Foreign Subsidies Regulation (“FSR”): first commitments M&A case authorized

On September 24, 2024, the European Commission (“the Commission”) announced the authorization of the concentration transaction consisting in Emirates Telecommunications Group Company PJSC (“e&”) acquiring certain assets of PPF Telecom Group (“PPF Telecom”), subject to commitments. This transaction is the first decision made by the Commission under Regulation (EU) 2022/2560 on foreign subsidies distorting the internal market ("FSR").

Background

As in our previous posts | New regulatory authorization for M&A and public procurement and Foreign subsidy authorization regime becomes effective, the FSR extends the Commission's investigative powers to address distortions that can be caused by subsidies from non-EU member states (“third countries”) to undertakings operating in the internal market. One of the areas in which the FSR empowers the Commission to act is precisely in relation to concentrations and, particularly, “where such concentrations are fully or partially financed through foreign subsidies,” or when, in short, the subsidies in question enable their beneficiary to operate under conditions that are not equivalent to those faced by other companies.

In line with the activity data the Commission itself published in February 2024 (available here), in most of the concentrations analyzed under the FSR, there were no harmful foreign subsidies, or rather, despite existing, there were no indications of EU market distortion. Months later, the Commission opened an in-depth investigation into the transaction where e& planned to acquire certain businesses of PPF Telecom.

Transaction and foreign subsidies causing distortion

Headquartered in the United Arab Emirates (“UAE”) e& is a telecommunications operator controlled by a UAE-controlled sovereign wealth fund, Emirates Investment Authority (“EIA”). PPF Telecom, headquartered in the Netherlands, is a telecommunications operator in Bulgaria, Czechia, Hungary, Serbia and Slovakia.

The transaction involved e& acquiring exclusive control of PPF's activities in all the countries mentioned except Czechia.

During the investigation—and based on the information given by the parties at the time of the notification, and by other operators—the Commission concluded that:

• e& and the EIA were beneficiaries of UAE foreign subsidies. Of the subsidies identified, the Commission particularly highlighted an unlimited state guarantee in favor of e&.

In fact, in July 2024, the Commission published a document to clarify certain concepts in relation to the FSR—as explained in a previous post | Foreign subsidies: European Commission clarifies key concepts—where this type of specific guarantee was mentioned.

• Although the subsidies in question had no impact on the acquisition process, (particularly as e& was the only bidder and had sufficient resources of its own to carry out the transaction), the Commission did find that they could cause a distortion in the internal market.

The Commission believes that the subsidies would have artificially enhanced the resulting entity's ability to finance its activities in the internal market, such as making investments for the deployment of infrastructure or participating in spectrum auctions. This would have distorted the market since the resulting entity would have enjoyed conditions for expanding its activities that would not be available to an equivalent economic operator without the support of subsidies.

Commitments to remedy the distortion

To address the Commission’s concerns, e& offered a commitment package consisting of:

• eliminating the unlimited state guarantee by subjecting itself to the ordinary bankruptcy regime provided for in UAE regulations;

• establishing a general duty to refrain from financing PPF activities in the internal market—with a few exceptions—as well as a commitment that transactions between e&, EIA and PPF will be carried out on market terms; and

• informing the Commission of future transactions that are not concentrations subject to the FSR notification regime.

The above commitments will be maintained for 10 years, which may be extended by the Commission for a further five years or more if the Commission and the e& so agree.

The Commission positively valued the commitments, considering that they were apt for eliminating the distortion generated by the subsidies in the market, in addition to making an appropriate follow-up of its compliance possible. Therefore, the Commission authorized the transaction subject to compliance with the commitments.

Comments

This decision marks a milestone in the FSR’s application, not only because it is the first authorization subject to commitments, but also because it is the first case which, by making the decision public (non-problematic transactions are authorized by positive silence), makes it possible to know how the Commission has interpreted and applied the FSR, both from a conceptual and procedural point of view.

Also, and no less importantly, the transaction's authorization shows that the FSR does not have to be an insurmountable obstacle for concentrations involving beneficiary companies of foreign subsidies. Just as with concentration control, the proposal of proportioned and effective commitments to address the possible distortions of the internal market enables us to obtain authorization of the transaction.

Without prejudice to the above, we cannot forget that the FSR established a new control regime in addition to other regulatory procedures and that it has a certain complexity in its interpretation and application given the lack of precedents. Therefore, it is advisable that companies planning to carry out concentrations that may be subject to the FSR (i) carry out a prior analysis of the possible foreign subsidies they may have received or that could affect their competitive position, and (ii) seek expert advice when designing and implementing their commercial transactions.