The European Commission has conditionally approved the acquisition of Covestro AG by Abu Dhabi National Oil Company PJSC (ADNOC) under the Foreign Subsidies Regulation (FSR), following an in-depth investigation into foreign financial contributions received by the parties and their potential impact on competition within the EU internal market. The approval is contingent upon full compliance with commitments offered by ADNOC and Covestro to remedy the competitive concerns identified.
ADNOC, a state-owned oil and gas producer headquartered in the United Arab Emirates, sought to acquire Covestro, a German-incorporated chemicals manufacturer specialising in high-performance polymers and employing approximately 18,000 people worldwide. During its investigation, the Commission gathered information from the companies and market participants and concluded that both ADNOC and Covestro had received foreign subsidies from the UAE that were liable to distort competition. These subsidies included an unlimited state guarantee benefiting ADNOC, a committed capital increase into Covestro, and certain advantageous tax measures. The Commission found that such subsidies could have influenced the acquisition process by enabling ADNOC to offer conditions that may have discouraged rival bidders. It also determined that the merged entity’s activities in the EU could have been distorted by an artificially enhanced capacity to finance operations and a reduced sensitivity to commercial risk, potentially resulting in aggressive investment strategies that could disadvantage competitors.
To eliminate these concerns, ADNOC committed to modifying its articles of association to bring them in line with standard UAE insolvency law, thereby removing the unlimited state guarantee. In addition, the parties agreed to make certain Covestro patents related to sustainability available to other market operators on transparent and pre-defined terms. This measure is intended to counterbalance the potential negative effects of the transaction and foster innovation across the chemical industry, particularly in sustainability technologies. The Commission determined that these commitments address the identified distortions, and noted the positive feedback received during the market test.
The commitments will apply for ten years, with licensing agreements entered into during that period remaining valid for their full duration. Their implementation will be monitored by an independent trustee under the Commission’s supervision. The conditional approval ensures that the transaction no longer raises concerns under the FSR, which has applied since July 2023 and empowers the Commission to review foreign subsidies that may undermine the level playing field in the internal market.
More information, including the full decision and commitments, will be made available on the Commission’s competition website under case number FS.100156.