Acquisition Change? Adnoc takeover of Covestro hit by EU foreign subsidies probe

The European Commission announced July 28 it has opened an in-depth investigation into the planned acquisition as part of the EU’s regulations covering the impact of foreign state subsidies on competition. The European Commission has set a deadline of Dec. 2 for a final decision based on its investigations. The Foreign Subsidies Regulation was introduced in 2023 and enables the commission to address distortions caused by foreign subsidies, allowing the EU to ensure a “level playing field for all companies operating in the internal market while remaining open to trade and investment.”

The European Commission voiced “preliminary concerns that foreign subsidies granted by the United Arab Emirates (UAE) could distort the EU internal market.”

The possible subsidies to be assessed include an “unlimited guarantee” from the UAE government and a proposed capital increase from Adnoc into Covestro — both of which may have given Adnoc an edge over any competing bidders, the commission said in its July 28 statement.

The subsidies may have enabled Adnoc to have “offered an unusually high price and other favourable conditions, which may have deterred other investors from making an offer,” it said. Such an offer would not be in line with market conditions and could not have been matched by unsubsidized investors, it said.

Preliminary concerns

The commission also has preliminary concerns that the transaction and potential foreign subsidies “may lead to negative effects in the internal market with respect to the merged entity’s activities after the transaction,” it said.

In May, the deal was given the thumbs up after passing through the EU’s traditional merger control process, with the commission concluding that the merger posed no competition concerns, as both companies primarily operate in different sectors of the chemical and petrochemical supply chains.

However, the transaction was then further notified to the European Commission on May 15, it said, giving the commission 90 working days — to Dec. 2 — to reach its decision. Potential decisions by the commission include accepting commitments proposed by the company if they “fully and effectively remedy the distortion,” prohibiting the move or issuing a “no-objection decision,” it said.

“XRG and Covestro continue to be in constructive discussions with the European Commission and are working cooperatively towards a conclusion of the authority’s Foreign Subsidies Regulation review,” a Covestro spokesperson said in an emailed response to Chemical Week.

Adnoc downstream diversification

State-owned oil and gas producer Adnoc has been diversifying its portfolio in recent years beyond its traditional areas into the downstream and chemical sectors, with the company previously stating its ambition to become a top five chemicals player globally. The proposed Covestro deal, including debt, would be Adnoc’s largest ever acquisition if it proceeds to completion.

The acquisition, accepted by Covestro’s shareholders in December after being initially agreed in October by the two companies, is seen as a flagship deal that would enable Adnoc to enter into the high-performance chemicals and advanced materials sector via its international investment subsidiary XRG PJSC. Covestro is a leading German-based producer of polycarbonates, polyurethanes and other performance materials.

On July 11, Covestro announced it had trimmed its full-year 2025 earnings guidance for the second time this year, citing continued concern over sustained global economic weakness with no sign of an upturn in the near term.

On July 16, Adnoc announced that it intended to transfer its 24.9% shareholding in OMV AG (Vienna) to XRG. Adnoc and OMV are in the process of merging their petrochemical joint ventures Borealis AG and Borouge PLC into a global polyolefins powerhouse, to be called Borouge Group International. Adnoc’s proposed 46.94% shareholding in the new JV is also expected to be held by XRG.