The European Commission has opened an in-depth investigation to assess, under the Foreign Subsidies Regulation ('FSR'), the acquisition by Abu Dhabi National Oil Company PJSC ('ADNOC') of Covestro. The Commission has preliminary concerns that foreign subsidies granted by the United Arab Emirates ('UAE') could distort the EU internal market.
ADNOC is a State-owned oil and gas producer based in the UAE. Covestro is a chemicals producer based in Germany.
The Commission's preliminary concerns
The preliminary investigation indicates that ADNOC and Covestro may receive foreign subsidies distorting the EU internal market.
The possible foreign subsidies notably include an unlimited guarantee from the UAE, as well as a committed capital increase by ADNOC into Covestro. The Commission has preliminary concerns 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. The Commission also has preliminary concerns that the transaction could allow ADNOC to adopt investment strategies that would impact competitive conditions in the internal market.
During its in-depth investigation, the Commission will assess in particular:
- 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.
The transaction was notified to the Commission on 15 May 2025. The Commission now has 90 working days, until 2 December 2025, to take a decision. The opening of an in-depth investigation does not prejudge the outcome of the investigation.
Companies
ADNOC, headquartered in the UAE, is a State-owned oil and gas producer, the national oil company of Abu Dhabi.
Covestro (formerly Bayer MaterialScience AG), a publicly listed company incorporated in Germany, is a chemical producer that focuses on the supply of high-performance polymers and components for such polymers. It serves a wide variety of sectors and currently has around 18 000 employees.
The procedure under the Foreign Subsidies Regulation
The FSR started to apply on 12 July 2023. The Regulation enables the Commission to address distortions caused by foreign subsidies, and thereby allows the EU to ensure a level playing field for all companies operating in the internal market while remaining open to trade and investment.
According to the FSR, companies must notify concentrations to the Commission when at least one of the merging companies, the acquired company or the joint venture is established in the EU and generates an EU turnover of at least €500 million, and when the parties were granted at least €50 million in combined aggregate foreign financial contributions from third countries in the three years prior to the concentration.
By the end of its 90-working day in-depth investigation the Commission may (i) accept commitments proposed by the company if they fully and effectively remedy the distortion, (ii) prohibit the concentration, or (iii) issue a no-objection decision.
