With the Covestro takeover, an investor from the Middle East for the first time acquired a German blue chip company. However, it wasn't just the sheer size of the acquisition – valued at over 14 billion euros including debt – that led to Adnoc, the state-owned oil company from Abu Dhabi, winning the Corporate Finance Award in the Large Caps category.

It took 16 months from the first takeover speculation to an official bid. And the transaction has not yet been finalised, with various regulatory approvals still pending. The clock is ticking, since the various authorities must give their approval by December 2, 2025, or the acquisition will fall through. But that is unlikely. The United Arab Emirates is considered an attractive economic region, and Europe, given trade policy conflicts with the United States, is desperately seeking partners for bilateral or multilateral agreements.

Including debt, Adnoc is paying 14.3 billion euros for the plastics manufacturer, which is 13 times its operating profit. Additionally, 1.2 billion euros in fresh equity will be injected once the transaction is completed.

It raises the question of whether the investors from the UAE could have reached their goal more quickly and cheaply with a hostile offer, especially since the target's equity was fully in free float. However, it seems that the state-owned oil company from Abu Dhabi never considered that option. From the outset, Adnoc was focused on a compelling business model, and was even willing to swallow some bitter pills to achieve this.

The goal is to transform Covestro into the fifth-largest chemical company in the world. To achieve that, it was necessary to gain the trust of management and employees, as Adnoc wanted to keep the management, led by Markus Steilemann, on board. „Trust is not built with force“, says Klaus Fröhlich, Adnoc's Group Chief Investment Officer. Even Covestro's management now speaks of „the right step at the right time.“

It is no coincidence that the move took place at a cyclical low. But the strategic investor was never focused on achieving its goal with the lowest possible bid. The acquisition price of 62 euros per share represented a premium of 54% over the unaffected stock price. If the closing price before the start of due diligence is considered, it still results in a considerable 21% premium. At this point, the acquisition price of 62 euros per share was mentioned for the first time.

The initial indicative offer in June 2023 was 55 euros. However, Covestro’s management not only managed to increase the acquisition price by almost 13%, but they also secured significant concessions from Adnoc, despite the acquisition being primarily a question of price due to the 100% free float.

The basis for the support of Covestro was the investment agreement signed by both parties on 1 October 2024. In it, Adnoc not only commits to providing fresh equity but also agrees to fully support Covestro's „Sustainable Future“ growth strategy. It gives Covestro a significant competitive advantage, as they will be able to invest counter-cyclically in green transformation.

Covestro also negotiated the recognition of German governance regulations and the retention of a co-determined supervisory board. The existing works agreement was explicitly recognised. This agreement, signed just a day after the due diligence began, guarantees that layoffs in Germany will be excluded until the end of 2032. But the investment agreement is set to expire at the end of 2028.

For the German workforce, this represents a quantum leap, as the works agreement also excludes plant closures. Nearly half of the savings from the 400 million euro cost-cutting program, which was simultaneously agreed upon, will happen in Germany. „Understanding and becoming comfortable with the world of German co-determination is certainly something that took time“, notes Fröhlich, who is credited as the architect of the deal.

The attractiveness of the offer for the current shareholders is beyond doubt, as shown by the broad take up. By the end of the first acceptance period, Adnoc held nearly 70% of the shares. After the subsequent acceptance period, particularly relevant for index funds, the investor had accumulated 91.3%. With the planned capital increase, the stake will rise further, making delisting a done deal. Covestro was already removed from the Dax on 27 December.

An aspect that typically requires special consideration in billion-dollar transactions is the financing. But in this case, it plays a secondary role. Adnoc, or its new investment company XRG, a 100%-owned subsidiary of Adnoc and the owner of Covestro, has assets of 80 billion euros, which are set to double by 2035. The portfolio includes companies from the energy and chemical sectors.