EU investigates ADNOC’s Covestro acquisition over UAE subsidies potentially distorting internal market, invoking new Foreign Subsidies Regulation powers.
The European Commission has launched a detailed investigation into the proposed acquisition of Covestro by the Abu Dhabi National Oil Company (ADNOC), under the Foreign Subsidies Regulation (FSR). This action follows preliminary concerns that foreign subsidies provided by the United Arab Emirates (UAE) may distort competition within the European Union’s internal market. ADNOC is a state-owned oil and gas enterprise based in the UAE, while Covestro is a Germany-based company known for producing high-performance polymers used in various industrial applications.
Initial findings suggest that ADNOC and Covestro may have benefited from significant financial backing from the UAE government. Among the support measures under scrutiny are an unlimited financial guarantee and a substantial capital commitment by ADNOC to Covestro. The Commission is concerned that these subsidies may have given ADNOC an unfair competitive advantage, allowing it to offer a purchase price and financial terms beyond what would be feasible for market-driven, unsubsidised investors. Such advantages could influence the acquisition process in a way that discourages other potential bidders and undermines the fairness of the EU's internal market.
Furthermore, the Commission is examining the possibility that ADNOC, if successful in acquiring Covestro, might implement investment strategies that could further disrupt competitive dynamics within the EU. These strategies may be influenced by non-commercial considerations, enabled by the level of foreign financial support received. As a result, the merger could have long-term implications for market competition and innovation in the European chemicals industry.
The acquisition was formally notified to the European Commission on May 15, 2025. Following this notification, the Commission has a 90-working-day window — concluding on December 2, 2025 — to complete its investigation and issue a decision. This could lead to one of three outcomes: the acceptance of commitments by ADNOC to address the identified concerns, a prohibition of the transaction, or a decision raising no objections. Importantly, the decision to open an in-depth investigation does not imply any prejudgment regarding the final outcome.
The Foreign Subsidies Regulation, which became enforceable on July 12, 2023, empowers the European Commission to address competitive distortions resulting from foreign government subsidies. The regulation aims to maintain a level playing field for all companies operating within the EU while remaining open to foreign trade and investment. Under the FSR, companies are required to notify the Commission about mergers or acquisitions if at least one party is EU-based with a turnover of €500 million or more, and if the combined foreign subsidies over the previous three years exceed €50 million.
This case marks one of the significant early applications of the FSR and reflects the EU's evolving approach to protecting its market from potentially distortive foreign financial interventions.
