Welcome to the Covestro Investor Call on the signing of an investment agreement with ADNOC. The company is represented by Markus Steilemann, CEO, and Christian Weyer, CFO. During the presentation, all participants will be in a listen-only mode. The presentation will be followed by a question-and-answer session. If you have a question, please use the Raise Your Hand function or post your question into the Q&A tab. For your information, we posted the conference call presentation on our IR website. I assume you have read the safe harbor statement. With that, I would now like to turn the conference over to Markus.
Thank you, Ronald, and a very warm welcome to everyone on the call. I'm very pleased that after thorough and in-depth negotiations, we have signed an investment agreement with entities of ADNOC Group, including ADNOC International Limited and its indirect subsidiary, ADNOC International Germany Holding AG today. Based on the agreement, this morning, ADNOC has published its intention to make a voluntary public takeover offer to all our shareholders. This marks an important day for all of us at Covestro. I'm convinced that we have achieved a win-win situation for both parties. The investment agreement is the result of very intensive and constructive talks and negotiations over the past month. Throughout the process, we have always prioritized the quality of the outcome over speed, so that the investment agreement signed today is in the best interest of all our shareholders, our employees, the company, and all other stakeholders.
I would like to take this opportunity to thank everyone involved, whose hard work and unwavering commitment throughout this journey have been instrumental in reaching this milestone. The reward is now reflected in the investment agreement at hand. Let me walk you through the key cornerstones of the strategic partnership. On the financial side, ADNOC intends to make a voluntary all-cash public takeover offer for all outstanding shares of Covestro at an offer price of EUR 62 per share. At completion of the transaction, ADNOC shall subscribe to new Covestro shares at the offer price via an increase of the company's share capital by 10%. This will, at an offer price of EUR 62 per share, result in proceeds amounting to EUR 1.17 billion, which Covestro will use to foster the further implementation of its strategy.
We see in ADNOC a strong and long-term oriented partner with whom we will further drive our successful, sustainable future strategy, even under the continued challenging market conditions. With ADNOC's support, we will have an even stronger foundation for our sustainable growth in highly attractive sectors and can make an even greater contribution to the green transformation. At the beginning of the talks, we emphasized that our strategy and values are non-negotiable for us. Then, in our discussions, it became clear that ADNOC is absolutely convinced of our current business setup with our two business entities, Performance Materials and Solutions and Specialties, our strategic perspective, and our vision to become fully circular. ADNOC has assured us of its full support for our sustainable future growth strategy and its further execution.
Importantly, this also includes that no sale, closure, or significant reduction of Covestro's business activities is planned as part of the transaction. Looking into the governance part, ADNOC has assured us that we will continue to have the responsibility for the operational management and strategic direction of our company. In addition, ADNOC is committed to our company headquarters in Leverkusen, Germany. Covestro's legal form as a stock corporation will be maintained. I can also share from our negotiations that our unique We Are One culture, in particular, has left a big impression on ADNOC. Importantly, all this is underpinned by the commitment to maintaining the German governance system, including retaining the co-determined Supervisory Board. Two members of the Supervisory Board on the shareholder representative side will remain independent of ADNOC after the takeover offer has been completed. There will also be no Domination and Profit and Loss Transfer Agreement.
Summing up the transaction details, there are clear benefits to both sides. Covestro will gain access to ADNOC's vast resources and capabilities. ADNOC sees Covestro as the foundational platform of its performance materials and specialty chemicals business, aiming to become a global top five chemicals player. Based on the comprehensive commitments by ADNOC, we, together with the Supervisory Board, welcome and support the takeover offer. After publication of the offer document, which is to happen within the next six weeks, we will carefully review the offer document and issue our reasoned statement shortly after. We are very much looking forward to the partnership and are convinced that it will enable us to drive the further implementation of our successful sustainable future strategy. Christian will now guide you through more details of the transaction details, as set out in the investment agreement. Over to you, Christian.
Yeah. Thank you, Markus, and also warm welcome to everybody from my side. The offer of EUR 62 per share is subject to a minimum acceptance rate of 50% plus one share, and to other customary closing conditions. This includes a material adverse change provision, merger control, foreign investment control, and E.U. foreign subsidies clearances. The offer represents a 54% premium on the unaffected share price prior to any media coverage of a potential transaction back in June 2023. This is a significantly higher premium than the average takeover premium of 35%-40% seen in Germany in the past. This again underlines the attractiveness of the offer.
