The European Commission opens first ever in-depth foreign subsidies investigation into an M&A Transaction

Investigating M&A transactions under FSR

The FSR, which came into force in July 2023, introduces a new merger review regime, separate from and in addition to existing merger control and foreign direct investment (FDI) control regimes. It empowers the Commission to examine and, where necessary, redress the distortive effects of foreign subsidies granted from non-EU countries to companies doing business in the EU. The Commission’s investigative tools cover all economic activities within the EU, in particular mergers, acquisitions, public contracts, but also any other economic activity.

As regards mergers and acquisitions, companies must notify their transactions to the Commission exceeding certain turnover and foreign financial contribution thresholds. The purpose of the prior notification is to enable the Commission to assess whether a foreign subsidy in a transaction distorts the internal market.

The FSR also empowers the Commission to examine on its own initiative (ex officio) transactions below the notification thresholds which have not yet been implemented, if it suspects that foreign subsidy may have been involved in the transaction, and to subject such transactions to a detailed investigation where appropriate.

You can find a more detailed summary about the FSR and its practical implications for M&A transactions in our newsletter published in October 2023.

The Commission’s in-depth investigation into the e&/PPF acquisition

The purchaser (e&) is a state-controlled telecommunication operator headquartered in the United Arab Emirates (“UAE”) providing telecommunication services such as mobile phone services. The target (PPF) is a European telecommunication operator providing mobile phone services in the Czech Republic, Bulgaria, Hungary, Serbia and Slovakia. PPF serves more than 10 million customers in the telecoms sector.

The transaction was notified to the Commission on 26 April 2024. The Commission’s preliminary investigation had revealed potential evidence of non-EU subsidies that could distort the internal market.

The foreign subsidies e& has allegedly received take the form of an unlimited guarantee from the UAE and a loan from UAE-controlled banks directly facilitating the acquisition. Pursuant to the FSR, such subsidies are among the most likely to distort competition.

The Commission has concerns that such subsidies may have improved both e&'s capacity to carry out the transaction and the competitive position of the merged entity in the internal market going forward, in particular by improving its capacity to finance its EU operations at preferential conditions. The Commission will therefore assess whether the foreign subsidies lead 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 in the acquisition and/or to perform the acquisition in the first place;
• in the internal market regarding the activities of the merged entity.

The Commission now has 90 working days, until 15 October 2024, to adopt a decision. At the end of its first in-depth investigation, it may (i) prohibit the transaction, (ii) issue a no-objection decision, or (iii) accept commitments proposed by e& if they fully and effectively