Covestro's acquisition decisions have narrowed, leaving investors with a single choice moving forward.
Adnoc's Takeover of Covestro: Navigating the Risks for Investors
The news is abuzz with Adnoc, an Arab oil giant, offering to acquire a significant stake in German DAX company Covestro. But with the deal still under EU scrutiny and potential uncertainties looming, should you continue to hold onto your Covestro shares or cash out? Let's break it down.
Are You Just Chasing a Dream with Covestro Stock?
Currently, Covestro stock is trading at 58 euros. Adnoc has made an offer of 62 euros per share, offering a potential 4 euro gain. However, the deal is far from a done deal, considering the EU regulators have paused their review, possibly pushing back final approval beyond the initial deadline.
Given these factors, the BÖRSE ONLINE team suggests taking profits now. We advise against hanging onto the hope of a 4 euro gain per share until the takeover price is guaranteed. The potential for the deal to fall through could leave your investment in tatters.
Moreover, there are plans for a 1.2 billion euro capital increase, with Adnoc buying additional Covestro shares directly. The total deal amounts to 16 billion euros, including Covestro's value, the capital increase, and its debts.
Risks and Implications for Investors
The potential risks and implications for investors if Adnoc's acquisition of Covestro is completed can be assessed considering several key factors.
Regulatory Uncertainty and Deal Completion Risk
The EU is currently reviewing the deal under its Foreign Subsidies Regulation (FSR), which aims to prevent unfair foreign aid to companies. The regulatory uncertainty creates a risk that the deal could be further delayed, altered, or potentially blocked, impacting investor confidence and the valuation of Covestro shares.
Share Price and Ownership Structure Implications
Post-acquisition, ADNOC will effectively control about 95% of Covestro's outstanding shares. Remaining minority shareholders may be forced to exit at the offer price, which may not reflect future growth potential under ADNOC's ownership. Share prices may not properly reflect the takeover premium once the acquisition finalizes, and the company transitions to private ownership.
Potential Capital Increase and Financial Impact
Although no explicit plans for a capital increase have been announced, ADNOC's history of consolidation and financing activities suggests possible consolidation and financing activities in the chemical and polymer sectors. For investors, a capital increase could dilute existing shares if new equity is issued, potentially reducing the value of holdings not tendered in the acquisition offer.
Broader Market and Strategic Implications
The acquisition is part of ADNOC’s broader strategy to strengthen its polymer and chemical industry presence globally. This consolidation could lead to increased competition and pressure on other petrochemical firms, indirectly impacting Covestro investors. Investors should be aware of geopolitical and economic factors affecting ADNOC’s operations and how these may impact Covestro’s business outlook.
Summary of Potential Risks for Investors:
- Regulatory delays or rejection in EU approval could depress share price or void the deal.
- Limited liquidity and free float post-acquisition offer completion may reduce marketability of shares.
- Potential dilution if a capital increase is implemented as part of financing or restructuring.
- Price uncertainty for minority shareholders regarding exit valuations.
- Geopolitical and strategic risks linked to ADNOC’s ownership and business focus shifts.
Stay updated on EU regulatory reviews, details from Covestro’s investor communications, and ADNOC’s broader strategic announcements for a clearer picture of financial and operational implications.
- The regulatory uncertainty in the EU's review of Adnoc's acquisition of Covestro presents a risk for investors, as potential delays or rejections could depress the share price or void the deal.
- Post-acquisition, Adnoc's control of about 95% of Covestro's outstanding shares could lead to limited liquidity and free float, potentially reducing the marketability of shares for remaining minority investors.