As already mentioned, upon completion of the transaction, a capital increase of 10% shall be subscribed by ADNOC against a payment of EUR 1.17 billion at the offer price of EUR 62 per share, under a simplified exclusion of subscription rights of existing shareholders. This is in line with the existing authorization from the AGM 2021. The proceeds from the capital increase shall be used to foster the further implementation of Covestro's strategy. Further, the board of management, with the support of the supervisory board, have also decided to not propose a dividend payment until the closing has been completed. In connection with the completion of the transaction, ADNOC will consider delisting Covestro from the stock exchange or approach a squeeze-out. Subject to our fiduciary duties, we, as the board of management, together with the supervisory board, have agreed to support this plan in principle.
It has been crucial to us that our governance structure remains unchanged. Thus, the investment agreement stipulates that even after a potential delisting or squeeze-out, Covestro will continue to be managed as a stock corporation under German law, with the same governance as before, hence, a co-determined supervisory board and with its registered headquarters in Leverkusen. Thanks to our employees' dedication and commitment to our goal of becoming fully circular, we are today in a strong position to unlock significant value in attractive industries. That is why the interests of our employees are also well protected in the investment agreement. ADNOC explicitly recognizes the existing general works agreements, collective bargaining agreements, and the rights of the works councils in Germany.
As our intellectual property and technology are cornerstones of our success, the investment agreement also includes an agreement for the long-term protection and expansion of the portfolio, and ADNOC's commitment not to seek to transfer Covestro's intellectual property to third parties, including ADNOC. We are delighted to have reached a remarkable joint investment agreement, which runs until the end of 2028. After the details of the investment agreement, let us now look at a potential timeline. Today's agreement marks the beginning of a multi-step transaction process. As part of the public takeover offer for all outstanding shares of Covestro, ADNOC International is expected to publish a corresponding offer document after review of BaFin within the next six weeks. With the publication, the offer period will be initiated. After its publication, the Board of Management of Covestro and the Supervisory Board will thoroughly assess the full offer document.
Both boards will publish their reasoned statements on the offer shortly thereafter. Subject to the review of the offer document, we currently assume that we will recommend to our shareholders to accept the offer. If the envisaged minimum acceptance rate of 50% plus one share is reached by the end of the acceptance period, the remaining shareholders have another two weeks to tender their shares into the offer, the so-called additional acceptance period. After this period, the total acceptance of the takeover offer will be known. The closing is the last milestone of the transaction process. Subject to satisfaction of the offer conditions, which I mentioned earlier, we currently expect closing to take place in the second half of 2025, and with that, Markus and I will now be happy to take your questions, and I pass it over to Carsten, who will guide us through the Q&A.
Ladies and gentlemen, we will now begin the question and answer session. If you have a question, please use the Raise Your Hand function on your telephone, this is star five, or post your question to the Q&A tab. If you wish to cancel your request, please use the Raise Your Hand function again. When speaking, please ensure that you are unmuted, and the first question comes from Christian Seitz from Kepler Cheuvreux. Please unmute the microphone, Christian.
Yes, good afternoon. Hope you can hear me. Three quite technical questions, please. First of all, can you please be a bit more specific about the timelines of the transaction, i.e., how long will the initial acceptance period last in your view? Second, would, in your view, ADNOC also be happy with less than 50% of shares tendered, or is the 50% plus one share a definite threshold? And third, would you know if ADNOC is free to buy shares in the market at this point in time per the agreement? Thanks.
Yeah. Thank you, Christian, for the questions. Let me just answer them directly. Initial acceptance period, we have spoken about, roughly four to five weeks. This is due to be exactly stated in the offer document, which should be out within the next six weeks. There is a four-week period until which basically that needs to be handed in, and then BaFin will review for about two weeks. That brings us to six weeks, and then we add four to five weeks of an initial acceptance period, which is gonna be very much clarified in the offer document.
With respect to the threshold of 50% plus one share, this is the agreement that we have jointly concluded on in the investment agreement, and we would therefore expect this to also be reflected in the offer document. And with respect to the ability of ADNOC to buy shares in the market, ADNOC is not underlying with the current agreement that we have concluded, any limitations of buying Covestro shares.
Okay, thanks very much.
