Adnoc Denies Hedge Funds the Neat German M&A Trade With Covestro Bid
Abu Dhabi National Oil is sidestepping the trap that often ensnares buyers of Frankfurt-listed companies.
Abu Dhabi National Oil Co. is denying hedge funds a chance to profit from its purchase of Germany’s Covestro.
Photographer: Alex Kraus/BloombergThe first question at the beginning of any German takeover is what the ending looks like. Buying a Frankfurt-listed company is typically a tortuous process which can see hedge funds push for a higher price and workers and politicians cry foul. Abu Dhabi National Oil Co.’s €12 billion ($13 billion) offer for Covestro AG may yet succeed in sidestepping both hurdles — and pave the way for more inbound acquisitions.
First, the technical problem. Corporate and private equity bidders often seek to get 75% ownership of German targets, the voting level where they’re able to implement a so-called domination agreement enabling them to dictate strategy and gain direct access to cash flow. That allows merger arbitrageurs to force bidders to pay up for the last bucket of shares that will get the suitor over that threshold.