Abu Dhabi National Oil Co.’s planned takeover of Covestro AG for nearly €12 billion ($14 billion) has been hit by an in-depth European Union probe under the bloc’s tough foreign-subsidy rules.
EU regulators said Monday they will investigate concerns that Adnoc’s state funding by the United Arab Emirates could allow it to behave in a way that hampers fair competition across the bloc.
The escalation sends a strong signal that EU regulators are increasingly wary of large state-backed deals for European companies, just as flows of Middle Eastern money into the region accelerate. Companies from Gulf states were involved in a record $52 billion of acquisitions in Europe last year, data compiled by Bloomberg show, and 2025 is comfortably on track to be their second-biggest year of outlays in the region.
The Adnoc-Covestro deal was previously approved under the bloc’s regular merger rules, but Monday’s investigation under the EU’s Foreign Subsidies Regulation, which came into full force in 2023, piles on scrutiny. Should the European Commission conclude that the rules are violated, the takeover could eventually be blocked unless sufficient concessions are made.
In a statement, the regulator said possible foreign subsidies include an unlimited guarantee from the UAE, and that state support may have enabled Adnoc to acquire Covestro at a valuation and financial terms that would not be in line with market conditions. The EU authority has set itself a deadline of Dec. 2 to issue a ruling.
“While we respect the European Commission’s process, we contest the preliminary findings of the Commission and are confident that when the facts are fully examined there will be no reason to hold up clearance of a transaction that will add great value for all stakeholders and stimulate European industry,” an Adnoc spokesperson said in a statement.
Adnoc’s investment arm XRG and Covestro remain in constructive talks with the European Commission and are working toward a conclusion of the review, Covestro said in an emailed statement.
Last year, Abu Dhabi’s Emirates Telecommunications Group Co PJSC was forced to sign up to commitments that removed an unlimited state guarantee, in order to win EU approval for its €2.2 billion acquisition of PPF Telecom Group assets.
“We do not consider this a substantial risk to the deal, is no real surprise and reads similarly to the one about Etisalat,” Thomas Nienaber, a managing director at advisory firm MKP Advisors, said of the decision to probe the Adnoc-Covestro transaction. “No deal has been outright blocked yet under the FSR.”
A takeover of Covestro would give Adnoc — the biggest oil producer in the United Arab Emirates — control over a German company that supplies materials for some of the world’s most prominent phone and carmakers.
Aside from acquisitions, the EU has wielded its foreign subsidy powers largely against Chinese involvement in European markets across rail and clean energy sectors. Regulators raided the premises of Nuctech — a Chinese security equipment company with sites in the Netherlands and Poland.
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