negotiations to merge two chemical businesses in which it and OMV AG have holdings postponed due to the elections of the European nation. Salmeen stated on Tuesday that negotiations are still going on with OMV.
According to Salmeen, Adnoc wants to be successful in various areas of the chemicals business, and the Covestro acquisition would provide it with access to specialty polymers that it was lacking before. Covestro is one of the significant leaders in the world.