Adnoc Wins EU Approval for €12Bn Covestro Deal

The biggest oil company in the United Arab Emirates has secured a key European approval that brings it a step closer to completing a €12bn ($14bn) takeover of Covestro AG, part of a global deals push to create a natural gas and chemicals leader.

Abu Dhabi National Oil Co won a conditional European Union go-ahead for the proposed buyout after addressing regulators’ concerns around state subsidies. The European Commission said on Friday that an offer from Adnoc to maintain Covestro’s intellectual property in Europe, as well as concessions around state guarantees, had settled earlier concerns, with the commitments valid for 10 years.

The deal will be the largest takeover of a European firm by a Middle Eastern company and marks the region’s ambitions in employing its hydrocarbon wealth to build international networks. Adnoc and regional rival Saudi Aramco are snapping up liquefied natural gas supply contracts to feed growing trading arms.

The Gulf countries are betting that demand for natural gas and chemicals will continue to grow as inputs for power and building blocks for consumer goods like the plastics, packaging and lightweight materials that go into mobile phones, computers and cars. Adnoc’s offer would be a cash injection into an industry that’s suffering falling prices and slack margins, hurting profit across the chemicals sector in Europe.

The planned purchase of Covestro would give Adnoc control over a German company that supplies materials for some of the world’s most prominent phone and carmakers. Adnoc would own Covestro through its investment unit XRG, set up in last year as the company’s international platform for natural gas, chemicals and energy solutions.

A year ago, Abu Dhabi launched the high-profile energy investment firm hoping to deploy billions of dollars on deals around the world.

 The company had early successes with gas deals in the US, Africa and central Asia. XRG’s biggest effort yet fell apart in September when the firm dropped its planned $19bn takeover of Australian natural gas producer Santos Ltd. It bounced back with a deal announced last week to explore buying into an LNG project in Argentina.

In July, the commission, the EU’s antitrust arm, opened a full-scale investigation into the Covestro deal under tough new foreign subsidies rules. EU officials warned at the time that Adnoc’s state funding may have given it an unfair advantage over rivals with less-deep pockets, concerns that were allayed during negotiations between the parties.

“Commitments offered by Adnoc effectively address the potential negative effects by allowing market participants to access key Covestro patents in the field of sustainability,” EU competition chief Teresa Ribera said in a statement. “Clear, pre-defined access to these patents will enable others to innovate and advance research in an area that is critical for Europe’s future.”

Adnoc also transferred to XRG its holdings in four subsidiaries listed on the Abu Dhabi stock exchange in September. The transaction will bolster XRG’s balance sheet by providing it with cash flows from companies with total market capitalisation of nearly $120bn.