Reed Smith Client Alerts

Key takeaways

  • The EU's foreign subsidies regulation (FSR) imposes strict rules on multinational companies and foreign investors in Europe, targeting foreign subsidised M&A and other market activities in the EU. The new FSR rules complement existing EU antitrust (merger control), foreign direct investment (FDI) and trade defence tools.
  • On 10 June 2024, the EU Commission (EC) opened its first ever in-depth FSR probe into the proposed acquisition of a European telecom business by a state-controlled UAE buyer. The EC has “significant indications” that the UAE buyer benefited from foreign subsidies that may have facilited the transaction and distorted the EU internal market.
  • While the EC’s FSR enforcement has so far focused on Chinese-subsidised business activities in the EU, the opening of the M&A probe is a stark reminder that the EC is ready to investigate all types of foreign subsidies, irrespective of the third-country of origin, that have the potential of distorting the EU internal market.
  • Though the new probe relates to an investment by a state-controlled foreign investor, also non-state-controlled investors can in practice benefit from the alleged foreign subsidies – namely in the form of unlimited guarantees and certain loans from a state-controlled bank – that may fall under the EC’s new FSR radar when doing business or acquiring businesses in the EU.

Our alert sheds light on the EC’s first in-depth M&A probe under the FSR and the new mandatory FSR filing obligations for M&A deals in general and also highlights the practical implications of recent FSR enforcement for M&A planning.

EU’s first in-depth probe into an M&A deal

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.