The proposed $14 billion takeover of German chemicals giant Covestro by Abu Dhabi’s national oil company, ADNOC, is facing significant headwinds as the European Union intensifies its scrutiny. This high-stakes deal is currently under a formal EU probe, raising questions about potential market distortion within European economies and setting a precedent for future Gulf investments.
Covestro itself has been navigating challenging financial waters, recently missing its Q2 2025 sales expectations. Revenues saw an 8.4% year-over-year decrease to €3.38 billion, falling short of analyst predictions. This downturn is primarily attributed to factors like stringent US trade policies and a global oversupply of key products, including foam chemicals critical for the building and automotive sectors, creating a difficult environment for the Chemicals Industry.
At the heart of the EU’s concerns lies the Foreign Subsidies Regulation (FSR), enacted in 2023, which aims to address the distortive effects of foreign subsidies in the European single market. Brussels is specifically investigating whether ADNOC, as a state-owned entity, benefited from undisclosed foreign subsidies from the UAE, including an alleged unlimited guarantee, allowing it to potentially offer a price for Covestro that outmaneuvered market-based competitors.
The ADNOC takeover has put the spotlight on the increasing involvement of state-owned enterprises in critical European sectors. The market remains on edge, keenly observing the progress of the EU probe, as political pressure mounts within the EU to ensure fair Market Competition and transparency, particularly from entities with opaque financial reporting structures.
This proactive stance by the European Commission signals a new era for non-EU investments, underscoring the EU’s commitment to safeguarding its internal market from unfair advantages. A negative ruling could deter other potential Gulf investments into Europe, prompting investors to explore alternative regions, especially with competing policies like the US “America First Investment Policy.”
Officially, the investigation was launched on May 15, 2025, following the notification of the transaction. The European Commission now has until December 2, 2025, to deliver its decisive ruling. Under the FSR, companies are mandated to notify the Commission of mergers or acquisitions involving an EU turnover of €500 million or more, highlighting the regulatory complexities involved in cross-border deals.
The potential ramifications of an adverse EU decision extend far beyond the Covestro deal. Such an outcome could cast a considerable shadow over other investments from Gulf Cooperation Council (GCC) countries in the EU. Furthermore, it might complicate ongoing critical energy partnerships between EU nations and ADNOC, particularly in burgeoning sectors like green hydrogen and ammonia, impacting future strategic alliances.
