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Update on Braskem after renewed ADNOC interest



Braskem has confirmed that ADNOC came through with a non-binding offer to acquire Novonor’s share package from the consortium of creditor banks.

Braskem was added as an idea to Whiteacre on November 2 at US$6.68/ADR.

The reported and confirmed offer looks as follows:

  • Non-binding offer to purchase the 38.3% Novonor stake from the banking consortium, of which ADNOC will reportedly hold 35.3% with the remaining 3% staying with Novonor.

  • R$37.29 per share of which half will be paid in cash, remainder in a seven-year note with interest of 7.25%. Until year 3, interest will be “accrued” and incorporated into the principal. Coupon payments will start in year 4.

  • Total consideration of R$37.29 translates to US$15.20 per ADR.

  • Reportedly (but not confirmed by Braskem/ADNOC) tag along rights for minority shareholders holding Braskem’s ON and PNA share classes (includes the ADRs, each of which consists of two BRKM5 PNA shares listed in Sao Paolo).

  • ADNOC partnering with Petrobras, which will remain as the second largest shareholder.

  • Governance will stay with Petrobras and Braskem (so no meddling by Novonor or what is left of it).

Initial thoughts on the offer and what to do now

First, let’s acknowledge that this comes as a major win for shareholders as the value of the company is once again validated by the ADNOC offer. However, a full cash consideration would have obviously made things a lot more easy for the small fish given half the payment will be made in ADNOC debt with its relatively complicated structure.

In the Braskem press release from November 9, the metrics of what was earlier reported in the media were confirmed – except for mentioning minorities with a single word.

Of course, there could be more to come regarding our position, however I get a weird feeling regarding us minorities. Even though tag-along rights were mentioned in the press article on the deal coming through, a non-mention by Braskem somewhat worries me. I am happy with the result given the short timeframe here, and although there is a significant risk that money is left on the table, I would advise to take the money on the pop here and sell. The risk of being stranded without a tag-along right seems not unlikely and should they not extend them to minorities, there is little to move the needle currently for us.

Of course, the deal structure makes more sense for the consortium of banks that need this deal to happen in order to raise cash for the bad loans made to Novonor. Banks may decide to hold the debt issued by ADNOC or sell it on the open market once payment is received. And given what is reported, the banks will get their payment.

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