In September 2024, the European Commission made its first final decision on a merger under the Foreign Subsidies Regulation. In this article, we provide an insight into the rules, the case and its significance.
Foreign Subsidies Regulation (FSR)
The FSR was introduced in 2023 and has been applicable since 12 July 2023. The purpose of the FSR is to allow the Commission to investigate aid granted by third countries to companies in the EU and intervene if the aid distorts competition in the internal market.
The FSR applies to mergers and public procurement procedures above certain thresholds.
When is a merger covered by the FSR?
According to the FSR, a merger is notifiable when at least one of the merging companies is established in the EU and has a total turnover in the internal market of at least EUR 500 million. In addition, the parties must have received at least EUR 50 million in foreign financial contributions from third countries in the three years preceding the merger.
In the case of a notifiable merger, the Commission conducts a preliminary investigation of the companies. If the Commission finds indications that foreign subsidies distort competition in the internal market, a so-called in-depth investigation is initiated, which can lead to prohibition or acceptance of commitments that meet the Commission's concerns.
First Commission decision - Emirates Telecommunications/PFF Telecom
On 26 September 2024, the Commission issued its first final decision after the FSR. The case concerns the acquisition by Emirates Telecommunications Group Company PJSC (e&) of the company PFF Telecom Group B.V (PFF Telecom). Both parties are telecommunications operators. e& is based in the United Arab Emirates and is controlled by the state investment fund, Emirates Investment Authority (EIA). PFF Telecom is headquartered in the Netherlands and operates in the Czech Republic, Bulgaria, Hungary, Serbia and Slovakia. The Commission found that e& and EIA had both received subsidies from the United Arab Emirates, consisting of an unlimited government guarantee to e& and grants, loans and other debt instruments to EIA.
The subsidies received
The Commission assessed that the subsidies did not lead to negative effects on competition in the acquisition itself because e& was the only bidder and had sufficient own resources to carry out the acquisition without the subsidies received. In other words, the foreign subsidies did not change the outcome of the acquisition process.
In addition, the Commission assessed that the subsidies received by e& and EIA could have distorted competition in the EU internal market after the merger. In particular, the Commission found it highly likely that unlimited state guarantees could distort competition in the internal market. For example, e& could make investments and expand its market presence beyond what a similar stakeholder without subsidies could do.
Commitment from e& and EIA
To meet the Commission's concerns about the merger, e& and EIA have made a number of commitments, including:
- Removing the unlimited government guarantee.
- A prohibition of any funding from EIA and e& for PPF Telecom's activities in the EU internal market, subject to certain exceptions.
- A requirement for e& to inform the Commission of future acquisitions that are not notifiable mergers under the FSR.
The commitments are valid for a period of 10 years from the Commission decision.
The Commission concluded that the commitments were sufficient to ensure that the merger would no longer raise competition concerns.