Deep-pocketed strategic buyers sometimes like to interact in a spot of backside fishing. One Gulf-based vitality group might have gotten out its rod to just do that within the European chemical sector. This may clarify reports that Abu Dhabi’s Adnoc has made a preliminary €13.5bn supply for Germany’s Covestro.
Strategically, diversifying into cleaner and higher-growth sectors is smart for Abu Dhabi’s nationwide oil firm. With the vitality transition beginning to chew, it faces slowing progress in its core enterprise. It has earmarked $150bn to put money into pure fuel, chemical compounds and clear vitality.
Adnoc has a penchant for chemical compounds. It owns a majority stake in Borouge, a three way partnership with Austria’s Borealis, and not too long ago took Mubadala’s place within the share capital of each Borealis and OMV, which controls it. A couple of weeks in the past it teamed up with Apollo to make an indicative supply for a stake in Brazil’s Braskem.
European chemical compounds commerce cheaply. China’s disappointing restoration has adopted shut on the heels of the fuel disaster, which squeezed margins. Rival German chemical compounds group Lanxess warned on Tuesday over macro headwinds. Whereas Adnoc’s casual supply — about €55 a share — is at a premium of about 35 per cent to Covestro’s undisturbed inventory value, that’s solely the place the shares traded in early 2022.
On most measures, that doesn’t look notably beneficiant, particularly contemplating Covestro’s robust place within the manufacturing of foams and polycarbonates.
It implies an enterprise worth of about €13.5bn together with debt and pension liabilities, equal to 9.6 instances consensus ebitda for the present, depressed, yr, however lower than 5 instances subsequent yr’s goal for “mid-cycle” ebitda. It is usually at a 40 per cent low cost to the asset substitute worth of about €90 per share, as estimated by Sebastian Satz at Barclays.
True, the final time the inventory reached substitute worth was in 2018. But promoting out on the backside of a cycle might not attraction both. A proposal from Adnoc would supply an acid check of the market’s confidence in a restoration.
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