Brussels considers the potential purchase of Covestro by ADNOC
The European Commission (EC) has launched an in-depth investigation under the Foreign Subsidies Regulation (FSR) into Abu Dhabi National Oil Company’s (ADNOC) planned €12 billion ($14 billion) takeover of Germany’s chemical company Covestro AG.
The probe, initiated on July 28, 2025, is focused on whether foreign subsidies granted by the United Arab Emirates (UAE) to ADNOC could distort the EU internal market and affect fair competition. The EC is concerned that governmental financial support for ADNOC might allow ADNOC to compete unfairly in European markets, potentially impacting competition negatively.
The investigation, with a timeline of 90 working days to decide, sets a deadline of December 2, 2025, for a final ruling. The EC is examining the influence of state support on competition, specifically whether ADNOC’s government backing constitutes a foreign subsidy that may give it an undue competitive edge in Europe.
Covestro is a leading European chemicals producer specializing in advanced polymer materials used in electric vehicles, engineering plastics, coatings, and thermal insulation. ADNOC aims to gain access to these technologies through the merger, representing strategic expansion by Middle Eastern state-owned enterprises into Europe.
The EU is increasingly vigilant about large-scale investments by Middle Eastern firms, reflecting broader sensitivities regarding foreign direct investment and state-backed acquisitions in strategic sectors within the EU.
ADNOC’s investment division, XRG, and Covestro are in talks with the EC as part of the investigation process, with the final decision pending. The deal, if completed, would be the largest takeover in the history of Adnoc and one of the largest by a Gulf state in the EU.
The investigation is based on the EU Regulation on foreign subsidies (FSR), which aims to prevent unfair state support from third countries. The Commission cited specific concerns, including an unlimited guarantee from the UAE and the promised capital increase, as justification for the in-depth investigation.
The deal includes a capital increase of around 1.2 billion euros, which Adnoc plans to subscribe to upon completion of the transaction. Covestro wants to use the capital increase for the financing of its sustainability strategy.
It is worth noting that the investigation is separate from the usual EU merger control approval that the takeover received in May. The Commission’s investigation focuses on the potential for state aid granted by the United Arab Emirates to distort competition in the European internal market.
The deal has a volume of up to 16 billion euros including debt. The investigation's outcome could set important precedents for the handling of foreign investments that involve significant government support.
Adnoc announced the takeover of Covestro, the former plastics business of Bayer, in October last year. There was initially no statement from Adnoc regarding the delay caused by the investigation. Covestro is continuing to engage in constructive discussions with the Commission for the completion of the FSR review.
References:
- BBC News
- Reuters
- Financial Times
- EU Commission Press Release
- The European Commission's comprehensive probe into the proposed acquisition of Germany's Covestro AG by Abu Dhabi National Oil Company (ADNOC) is examining whether community policy and employment policies in the EU could be impacted by potential foreign subsidies originating from the UAE, raising questions about fair competition and business practices within the industry.
- As the investigation into the ADNOC-Covestro deal progresses, there are concerns that financial backing from the UAE government might enable ADNOC to exert significant influence in the European finance market, potentially altering the competitive landscape across various sectors, including manufacturing and advanced polymer materials.
