EU Launches First In-Depth M&A Investigation Under Foreign Subsidies Regulation

June 12, 2024

The European Commission is inquiring into a United Arab Emirates-based company just months after its first investigations under the Foreign Subsidies Regulation of various Chinese companies participating in EU tenders.

On June 10, 2024, the European Commission (EC) launched an in-depth investigation under the Foreign Subsidies Regulation (FSR) into the acquisition by UAE state-controlled Emirates Telecommunications Group Company PJSC (e&)—previously known as Etisalat and—of sole control of PPF Telecom Group B.V. (PPF), excluding its Czechia operations. The EC identified preliminary concerns that e& may have been granted foreign subsidies that could distort the EU internal market.

The Facts: The New In-Depth Investigations of a Transaction Under the FSR

What Is the FSR?

The European Union’s FSR entered into force January 12, 2023 and became applicable July 12, 2023. It is designed to address distortions in the internal EU market attributable to financial subsidies given to companies doing business in the European Union by non-EU governments (see our detailed publications from January and October 2023).

The FSR established mandatory notification obligations for companies benefitting from third-country government support when such companies are engaged in merger and acquisition (M&A) transactions and in public procurement tenders in the European Union.

The notification obligations went into effect October 12, 2023. In addition, the FSR gives the EC the power to conduct own-initiative investigations if it believes competition could be distorted because support from a foreign government gives a company an advantage in operating in the internal EU market.

This latest in-depth investigation comprises two firsts: the first investigation into an M&A transaction and the first investigation of a non-Chinese company.

What Is the Case About?

The EC launched its latest in-depth investigation following a notification on 26 April 2024 to the EC by e& of its proposed acquisition of sole control of parts of PPF.

PPF is a European telecommunications operator and PPF Group subsidiary. PPF Group is headquartered in Czechia and operates telecommunications services in Czechia, Bulgaria, Hungary, Serbia (Yettel), and Slovakia (O2). Those activities include telecommunications companies and the underlying infrastructure. In total, PPF serves more than 10 million customers in that sector.

After its preliminary review of the notification, the EC found sufficient indications that e& received foreign subsidies distorting the EU internal market.[1]

In this case, the EC raises concerns over two types of foreign subsidies. The first concern is related to an unlimited guarantee from the UAE government. The second is regarding a loan from UAE-controlled banks that was allegedly “directly facilitating the transaction.” According to the FSR, such subsidies are classified as the most likely to distort the internal market.

During its in-depth investigation, the EC will assess the following two potential distortions of competition:

  • In a retrospective analysis, the EC will determine if the foreign subsidies led to actual or potential negative effects on the acquisition process. Specifically, the EC will examine if the support altered the outcome by allowing e& to deter or outbid other parties interested in the acquisition and/or by allowing e& to perform the acquisition in the first place
  • In a prospective analysis, the EC will seek to determine if the foreign subsidies could lead to actual or potential negative effects on the internal market with respect to the merged entity's future activities; in other words, the EC will seek to determine whether the competitive position of the merged entity is enhanced as a result of its improved capacity to finance its EU activities at preferential terms

If these concerns are confirmed, the EC may (1) accept commitments proposed by the company if the commitments fully and effectively remedy the distortion or (2) prohibit the transaction. If the EC concludes that no such distortion exits, it will issue a no-objection decision and business would proceed as usual.

The EC has until 15 October 2024 to make a final decision (or 90 working days after the submission of the complete notification). The opening of an in-depth investigation does not prejudge the outcome of the investigation. If a distortion is found, the Commission may (1) accept commitments proposed by the company if they fully and effectively remedy the distortion, (2) prohibit the concentration, or (3) issue a no-objection decision. Companies that do not comply with a decision imposing commitments can be fined as much as 10% of their annual aggregate turnover or face periodic penalty payments of 5% of the average daily aggregate turnover in the preceding financial year.

Case Analysis

The new case shines a spotlight on the inescapable impact the FSR has on deal timelines. e& had reportedly already gone through lengthy pre-notification discussions with the EC, obtaining several merger control and FDI approvals before the FSR hurdle added a further 90-day review period with an uncertain outcome. The parties initially aimed to close the acquisition in the first quarter of 2024.[2] This development in the case sends another strong warning that notifications under the FSR can lead to undesired results in the form of an in-depth investigation by the EC into possible competition distortions caused by third-country support. Notifications to the EC under the FSR therefore need to be carefully prepared, and potential ramifications proactively managed.

Companies must also factor in the risk of complaints from competitors seeking to use the FSR procedure as a tool to derail an acquisition procedure.

The substantive review of the case is no less challenging. During its retrospective evaluation of the acquisition process that led to signature agreements in August 2023, the EC will have to assess whether e& was able to unfairly “outbid” other potential acquirors due to its financing. The mere fact that there might have been an auction process does not necessarily mitigate the fact that an unfairly subsidised bidder would have been advantaged.

The forward-looking assessments of competitive dynamics in a given market are standard matters the merger control lawyers at the EC and the national competition authorities are accustomed to as part of any merger control evaluation. But in this instance, the analysis under the FSR of any future distortion of competition by potential foreign subsidies is likely to be particularly delicate, given that a number of relevant merger control approvals have already been obtained. It may be the first case in which the FSR’s so-called balancing test (on which guidance from the EC is still awaited) that would weigh the distortive effects of potential foreign subsidies against the pro-competitive effects of a transaction. In the present case, this would likely include considerations such as modernised infrastructure and lower consumer prices.

Like the EC’s previous investigation into Chinese companies—which we discussed in February and April 2024—this new case demonstrates that the EC is focusing on infrastructure and clean technologies in the exercise of its new FSR powers. In this instance, key telecommunications infrastructure is the target.

The European telecommunications industry is considered critical infrastructure in the European Union and subject to increasing regulation designed to protect the industry against foreign influence and cybersecurity risks and build a resilient and modern European infrastructure. It is therefore no surprise that investments by companies that may have benefitted from foreign government support are under scrutiny.

Notification procedures are not only time-consuming, but also require a high level of disclosure. In prior cases, when faced with the prospect of an in-depth investigation into their funding in a public procurement context, the companies simply withdrew their bids. In short, a company can find itself de facto excluded from a process even before the EC has rendered a duly motivated decision, which begs the question of due process.


Morgan Lewis is closely monitoring this case, as well as other applications of the FSR. If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following:

Christina Renner (Brussels)
Izzet Sinan (Brussels)
Jasmeen Bahous (Brussels)
Noelia Martinez (Brussels)