The acquisition of Covestro by the UAE-backed investment firm X Resource Group (XRG) has received final regulatory approval from the European Union, paving the way for a deal valued at approximately €11 billion. This move marks a significant expansion for XRG in the global chemicals market and represents a major investment for the United Arab Emirates. The completion of this Covestro acquisition is expected shortly, following a lengthy review process focused on potential competition and foreign state influence.
The European Commission’s approval follows a series of investigations initiated in July, under the Foreign Subsidies Regulation (FSR). These investigations centered on whether financial support from the UAE government provided XRG with an unfair advantage during the bidding process. The Commission ultimately concluded that the support did not distort competition within the EU’s internal market, clearing the path for the deal to proceed. The transaction was initially announced in October 2024.
What the Covestro Acquisition Means for the Chemical Industry
The Covestro acquisition by XRG is being closely watched as a test case for the EU’s evolving approach to foreign investments, particularly those backed by state-owned entities. The FSR, designed to protect European companies from unfair competition arising from foreign subsidies, has come under increased scrutiny as geopolitical tensions rise and strategic industries become focal points for investment. This deal demonstrates the Commission’s willingness to approve large-scale acquisitions even with state involvement, provided there is no demonstrable harm to competition.
Regulatory Milestones
The path to approval wasn’t straightforward. In May, the European Commission initially granted unconditional antitrust approval, determining that XRG and Covestro operate in distinct segments of the chemical supply chain, minimizing potential overlap. However, the subsequent in-depth investigation under the FSR added several months to the process.
The FSR review meticulously examined guarantees and capital structures related to ADNOC, the UAE’s national oil company and a major backer of XRG. Ultimately, the Commission deemed these arrangements did not qualify as financial contributions that would unduly favor XRG in the bidding process, according to an official statement.
XRG’s Strategic Vision for Covestro
XRG intends to leverage Covestro’s strengths in materials science to bolster its position in key growth areas. According to the company, these include sustainable technologies, such as the energy transition and circular manufacturing, as well as advanced materials essential for artificial intelligence and digital infrastructure. This aligns with broader global trends towards sustainability and technological advancement.
Dr. Rainer Seele, President of Global Chemicals at XRG, stated that the approvals facilitate a long-term partnership centered on Covestro’s technological expertise. He emphasized that the deal is central to XRG’s ambition to become a top-three global investor in the chemicals sector. Industry analysts suggest XRG will likely prioritize investments in research and development to drive innovation within Covestro.
Meanwhile, Covestro CEO Dr. Markus Steilemann views the acquisition as an opportunity to accelerate the company’s ongoing digitalization efforts and expand its portfolio of circular solutions. Both companies reiterated a shared commitment to prioritizing growth in next-generation materials, suggesting a cohesive strategic alignment. This includes continued development of polymers and polyurethanes for diverse applications.
Maintaining Continuity and Investment
Despite the change in ownership, XRG has committed to maintaining the status quo at Covestro in several key areas. The company will retain its headquarters in Leverkusen, Germany, and its existing management team will remain in place. This is intended to minimize disruption and leverage the team’s existing knowledge and relationships.
Furthermore, XRG has pledged to uphold existing employee agreements, including collective bargaining rights and co-determination structures, which are integral to German corporate governance. The firm also indicated it will explore opportunities to strengthen operational efficiency and resilience as Covestro enters its next phase of growth and investment. This will likely involve optimizing supply chains and exploring cost-saving measures.
With all conditions of the offer document, initially made in October 2024, now satisfied, XRG anticipates completing the transaction in the coming days. The deal still requires final closing procedures and any potential last-minute challenges, though these are considered unlikely given the extent of the regulatory reviews already completed.
Looking ahead, the successful integration of Covestro into XRG’s portfolio will be a crucial indicator of the UAE’s increasing role as a global investor in strategic industries. Market observers will be watching closely for how XRG navigates the complexities of European regulations and labor laws while simultaneously pursuing its ambitious growth plans for the acquired company. Further developments concerning investment in specialty chemicals and wider industrial strategy are expected in the coming months.
