EU Probe Puts ADNOC’s $14B Covestro Takeover at Risk
ADNOC’s $14 billion takeover of Germany’s Covestro faces an EU probe under the Foreign Subsidies Regulation over potential market distortion, with a decision due by December 2, 2025.
Covestro is struggling with weak Q2 sales (-8.4% YoY to €3.38B) amid U.S. tariffs and global oversupply, while management remains cautiously optimistic the deal will proceed.
A negative EU ruling could chill Gulf investment in Europe and affect ADNOC’s broader energy partnerships, including green hydrogen and ammonia projects.
The takeover of German chemicals giant Covestro by Abu Dhabi’s national oil company ADNOC is facing significant hurdles, as the EU is at present assessing the possible competition distortion in European markets. While the German chemical company reported today that it has missed its Q2 2025 sales expectation, primarily due to US trade policies, the management remains confident that the ADNOC takeover deadline is being met. Covestro indicated that it is satisfied that the EU probe is not going to materialize in a blockade of the deal. Covestro is currently hit by a significant oversupply of its main products in global markets, including foam chemicals used in building, automotive, and mattresses. US tariffs have caused a substantial drop in prices, especially in Asian markets. In its financial report, Covestro stated that overall revenues decreased by 8.4% to 3.38 billion euros in Q2 (April-June), which is way below analyst expectations of around 3.55 billion. Earlier in July, Covestro already put out a warning that its full-year earnings will be lower. At present, Covestro expects earnings before EBITDA between 700 and 1.1 billion euros, which is a dramatically lower figure than the last update, 1-1.4 billion euros.
The market, already under pressure, is now eagerly awaiting the progress and outcome of the EU probe in the coming months. Since the proposed takeover by ADNOC last year, which entails a total of $14 billion, political pressure is mounting inside the EU to assess the role of the Abu Dhabi National Oil Company and the Emirati government in the EU market. As ADNOC is a state-owned oil and gas company with opaque financial reporting, there are fears that the Covestro takeover could distort internal EU market competition. ADNOC has been refuting any claims about possible distortion tactics or threats to other competitors, but the market remains on edge.
The current EU approach demonstrates a proactive stance by Brussels and its member states on non-EU investments in critical sectors of the European Union. This proactive stance underscores the EU's commitment to protecting its market from potential distortions. The move, based on rules implemented in 2023, and the concerns it addresses, can push potential Gulf-based investors and operators to consider other investment regions. ADNOC could now be considering its European options, especially in light of US President Trump’s move to attract more foreign capital to the US via his America First Investment Policy.
Officially, the European Commission has opened the investigation based on the Foreign Subsidies Regulation (FSR), as the Commission stated it has concerns about potential foreign subsidies by the UAE. The latter accusation is based on concerns that not only will ADNOC increase its committed capital into Covestro, but it has also offered an unlimited guarantee from the UAE. Brussels, especially, is looking at the option that, based on the two above-mentioned points, ADNOC has acquired Covestro not on market confirm pricing. Indirectly, the question is whether ADNOC has used UAE backing and financial structures to outperform other competitors for Covestro. Emirati backing is expected to have allowed ADNOC to propose a much higher price than regular competitors would have offered during the takeover period. The Commission, based on the fact that the transaction was notified to the Commission on May 15, 2025, has now until December 2, 2025, to make its own decision. Based on the FSR, companies should notify the Commission about a merger or acquisition entailing a company having an EU turnover of 500 million euros or more.
If the outcome of the EU probe is negative, the potential fallout could be massive, casting a shadow over other GCC investments in the EU. An adverse outcome could also have repercussions on ongoing deals between EU countries and ADNOC, especially in the areas of green hydrogen or ammonia, further complicating the situation.
By Cyril Widdershoven for Oilprice.com
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