Update on the Foreign Subsidies Regulation: European Commission launches first-ever in-depth investigation in the context of M&A transaction


On Monday, 10 June 2024, the European Commission launched its first in-depth investigation in the context of an M&A transaction under the Foreign Subsidies Regulation (“FSR”). This is the first-ever case in the brief history of the FSR in which foreign subsidies are investigated in more depth in relation to an M&A transaction. In contrast to the in-depth investigations to date under the public procurement tool, the in-depth M&A investigation in this case does not involve a Chinese company. This investigation was initiated regarding the (partial) acquisition of a European target by a state-controlled telecommunications provider from the United Arab Emirates (“UAE”).

(Partial) acquisition of a European telecommunications provider by a state-controlled UAE company

The reason for the European Commission's investigation is the acquisition of sole control of PPF Telecom Group B.V. (“PPF”, except for its Czech business) by Emirates Telecommunications Group Company PJSC (“e&”). According to public sources, the purchase price is reported to be around EUR 2.2 billion.

The purchaser, e&, is a state-controlled telecommunications provider from the UAE offering mobile telephony services. PPF is a European telecommunications provider operating in the Czech Republic, Bulgaria, Hungary, Serbia and Slovakia. PPF’s operations include providing telecoms services and operating the underlying infrastructure. PPF has over 10 million customers in the telecoms sector.

The European Commission announced that its preliminary investigation (”phase 1 investigation”) as part of the M&A notification procedure had revealed sufficient evidence of foreign (i.e. non-EU) subsidies that could distort the internal market.

The foreign subsidies in question appear to consist notably of (i) an unlimited guarantee from the UAE and (ii) a loan for the benefit of the purchaser directly facilitating the transaction from banks controlled by the UAE. According to the FSR, such subsidies are most likely to distort competition in the internal market.

The European Commission is therefore concerned that, firstly, such subsidies may have improved e&'s capacity to carry out the acquisition. Secondly, there are concerns that, as a result of subsidies, the merged entity could benefit from an improved competitive position in the internal market going forward, in particular through preferential conditions for financing its activities in the European Union.

The European Commission will therefore now assess

  • whether and to what extent the subsidies have led to actual or potential negative effects on the acquisition process. In particular, whether the financial support enabled e& to deter or outbid other interested parties and whether the financial support made the acquisition possible in the first place.
  • whether and to what extent the subsidies are leading to actual or potential negative effects on the internal market through the activities of the merged entity going forward.

The European Commission now has 90 working days for the in-depth investigation, thus until 15 October 2024, to adopt a decision.

Context: Investigating M&A transactions under the FSR

The M&A transaction tool is one of three instruments available to the European Commission under the FSR (see our overview of 17 January 2024). If certain thresholds are exceeded under the FSR, as of October 2023, the European Commission must be notified of the transaction. Following the notification, the European Commission initially has 25 working days to assess the existence of foreign subsidies and the risk of a distortion of the internal market as part of the phase 1 investigation. If the European Commission considers there are sufficient indications of a foreign subsidy which would distort the internal market, it will initiate an in-depth investigation (“phase 2 investigation”).

You can find a more detailed overview of the effects of the FSR on M&A transactions in our article of 20 January 2023.

Analysis and further development

After the first 100 days of application of the FSR, it was already clear that far more notifications were being made than the European Commission had expected. By mid-May 2024, 84 pre-notification procedures had been kicked off for M&A transactions (of which 55 cases have been formally notified and 40 procedures are already completed). It was therefore only a matter of time before an in-depth investigation would be launched under the M&A transaction tool, too.

It should be emphasised, firstly, that the new procedure is the first-ever investigation in relation to an M&A transaction. Since all previous in-depth investigations (in the context of public procurement procedures) were terminated due to the withdrawal of the bidder from the tender, there has been no formal decision by the European Commission under the FSR to date which could provide detailed information about the material standard of review applied by the European Commission and the depth of the examination. The case of e&/PPF now offers another opportunity for an in-depth investigation by the European Commission which could conclude with a formal decision. This could produce valuable findings for future practice and proceedings under the FSR.

Secondly, the new in-depth investigation, unlike the previous ones in the context of public procurement procedures, does not affect a Chinese company but a company from the UAE. This could reduce the geopolitical tensions with China caused by the initial in-depth investigations, since the European Commission’s focus no longer appears to be solely on China. Due to the strong investment activities of certain Gulf states in the internal market and given their economic clout and the often close links between businesses and the state, it was merely a matter of time before companies from the Gulf region would also be affected by investigations under the FSR. It is certainly conceivable that the Gulf region will become another geographical focus for European Commission investigations under the FSR and it remains to be seen whether this could lead to further geopolitical tensions.

Furthermore, the European Commission seems to be focusing on specific sectors. The previous in-depth investigations were focused on the infrastructure, energy and security technology sectors; now the telecommunications sector is being added to this list. All of these sectors are not only part of the Chinese public economic planning and were classified by the European Commission as sectors with considerable market distortions in China (see report by the European Commission on significant distortions in the economy of the People’s Republic of China of 10 April 2024, SWD(2024)91). They are also reflected in the policy objectives of the European Union, such as the objective of climate neutrality, crisis resilience of the European industry and the EU’s digital strategy. It is likely that the in-depth investigations by the European Commission under the FSR will continue to focus on the sectors that are especially relevant to the strategic objectives and policies of the European Union.

The launch of this first in-depth investigation under the M&A transaction tool is part of a dynamic development and comes in addition to the previous in-depth investigations under the public procurement instrument (see our article of 19 February 2024) and ex officio reviews (see our article of 11 April 2024 and the article of 25 April 2024). Once again, it becomes clear that the European Commission is prepared to use the full range of tools available to it under the FSR and turn them into a sharp sword. Companies need to remain vigilant and keep a close eye on future developments.

If you have further questions about the FSR, our Noerr competence team of experienced experts in the field of FSR, EU State aid law and merger control will be happy to assist you. You can also register here to receive all our news alerts about the FSR.

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