Investigation Paused! Acquisition Blocked? ADNOC Plans Remedies for Covestro Takeover

Abu Dhabi National Oil Company (ADNOC) is preparing to make concessions regarding the EU's subsidy investigation into its €14.7 billion ($17.2 billion) acquisition of Covestro, following which ADNOC's stock price rose, and Covestro's stock price increased by 5.5%. According to informed sources, the remedy could involve converting the proposed €1.2 billion capital increase into a shareholder loan.

Relevant parties have indicated that these are positive developments that provide support for the stock price, as they increase the likelihood of both sides reaching an agreement and successfully completing the acquisition.

Insiders say that Abu Dhabi National Oil Company may commit to keeping Covestro's technology and intellectual property in Europe.

As early as July, the European Commission launched an in-depth investigation under the Foreign Subsidies Regulation (FSR) to assess the transaction in which Abu Dhabi state-owned enterprise ADNOC acquires the German chemical company Covestro. The European Commission has "initial concerns" that subsidies provided by the United Arab Emirates may distort the EU internal market. The Commission has identified the unlimited guarantees provided by the UAE, as well as ADNOC's commitment to inject additional capital into Covestro, as possible foreign subsidies.

It is reported that the Foreign Subsidies Regulation (FSR) focuses on unfair foreign assistance to enterprises. The rule aims to curb unfair competition from companies subsidized by their governments outside the European Union.

This month, the European Commission suspended its Foreign Subsidies Regulation (FSR) investigation into ADNOC’s acquisition of Covestro, as the Commission had not yet received the requested information from the parties involved. The suspension means that the original investigation deadline of December 2 may be postponed until the Commission is confident that it has all the materials needed to make a final decision on the merger.

XRG expressed deep disappointment with the actions of the EU executive and has raised doubts about the agreement. A spokesperson for XRG stated, "We are deeply disappointed by yesterday's ruling. The Commission's demands go far beyond what is reasonable and are unrelated to this transaction, involving areas that are both unreasonable and intrusive."

However, Covestro stated that it is confident the transaction will proceed as planned.

It is understood that XRG and Covestro are continuing to engage in constructive discussions with the European Commission and are working together to complete the Commission’s review. They remain confident that the transaction will be completed in the second half of 2025 as previously communicated. This strategic transaction will strengthen Europe’s industrial base, unlock further growth in key European industries, and demonstrate confidence in Europe as a long-term investment destination.

The acquisition of Covestro is reportedly the largest acquisition ever made by ADNOC and one of the largest acquisitions of an EU company by a Gulf nation.

The acquisition is valued at 11.7 billion euros (approximately 98 billion RMB), or 14.7 billion euros (about 123.2 billion RMB) including net debt and pension obligations assumed in the transaction.

This acquisition came after multiple previous contacts and nearly a year of back-and-forth negotiations, with ADNOC beginning concrete talks in June 2024 and ultimately reaching the agreement in October 2024. In December last year, ADNOC, through a voluntary public takeover offer to all Covestro shareholders, together with shares previously acquired, held 91.3% of all outstanding Covestro shares. In May this year, ADNOC’s acquisition of Covestro received unconditional antitrust approval from the European Union.

It is worth mentioning that on September 11, ADNOC announced that it had transferred its stakes in several listed subsidiaries to its international investment arm, XRG, for which ADNOC has ambitious growth plans.

This transfer (including shares of ADNOC Distribution, ADNOC Drilling, ADNOC Gas, and ADNOC Logistics & Services) will not affect the operations, leadership, or strategic direction of these companies, including their dividend policies. ADNOC holds 100% of XRG's shares, so ultimate control will not change.

ADNOC stated that all its shares in the fertilizer producer Fertiglobe are held through XRG. The company reiterated its plan to transfer its shares in the proposed Borouge International Group (BGI) to XRG upon completion and approval of the transaction. BGI is a new entity formed by the merger of Borouge and Austria’s Borealis, and BGI will also acquire Nova Chemicals.

XRG was established in November 2024 as a company for ADNOC's international low-carbon energy and chemical investments, focusing on natural gas, chemicals, and scalable energy solutions.