• EC examines market benchmarks, analyst reports
• Ceconomy valuation seems in line with market levels
• Bankers did not change EC’s mind in Covestro/Adnoc

First Covestro/Adnoc, and now Ceconomy/JD.com have experienced firsthand how a perceived high premium can turn into a regulatory risk under the EU Foreign Subsidies Regulation (FSR).

Wary of investors from China or the Middle East, the European Commission (EC) might see lofty takeover offers as evidence of foreign subsidies distorting acquisition processes in Europe.

But valuing a public company is a complex exercise, involving key context that the EC might be missing, according to lawyers and bankers consulted by this news service.

In FSR in-depth probes, the EC usually divides its concerns between distortions that could have affected the acquisition process and distortions that could have an anticompetitive effect on the market post-transaction.

Suspicions of out-of-market offers fall into the category of distortions in the acquisition process. For example, the Chinese company Haier dropped out of a bidding process for Purmo in 2024 despite tabling a higher offer than a consortium, including Apollo.

At the time, this was attributed to regulatory uncertainty, mainly with the FSR process. The EC could have run a probe to see which of the two bids was inflated by foreign subsidies.

However, a lawyer specialised in FSR said that, absent alternative bidders, it is very difficult for the EC to “second guess” the premium in a public bid.

“A bid for a public company is a huge undertaking. It’s expensive and time consuming. There are plenty of reasons why there might not be alternative bidders. Other companies may not see the same synergies and financial benefits of that acquisition and prefer to use their capital elsewhere”, he said.

A ‘high premium’ for Ceconomy?

This has not stopped the EC from featuring possible subsidy distortions in concentrations without alternative bidders in its FSR analyses. The most recent example is Ceconomy/JD.com, a Chinese acquisition of a German retailer that was sent to Phase II on 26 May.

According to the summary decision, the EC said that Chinese subsidies received by JD.com could have contributed to it securing Ceconomy’s support for the transaction by offering a “high premium and access to JD Group’s potentially subsidised logistical and technological capabilities”.  JD.com and Ceconomy declined to comment on this point.

JD.com’s offer price of EUR 4.60 per Ceconomy’s share represented a 22.7% premium compared to the company’s stock exchange closing price on 23 July 2025, the last day before news of the operation leaked.

A banker familiar with the matter said that JD.com did not overpay for Ceconomy. “The price is really solid, but they have definitely not overpaid”, the source added.

At the time, an analysis by The Morning Flash showed that there was room for offer improvement, with a possible bump of up to EUR 5.30 or more.

JD’s offer valued Ceconomy at 3.6x FY25 EBITDA, placing it at the lower end of the peer group, including Currys, Fnac Darty and Best Buy, which were trading between 3x and 5x EBITDA at the time.

Following recent sector consolidation, the peers are trading between 4x-6x FY25 EBITDA. This suggests JD’s offer was broadly in line with market levels and does not indicate an overpayment.

Covestro’s price tag

The Commission already ran a full valuation analysis in the FSR context when it reviewed Adnoc’s takeover of Covestro.

According to the case’s provisional non-confidential decision, the enforcer looked at several valuation methodologies to conclude that Adnoc’s offer of EUR 62 per share was “high”. It also looked at “dozens” of benchmarks, according to a source familiar with the case.

For example, the Commission observed that the 54% premium offered was higher than 75% of comparable transactions. It also considered broker reports that Covestro used to compare Adnoc’s offer to recommendations from selected research analysts.

Adnoc submitted several offers before ultimately landing at EUR 62, and the Commission analysed each increment, the source familiar with this case noted.

“What the Commission didn’t do appropriately was analyse at each point in time the offer price against the business development expectation at that given point in time”, the source said.

“When the bidding price was EUR 55, there was an expectation that the fair price would have been around EUR 70. When it was EUR 60, maybe circumstances had changed and the expectation would be slightly different. But the EC did entirely an ex-post assessment based on how things looked like at the time when they looked at the case, which was far later”, the source added.

The merging parties brought representatives from investment banks to the Commission to argue that its assessment was not “credible” because “no bank would ever determine an exact price point and say ‘that is the right offer price,’” this source added. Instead, they would come out with a range.

When it comes to the weight attributed to analysts’ reports, the FSR expert said that they can provide useful information since they are prepared by experts in company valuation. However, the lawyer added, what these analysts do not have access to is the bidder’s internal projections on why it considers the acquisition would be a good deal based on the synergies it is projecting.

As shown in Covestro/Adnoc’s decision, the Commission can also use market multiples such as EV/EBITDA or analyses based on discounted cash flow (DCF) to assess whether an offer is within standard market ranges.

The FSR lawyer drew a parallel with the EC draft merger guidelines, where much of the discussion is around dynamic competition and concepts such as innovation and investment. A DCF analysis or an EBITDA comparison based on historical financials are not the right metrics to reflect this, he said.

According to the source familiar with the Covestro/Adnoc case, there is a simple fact that should not be lost in the woods of benchmarking and analysts reports: “It’s the job of the board of the company to maximize shareholder value and to try to increase the offer price further”.

“No Chinese or Middle Eastern [entity] would just waste money. They act economically rationally. They wouldn’t overpay just for the sake of overpaying, but the FSR implies this”, the source said.

The European Commission declined to comment. Adnoc (now incorporating Covestro) did not reply to requests for comment.