And the next question comes from Sebastian Bray from Berenberg. Sebastian, please unmute your microphone.
Hello, everybody. Congratulations on getting this one over the finish line. I have a few questions, please. The first is related to the commitments on the supervisory board, recognition of German works agreements, and other items referred to in the press release. How is this enforceable? If someone thinks ADNOC is in breach of its conditions, does it go before an arbitration court? And who exactly decides on this? My second question is on reference to the domination agreement not being enacted. Is this a time-limited commitment? Could one, for example, still be enacted in five years' time? My third one is on my understanding of what break clauses or break fees are included within this preliminary agreement. My understanding is that there is some type of EBITDA variation clause.
Is there anything worth flagging at this stage in terms of things that could lead the deal to break if something changes or something fundamentally differs, either in earnings power or in practice among regulators? Thank you.
Sebastian, that's quite a bunch of questions, so but thanks for that. And also thanks to both of you, Christian and Sebastian, for the congratulations. If we're talking about the domination agreement, the overall investment agreement has a due date until 31 of December, 2028 . And a domination agreement is not foreseen in the period as long as this domination agreement is in place. And-
Investment agreement.
Sorry, that investment agreement is in place. And from that perspective, you could speculate now what would happen after, but I would refrain from speculating what would happen after. Because my understanding is we had very good, constructive and in-depth, conversation, and there is also a spirit how the two companies would like to work together, which is reflected now for four years in this, investment agreement. So therefore, from my perspective today, I would not foresee why, at a specific point in time, such type of potential domination agreement, would be put in place. So on the, MAC, I might hand over, to Christian, so to explain a bit more the details, on, that clauses.
Marku's next, so.
Yeah, very happy to comment on that. I think there was, it was just broadly phrased. As I mentioned in the, speech line, there is a material adverse change regulation in the document, which will prevail during the period of the acceptance. We see that as a reasonably broad setup that we have there, and currently do not foresee that there will be a violation of that. And there will be further details in the offer document of the the relevant topics there. It is a EUR 400 million EBITDA deviation that would be required in all the fiscal years 2024, 2025, and 2026.
Yeah, and last but not least, also, with regard to the setup, German governance setup, supervisory board. Any dispute, let's say, under the agreement, that could not be settled amicably would go to arbitration.
That's helpful. Thank you.
The next question comes from Geoff Haire from UBS. Geoff, please unmute your microphone.
Hi, good afternoon, and congratulations on what must have been a tough process. Just wanted to wonder whether you could talk a little bit about what antitrust agreements you need and the regions you need them in. And also, does Germany need to sign off this from a strategic point of view as well? I may have missed this because my mic went during the pre-prepared remarks. So I'm sorry if I'm repeating stuff you already said.
Yeah, Geoff, thanks for your question. I would just comment in general with regard to the regulatory procedures. As mentioned, there is basically three elements. There is that merger control piece, there is the foreign direct investment perspective, and then there is foreign subsidies regulation, which is pertaining to the E.U. market. In all those three elements, there is a multitude of filings that are required. We have individually, but also in close collaboration with ADNOC, worked on those already, and are well-prepared from a team perspective to be filing ASAP on all of those elements and are therefore confident that we will be able to run through those processes in an as efficient and speedy process as possible, given that we are also depending, obviously, on deadline timelines of the various authorities.
Can you say what the main regions you need approval in are?
You would need to think about the big jurisdictions where we are present. So think about the E.U. market, if we take this as a whole, sometimes with national situations, then we are talking about the U.S., certainly, and we are talking about China in that context next to a couple of others.
Okay. Thank you.
And then we got a question via the chat function from Andrea Giuseppe, asking: "What do you expect the transaction to have an impact on credit rating?
We do not expect this transaction at the moment to have any impact on the credit rating. We certainly would expect that once the transaction consummates, we have a strong major shareholder that would certainly be a positively seen perspective, but for the time being, given that we have not yet concluded, we see that probably as a neutral to slightly positive statement of the strong interest and commitment of a financially very strong company in a financially very strong company already.
Then we got a question via email from Thomas Nienaber from MKP Advisors. What we have not touched yet on, what is the H2 2025 closing guidance based on? What is the gating item? And will there be a second tendering line for the shares tendered? And how will the further process after end of the acceptance period look like?
