DealLawyers.com Blog

Skadden recently issued this memo with an important update from “across the pond” on the Foreign Subsidies Regulation (FSR). As a reminder, here’s a snippet from the memo on what the FSR does and how it will impact M&A:

The FSR introduces a new merger review regime, separate from and in addition to existing merger control and foreign direct investment control regimes. It requires prior notification to and approval from the EC of transactions involving companies that have received financial support from non-EU governments. It also includes a new screening procedure for public tenders involving foreign-subsidized entities, and a broad investigation tool enabling the EC to investigate any commercial activity in the EU (deal-related or not) where foreign subsidies may have a distortive effect in the EU internal market.

[…] The EC will assess whether foreign subsidies (i.e., selective FFCs) distort the EU internal market. When reviewing M&A deals, this assessment is limited to the context of the transaction, although the FSR does not appear to require the EC to establish a direct causal link between the transaction and any market distortion.

Whether a foreign subsidy distorts the internal market (i.e., improves the relative competitive position of the receiving company in the internal market) will be a case-by-case assessment, giving broad discretion to the EC. Contrary to merger control, the EC may also take into account any “positive effects” in line with the EC’s broader policy goals (e.g., EU Green Deal objectives, digital transformation, European strategic autonomy, etc.). EC guidance on the criteria for assessing distortions of the EU internal market and balancing such distortions against “positive effects” is not expected until at least next year.

The latest FSR development happened in mid-July. On July 10, the European Commission issued its final Implementing Regulation and template filing form under the FSR, which “simplified some disclosure requirements to address feedback from companies and trade associations during the consultation process.”  This was the last step before the FSR took effect on July 12. The notification regime contemplated by the FSR is effective October 12, 2023 — but it will still apply to transactions signed on or after July 12 that haven’t closed before October 12.

– Meredith Ervine