On November 10, 2025, the Commission conditionally cleared Abu Dhabi National Oil Company’s (“ADNOC”) c. €15 billion acquisition of German chemicals company Covestro AG (“Covestro”) under the Foreign Subsidies Regulation (“FSR”),[1] following a Phase II review.[2]

This marks only the second-ever FSR conditional clearance decision, following the conditional approval of Emirates Telecommunications Group Company PJSC’s (“e&”) acquisition of PPF Telecom Group (“PPF”) in September 2024.[3] While the full decision has not yet been published, the press release provides insight into the Commission’s willingness to accept behavioral remedies and explore novel sustainability patent-licensing commitments.[4]

Transaction Background and Foreign Subsidies

ADNOC, the UAE state-owned oil and gas producer, announced its intention to acquire all outstanding shares in Covestro on October 1, 2024. Covestro is a global leader in polymer materials production, particularly polyurethane foam and polycarbonate used in household appliances, insulation, and the automotive industry. The deal valued the Frankfurt-listed polymer materials company at €14.7 billion, with an offer price of €62 per share, representing a substantial 54% premium over Covestro’s pre-announcement share price. ADNOC has committed to fully supporting Covestro’s “Sustainable Future” strategy, including with a cash injection of approximately €1.17 billion upon deal completion.

The Commission’s Concerns

The FSR review took 13 months, in part due to several stop-the-clock periods, and was concluded around six months after Commission’s unconditional merger control approval.[5] The Commission identified two principal FSR concerns:

  • An unlimited guarantee from the UAE and other advantageous tax measures. In line with its findings in the e&/PPF case, the Commission noted that the UAE provides exemptions from standard bankruptcy law for companies “wholly or partially owned by the federal or local government,” leading investors to assume that the UAE State would step in and help financially if the company faced financial distress.[6]
  • A committed capital increase by ADNOC into Covestro. The substantial financial commitment (c. €1.17 billion) may constitute a foreign subsidy that facilitates the transaction under non-market conditions.

All in all, the Commission considered that the measures at issue may have enabled ADNOC to bid for Covestro under financial terms not aligned with market conditions and adopt investment strategies that would “impact competitive conditions” in the internal market by artificially improving its capacity to finance its activities and increasing its indifference to risk. 

The Commitments Offered by ADNOC

To address the Commission’s concerns, ADNOC offered two commitments valid for 10 years:

  • Unlimited Guarantee Commitment. ADNOC agreed that its Articles of Association shall expressly state that ADNOC is subject to the UAE insolvency legislation applicable to commercial companies and should contain no provisions that conflict with or may allow it to circumvent such legislation.[7] This effectively removes the unlimited guarantee, which the Commission considered to be one of the subsidies “most likely to distort the internal market.”
  • IP Commitment. ADNOC agreed to (i) maintain existing R&D cooperation agreements with competitors; and (ii) license Covestro’s present and future sustainability-related patents (c. 200 patents) to certain market participants—not competitors—using pre-established transparent terms and conditions.

The Unlimited Guarantee Commitment is in line with the (only) precedent in e&/PPF. The IP Commitment is novel and appears to be based on Article 6 FSR, which allows the Commission to balance out the negative effects of a foreign subsidy against the positive effects of that subsidy on the “development of the relevant subsidized economic activity on the internal market” but also “in relation to the relevant policy objectives, in particular those of the Union”. Put simply, the Commission extracted broader sustainability-related benefits from ADNOC that do not appear to be linked to any specific theory of harm under the FSR but are deemed to overall outweigh the identified negative effects of the transaction on the internal market.

Importantly, while in e&/PPF, the commitments included a prohibition for e& and the Emirates Investment Authority to finance PPF’s activities in the EU, subject to exceptions (e.g., emergency funding), and a requirement that other transactions be on market terms,[8] the ADNOC/Covestro decision does not prohibit ADNOC’s planned immediate cash support of €1.17 billion and long-term capital or other funding support of Covestro. This is likely because the capital injection is a key element of the transaction rationale as the European (and global) chemical industry continues to face weak demand, persistent overcapacity, and high energy costs.[9]

The Upcoming FSR Guidelines

The Commission is set to publish its FSR Guidelines by January 2026, following a consultation that opened on July 18, 2025. The Commission sought feedback from market participants on soft-law FSR guidance, including in areas key to the ADNOC/Covestro case, namely: (i) the assessment of distortions of competition; and (ii) how the Commission applies the balancing test between positive and distortive effects of foreign subsidies.

Under the draft FSR Guidelines, the Commission would give due consideration to positive effects of proposed transactions that are aligned with EU priorities such as regional development, innovation, environmental protection, and industrial decarbonization.[10] The Commission would also consider non-EU specific objectives with EU relevance, particularly those promoting environmental sustainability and social standards.

Broader Implications

For future deals that could raise substantive concerns, parties could consider opportunities for innovative and creative commitment packages that may go beyond the strict remit of subsidy-related concerns, particularly if benefits of such commitments align with key EU objectives such as sustainability and innovation.

[1] ADNOC/Covestro (Case FS.100156), Commission decision of November 10, 2025 (the non-confidential version of the decision is not yet available) (“ADNOC/Covestro”). See Commission Press Release IP/25/2687, “Commission conditionally approves ADNOC’s acquisition of Covestro under the Foreign Subsidies Regulation,” November 10, 2025, available here (“EC ADNOC/Covestro Press Release”).

[2] See ADNOC/Covestro, Commitments to the European Commission (non-confidential version).

[3] Emirates Telecommunications Group/PPF Telecom Group (Case FS.100011), Commission decision of September 24, 2024 (“e&/PPF”). See Cleary Gottlieb Alert Memorandum, “First Merger Commitments Adopted Under the EU Foreign Subsidies Regulation,” October 4, 2024, available here.

[4] Commission Press Release IP/25/1863, “Commission seeks feedback on proposed Foreign Subsidies Regulation Guidelines,” July 18, 2025, available here.

[5] ADNOC/Covestro (Case COMP/M.11771), Commission decision of May 12, 2025.

[6] Article 2 of the United Arab Emirates 2016 Bankruptcy Law. See e&/PPF Telecom Group (Case FS. 100011), Commission decision of October 24, 2024 (provisional non-confidential version), para. 78.

[7] ADNOC/Covestro (Case FS.100156), Commitments to the European Commission (non-confidential version), para. 2.

[8] Cleary Gottlieb, “First Merger Commitments Adopted Under the EU Foreign Subsidies Regulation,” October 4, 2024, available here.

[9] Covestro Press Release, “ADNOC takeover offer for Covestro successful,” December 19, 2024, available here.

[10] Communication from the Commission, Guidelines on the application of certain provisions of Regulation (EU) 2022/2560 of the European Parliament and of the Council of 14 December 2022 on foreign subsidies distorting the internal market (“draft FSR Guidelines”), paras. 96 et seq.