Covestro opens door to Adnoc deal after it raises bid to $12.5 billion

Germany’s Covestro said on Monday it was stepping up talks with Adnoc after the Emirati energy company made an improved 11.7 billion euro ($12.5 billion) takeover bid following more than a year of pursuing the chemicals firm.

Covestro, which makes plastics and chemicals for construction and engineering, said it was opening its books to Adnoc and believed the two sides could “generally reach a common understanding regarding core aspects of a possible transaction including support for Covestro’s further growth strategy”.

Talks, which had previously been described as open-ended, will now be “concrete negotiations”, with Covestro saying it will provide Abu Dhabi National Oil Co with due diligence information after it made a 62 euros per share offer.

That was up from 60 euros previously, based on what people familiar with the talks had told Reuters.

Shares in Covestro, which said talks would proceed “in a timely manner” and there was no certainty of an agreement, were up 6% to 54.3 euros at 1356 GMT.

“We welcome the fact that Covestro is now negotiating with Adnoc,” said Arne Rautenberg, fund manager at Union Investment, which LSEG data shows as one of Covestro’s top-10 shareholders.

“But from an investor’s point of view, there is still room for improvement regarding the 62 euros-per-share offer price.”

It has taken more than a year to get to this stage. Adnoc’s initial informal offer was reported in June 2023, but it was not until September last year that the Covestro entered into talks.

“We look forward to jointly working with Covestro to swiftly progress due diligence for this important transaction,” an Adnoc spokesperson said, adding that this was a final offer.

The length of talks would suggest that many of issues are likely to be well advanced, Jefferies analyst said in a note.

Covestro said it had postponed until further notice its capital markets day scheduled for June 27 “in light of the recent developments”.

Adnoc has been pursuing several European targets.

It has also been in talks with Austria’s OMV to create a chemicals giant with combined annual sales of more than $20 billion.

And in December, it agreed to buy European chemical producer OCI’s stake in ammonia and urea producer Fertiglobe for $3.6 billion. Reuters reported in April that it had for a while considered buying Britain’s BP.

Meanwhile, oil prices edged up on Monday on the prospect of strong summer fuel demand and rising geopolitical tensions outweighed the effects of a stronger dollar.

Brent futures for August delivery were up 53 cents to $85.77 a barrel, a 0.6% gain, by 11:38 a.m. EST (or 1538 GMT). U.S. crude futures rose 65 cents to $81.38 per barrel, or a 0.8% gain.

Both benchmarks advanced about 3% last week for their second consecutive weekly upswing.

“The chief underlying reason behind the price strength ... is the growing confidence that global oil inventories will inevitably plunge during the summer in the northern hemisphere,” said Tamas Varga of oil broker PVM, referring to seasonal demand for oil products.

After last week’s big decline in US crude and gasoline inventories,, traders are watching whether the report due on Wednesday provides more signals of sustained strong gasoline demand, said Bob Yawger, director of energy futures at Mizuho in New York.

“It has to sustain for this positive narrative to continue in the market,” said Yawger, adding that the growing electric vehicle market is increasingly eating into gasoline’s share of the transportation market.

Geopolitical risks in the Middle East and a ramp-up in Ukrainian drone attacks on Russian refineries are also underpinning oil prices.

EU countries on Monday agreed on a new package of sanctions against Russia over its war in Ukraine, including a ban on reloading Russian liquefied natural gas (LNG) in the EU for further shipment to third countries.

However, a strengthening US currency has made dollar-denominated commodities more expensive for buyers using other currencies.

“The US dollar ... appears to have broken higher following better US PMI data on Friday night and political concerns ahead of the French election,” said IG analyst Tony Sycamore.

The dollar index, measuring performance against six major currencies, climbed on Friday and was up slightly on Monday after data showed US business activity at a 26-month high in June.

In Ecuador, state oil company Petroecuador has declared force majeure on deliveries of Napo heavy crude for export after the shutdown of a key pipeline and oil wells owing to heavy rain, sources said on Friday.

Copper eased on Monday, pressured by subdued demand in top consumer China and a significant upturn in deliveries to warehouses approved by the London Metal Exchange (LME) while some support was provided by a softer dollar.

Benchmark copper on the LME was down 0.2% at $9,657 a metric ton at 1609 GMT. It has dropped 13% since hitting its May 20 record high above $11,100 on signs of demand weakness in China and elsewhere.

“Funds are trading base (metals) against the yo-yoing dollar,” one metals trader said, adding that a meaningful upturn in copper prices would need signs of much stronger China consumption.

Copper inventories in warehouses monitored by the Shanghai Futures Exchange fell last week, but still stand at 322,910 tons compared with about 30,000 tons in January.

Reuters