The Abu Dhabi National Oil Company (ADNOC) has reached an agreement to buy German chemicals maker Covestro in what is set to be the biggest acquisition in the history of the United Arab Emirates and the largest Middle Eastern purchase of a European company.
The $16 billion-plus deal comes at a sensitive time for Germany. Facing its worst economic crisis in a decade, the sale of Covestro represents the loss of another jewel in the industrial base of Europe’s largest economy after a spate of foreign acquisitions. Talks of further takeovers are ongoing.
By buying Covestro, ADNOC—whose daily oil production of 4.85 million barrels per day far exceeds that of rivals such as Shell, ExxonMobil, and Chevron—aims to accelerate its diversification into higher-value oil-based products such as plastics, with plans to help the German company become a top-five global chemical products maker. Established in 2015 as a spinoff from Bayer, Covestro is a leader in the production of polyurethane foam, which is essential in products ranging from household appliances to mattresses and footwear, as well as polycarbonate, a lightweight yet durable plastic often used as a metal replacement in the automotive and electronics industries.
ADNOC’s bid for Covestro was well timed. According to the European Chemical Industry Council, the EU chemical industry suffered the third-largest drop in production last year, down 10.6%. The decline comes as the sector is undergoing a costly effort to become climate-neutral and provide safe and sustainable chemicals, on top of which production has been hit by slow economic growth in China and factors such as pressure on the automotive industry. However, demand is expected to recover and grow in the medium to long term. Meanwhile, ADNOC has been working to boost its oil and gas production capacity and acquire clean energy assets around the world as the energy transition saps demand for fossil fuels. Persian Gulf companies looking to enter Western markets have faced a number of challenges, from regulatory setbacks to pushback from local governments. ADNOC’s deal for Covestro, experts say, offers a counternarrative and bolsters Abu Dhabi’s credibility in handling difficult cross-border deals while encouraging more transactions between Gulf states and Europe down the road.