European Commission to investigate ADNOC’s acquisition of Covestro

The proposed US$15 billion acquisition of German chemical company Covestro by XRG, the international investment arm of Abu Dhabi National Oil Company (ADNOC) – the biggest acquisition ever by a Gulf company in Europe – will be delayed as the deal is now being investigated by the European Commission.

The EC has opened an in-depth investigation to assess, under the Foreign Subsidies Regulation (FSR), the acquisition by ADNOC/XRG. The Commission said they were concerned that foreign subsidies granted by the UAE to the state-owned ADNOC “could distort the EU internal market”.

Covestro shareholders had given their go-ahead to XRG’s proposed deal in December 2024.

EU probes ADNOC’s Covestro takeover

The Commission said that “opening of an in-depth investigation does not prejudge the outcome of the investigation”.

If the European Commission probe, which has a deadline of December 2 to issue a ruling, concludes that rules have been violated, the takeover could eventually be blocked unless ADNOC makes significant concessions.

The Commission’s preliminary investigation indicates that ADNOC and Covestro may receive foreign subsidies. The possible foreign subsidies include an unlimited guarantee from the UAE, as well as a committed capital increase by ADNOC into Covestro.

The preliminary investigation felt that the foreign subsidies may have enabled ADNOC to acquire Covestro at a valuation and financial terms that would not be in line with market conditions, and which could not have been matched by unsubsidised investors.

During its in-depth investigation, the Commission said it would assess…

• Whether the foreign subsidies that ADNOC may have received distorted the outcome of the acquisition process. ADNOC may have offered an unusually high price and other favourable conditions, which may have deterred other investors from making an offer.
• Whether such potential foreign subsidies may lead to negative effects in the internal market with respect to the merged entity’s activities after the transaction.