Covestro Shareholders Urge Company to Initiate Discussions with ADNOC

German company Covestro (1COV.DE) is being urged by two of its top-15 investors, who are significant stakeholders in the plastics and chemicals sector, to initiate formal discussions with Abu Dhabi National Oil Co (ADNOC). This move is seen as being in the best interests of the shareholders. ADNOC has been actively seeking to diversify its operations and expand into downstream and renewable energy sectors. In June, ADNOC presented a non-binding offer of $59.42 per share for Covestro, which was subsequently declined.

Recent developments have seen ADNOC informally indicate to Covestro that it could potentially increase its offer to $64.83 per share. This, however, is contingent on Covestro entering into official takeover negotiations. Although Covestro has not yet officially commented on this potential takeover, Arne Rautenberg, a fund manager at Union Investment, emphasized that the management should take prompt action to engage in formal discussions. Rautenberg underscored that this step is essential to quell speculation and uncertainties in the market.

The revised offer, if accepted, would lead to a valuation of around $12.58 billion for Covestro. The company specializes in producing foam chemicals used in various applications, including mattresses, car seats, and building insulation. A second shareholder, preferring to remain anonymous, highlighted the potential negative impact of prolonged uncertainties stemming from takeover rumors, which have been circulating since June. The shareholder cautioned that such uncertainties could potentially drive down Covestro's share value, which currently stands at $50.78.

The negotiation process between Covestro and ADNOC goes beyond financial terms. Both parties need to find common ground on aspects such as location and employment. The shareholders stress that the companies' autonomy and independence should be taken into account, indicating potential interest in keeping the two entities separate.

While an offer of 60 euros per share might be seen as favorable from ADNOC's perspective, it is suggested that Covestro might be seeking a higher price. Rautenberg pointed out the company's historical peak share price of approximately $102.62 in January 2018 and its growth through acquisitions since its listing in 2015. The fact that Covestro's shares are currently trading below the reported offer price might reflect skepticism about the likelihood of a successful deal, as Rautenberg noted. Another factor potentially affecting the stock market is the broader impact of China's economic challenges.

As the situation unfolds, Rautenberg refrained from specifying the exact price point at which he would advise Covestro to accept an offer. The recent appointment of Christian Baier as the company's Chief Financial Officer has been noted as a relevant factor in these discussions. Rautenberg highlighted Baier's past experience in dealmaking from his tenure at the private equity firm Permira, potentially playing a role in the negotiation process.