Abu Dhabi National Oil Co. is preparing to increase its preliminary takeover offer for Covestro AG and offer concessions to pave the way for the start of detailed due diligence, people with knowledge of the matter said. 

State-owned Adnoc aims to submit a fresh proposal of about €60 per share as soon as the coming days, which would value Covestro at around €11.3 billion ($12.3 billion), according to the people. It’s planning to pledge job guarantees for several years as well as about $8 billion of investments after closing the deal, the people said, asking not to be identified because the information is private.

Shares of Covestro gained as much as 3.2% in Tuesday morning trading, hitting the highest level since February 2022. They were up 2.3% to €54.24 at 12:10 p.m. in Frankfurt, giving the company a market value of about €10.3 billion. 

The two sides began talks in September following informal bids of €55 and €57 per share that Covestro viewed as too low. 

Union Investment, a German fund manager that’s among the top 15 investors in Covestro, called on company management to grant Adnoc access to due diligence following Bloomberg’s report of plans for the improved bid. 

“In our view, such an offer fulfills the prerequisite for the board to enter into in-depth takeover negotiations,” Arne Rautenberg, a fund manager at Union Investment, said in an emailed statement. 

The key question shouldn’t be whether Covestro remains independent, but rather what exactly Adnoc intends to do and how heavily it intends to invest in the business, he said. Such a takeover could improve Covestro’s competitiveness and ultimately benefit all parties, according to Rautenberg. 

Deliberations are ongoing, and Adnoc could opt to wait until the new year to send its revised bid, the people said. Representatives for Adnoc and Covestro declined to comment.

Adnoc’s pursuit of Covestro is part of the oil producer’s effort to diversify away from crude, a strategy other Middle Eastern companies are following as well. Adnoc has offered to buy a stake in Brazilian petrochemical producer Braskem SA and is putting the final touches on a deal with Austria’s OMV AG to create a petrochemical firm worth more than €30 billion. 

Covestro, which was spun out of Bayer AG in 2015, makes foams used in car seats, ingredients for mattresses and polycarbonates for medical devices. Bloomberg News first reported in June that Adnoc had made a preliminary takeover approach for the Leverkusen-based company.

Source: Bloomberg