June 18, 2024

EU Foreign Subsidies Rule: EC Announces First In-Depth Investigation of Proposed Deal

Last year, Meredith blogged about the EU’s implementation of its Foreign Subsidies Regulation and its potential impact on M&A transactions.  That impact ceased being purely potential earlier this month, when the European Commission announced that it had commenced the first in-depth investigation of a proposed acquisition under the FSR. Here’s an excerpt from Reed Smith’s memo on the announcement:

On 10 June 2024, the EC opened its very first in-depth investigation of an M&A deal under the FSR concerning the proposed acquisition by the state-controlled Emirates Telecommunications Group Company PJSC (e&) of sole control of the non-Czech businesses of PPF Telecom Group.

The EC has “sufficient indications” that e& has received foreign subsidies distorting the internal market, namely in the form of an unlimited guarantee from the UAE and a loan from UAE-controlled banks directly facilitating the transactions. The EC is concerned that these subsidies may have improved e&’s capacity to perform the acquisition as well as the competitive position of the merged business in the EU going forward by improving its capacity to finance its EU activities at preferential terms.

The focus of the investigation will be for the EC to assess whether the alleged subsidies had actual or potential negative effects on the acquisition process – in particular, by allowing e& to deter or outbid other parties or to perform the acquisition in the first place – and the internal market more broadly going forward.

The memo says that the EC now has 90 working days to decide whether to issue a no-objection decision, prohibit the deal or accept commitments from the buyer to remedy any alleged distortion to the EU internal market.

John Jenkins