Abu Dhabi's ADNOC to buy German chemicals company Covestro for $16.4 billion

Abu Dhabi's ADNOC has agreed to buy German chemicals producer Covestro for 15.9 billion euros ($18 billion) including debt, the state oil giant said on Tuesday, representing its largest acquisition to date.

The deal is one of the biggest foreign takeovers by a Gulf state as Abu Dhabi and other countries in the region seek to reduce their economies' heavy dependence on oil in the face of the global energy transition.

It follows protracted negotiations between the two companies and will see ADNOC pay 62 euros per Covestro share, equal to 14.7 billion euros including about 3 billion euros in debt.

ADNOC added it would also buy 1.17 billion euros worth of new shares in Covestro, a former Bayer BAYGn.DE unit, from a capital increase to improve funding of the takeover target.

Covestro shares jumped 3.7 per cent to a three-year high of 58 euros.

The deal is a cornerstone for ADNOC's plans to grow its petrochemicals business along with gas and renewable energy.

ADNOC has also been in talks with Austria's OMV for more than a year to merge their petrochemical joint ventures Borealis and Borouge. ADNOC took a 24.9 per cent stake in OMV from Abu Dhabi sovereign fund Mubadala in February.

Covestro, which makes plastics and chemicals for the automotive, construction and engineering sectors, was created in 2015 after being spun off from Bayer. It opened its books to ADNOC in June - a year after ADNOC's initial interest was reported.

The public takeover offer will be subject to a minimum acceptance threshold of 50 per cent plus one share of Covestro's capital.

The deal could reignite a debate about Germany's blue-chip companies facing foreign takeover overtures because of a weak economy.

Italy's UniCredit is seeking to merge with Commerzbank after snapping up a stake in its German rival, drawing criticism from Germany's political establishment, who want to keep the lender independent.

Covestro, however, said it won wide-ranging concessions to limit the buyer's control of the company.

Half of the seats on its supervisory board would continue to be held by labour representatives, as is the norm at German listed companies, and two members of the board's shareholder representatives will remain independent of ADNOC.

ADNOC pledged not to sell, close or significantly reduce Covestro's business activities and it would "protect Covestro's technology and intellectual property", Covestro said.

It added that its management board would stay in charge of management and strategic direction.

Covestro reported a net loss of 72 million euros in the first six months of the year, compared with 46 million euros profit in the previous year.

The agreement illustrates an increase in dealmaking between the Middle East and Europe, as Gulf investors are drawn to company valuations that lag those in the United States, an easier regulatory backdrop for buyers from the region, and where investment needs make them more welcome, advisers and analysts have told Reuters.

It is the Middle East's second biggest acquisition after Israel's Teva Pharmaceuticals' acquisition of Allergan's generic drugs business for around $40 billion in 2015, according to Dealogic data.