Okay. Okay, happy to answer that. So, we were speaking about expecting closing of the transaction in H2 2025 . All the mentioned before regulatory elements will require their time. This has, as mentioned before, very well planned in advance already. We will now be starting to file ASAP in good conjunction with ADNOC, with the relevant responsibilities there. Just from an experience set on the one hand, and from the various filings and deadlines that would need to be fulfilled, the expectations is the H2 2025 . There is not that one specific gating item that would be seen right now as the piece that sits on the critical path.
With respect to your question on whether there would be a second trading line for tender shares, we can, for the time being, say most likely yes. This is being confirmed as we speak, and obviously will then prior to the tender acceptance period starting would be completely transparent. I think there has been an additional question with respect to what's the process post the acceptance period has passed. As mentioned before, there is then, if the 50% plus one share has been fulfilled, there is an additional two-week period for the shareholders that might have not tendered in the first phase.
Subsequent to that, there would be the official statement with respect to the acceptance threshold, acceptance level, and then certainly the transaction would be pending on the basis of the various, mostly regulatory approvals required, that would then lead into the closing to be expected in H2 2025.
And the next question comes via the telephone line from Chetan Udeshi from J.P. Morgan. Chetan, please unmute your microphone. Chetan, so far, we've not been able to hear you. Chetan dropped out, so if you come back, very welcome to join again. And we have a follow-up question from Sebastian Bray from Berenberg. Sebastian, please unmute your microphone.
Hello, thank you for taking my follow-up. I was intrigued by the comments around the E.U.'s having to look at this from a foreign subsidies point of view, and it raised a question in my mind about what assurance ADNOC has actually given Covestro beyond signing up for the EUR 1.17 billion. And I have two questions. Firstly, what are you gonna use the money raised for? Are there any plans on it? My gut feeling is MDI facility. And secondly, has ADNOC made any assurances regarding supply of either cheap energy or feedstock at this stage to Covestro, or how will that be managed internally, if at all, it's forthcoming? Thank you.
Yeah, thanks for that question, Sebastian. With respect to E.U. foreign subsidies regulation, this is a process that is customary to be undergone. Therefore, we also will go through that without any specific focus points. However, it is a part of the regulation that we have taken very early on, on the radar screen in those conversations. With respect to the expected capital increase upon closing, the usage of those additional funds is free to the application and the normal governance procedures within Covestro and should be seen as a key additional sign of trust of ADNOC investing the money into the company to continuously foster our strategy down the road. With respect to your point on energy and raw material commitments, certainly there will be statements, if any, in the offer documentation.
For the time being, we can say, there is nothing specific that has been agreed in that respect.
Thank you.
Then we have another question in the chat from Thomas Harmer. When would ADNOC pay? Once the transaction has received regulatory approval in H2, 2025 , tender shares would trade separately as tendered, as was the case with DSM ahead of the merger with Firmenich?
The transfer of the shares as well as the transfer of the money will happen upon closing of the transaction in expected H2 2025.
Then we have a follow-up question from Geoff Haire from UBS. Geoff, please unmute yourself.
Yeah, hi, hi. I was wondering if you'd give some more details around the comment you made, I think, in the first slide about ADNOC wanting to use Covestro as a strategic platform to be a top five chemical player globally. Does that imply that if ADNOC is successful in creating one company from Borouge and Borealis, that Covestro will be part of that, or it will be part of Covestro, or is it, is top five chemicals not including polyolefins?
Well, from today's perspective, this is a growth platform for specialty chemicals. And I would not consider the polyolefins portfolio from the two companies that you just mentioned to be specialties, and therefore, there would be no natural fit to consolidate this to an even larger platform, but rather take Covestro as a platform, and from there. By the way, in line with the growth ambitions and growth strategy that Covestro already has to build a platform of specialty companies. In that sense, I could say that MDI might be seen as a specialty as well in this context. However, just to manage expectations, MDI is a highly consolidated market, so do not expect that there anything, let's say, in terms of external growth would be possible.
But just saying, and also, the Covestro platform in its current portfolio is not considered to be merged with, let's say, other potential portfolio companies of ADNOC, but rather be used as the platform then to move on from there onwards.
There are no further questions anymore left. So with that, handing back to Ronald.
Thank you all for your interest and the next call we will obviously have is our Q3 conference call. I'm looking forward to see you or hear you once again for that. And thank you for your interest again, and bye-bye.