Clearing Obstacles! ADNOC's Acquisition of Covestro Receives Conditional Approval from the European Union

During the in-depth investigation, the European Commission collected more information from the parties involved in the transaction and obtained feedback from both parties' competitors, and found that:

ADNOC and Covestro have received foreign subsidies from the UAE that may distort the internal market of the EU.

The foreign subsidies obtained include the unlimited national guarantee provided by the UAE government to ADNOC, the capital increase promised by ADNOC to Covestro, and certain preferential tax measures.

Identified foreign subsidies may negatively impact competition during acquisitions. In this regard, the European Commission particularly considered the exceptionally favorable conditions provided by ADNOC for the acquisition of Covestro, including capital increases, which might have prevented other investors from making acquisition offers.

Identified foreign subsidies may also lead to competitive distortions when the merged entity operates in the internal market of the EU after the transaction is completed. According to the Foreign Subsidies Regulation (FSR), unlimited state guarantees are considered "highly likely to distort the internal market," and therefore may distort the activities of the merged entity in the internal market.

Overall, the identified foreign subsidies artificially enhance the financing capacity of the merged entity's activities in the EU internal market and increase its degree of risk aversion. As a result, compared to the situation without these subsidies, the merged entity may adopt a more aggressive investment strategy, thereby harming other market participants and the competitive environment of the internal market.

To address the European Commission's competition concerns, ADNOC proposed:

Modify the company's articles of association to ensure compliance with the provisions of the UAE Bankruptcy Law, thereby eliminating the unlimited state guarantee.

• Share Covestro's patents in the field of sustainability with certain market participants according to pre-set transparent terms and conditions. This commitment will benefit competitors who particularly rely on Covestro's sustainable technology.

The European Commission believes that these commitments will eliminate the unlimited state guarantee enjoyed by ADNOC, and that market operators will benefit from access to Covestro's sustainability patents, offsetting the negative impact of the transaction on the internal market.

These commitments are valid for 10 years. The commitments related to Covestro patents will continue to be effective after the expiration of the commitment period, applicable for the entire duration of any licensing agreements signed within this commitment period.

Considering the positive feedback received during market testing, the European Commission concluded that the proposed commitments effectively address the key concerns raised earlier, particularly due to their potential spillover effects on the entire chemical industry, especially in the area of sustainable development innovation. Therefore, the transaction, as modified by these commitments, will no longer raise competition issues.

The European Commission's decision to approve the transaction is contingent upon both parties fully complying with these commitments. Under the supervision of the Commission, an independent trustee will be responsible for monitoring the implementation of these commitments.