Clifford Chance

The European Commission has launched its first ever in-depth investigation into foreign subsidies for an M&A transaction. The probe is also the first Phase II review under the Foreign Subsidies Regulation regime not affecting a Chinese business.

The European Commission ("EC") has initiated an in-depth investigation under the Foreign Subsidies Regulation ("FSR") to review the proposed takeover of European telecoms operator PPF Telecom Group B.V. ("PPF") by Emirates Telecommunications Group Company PJSC ("e&"), a state-controlled telecoms firm headquartered in the United Arab Emirates ("UAE").

The investigation into e&'s acquisition of PPF is focusing on two categories of (alleged) foreign subsidies considered as most likely to create distortions to the EU internal market: an unlimited guarantee from the UAE and a loan directly facilitating the transaction granted by UAE-controlled banks.

The EC's concerns relate to two possible distortions. In particular, the EC is assessing further to what extent such subsidies may have bolstered (i) e&'s ability to perform the acquisition (distortions in relation to the acquisition process) and (ii) the competitive position of the merged entity in the EU in the future, particularly by enabling it to fund its EU operations on more favourable terms (distortions in the internal market with respect to the merged entity's activities).

The opening of the investigation into e&'s acquisition is the EC's first application of the in-depth investigative powers under FSR in relation to mergers and acquisitions. Prior to this, the EC had opened three in-depth investigations in public procurement procedures to evaluate whether foreign subsidies granted were likely to have a distortive effect in the EU internal market, in particular, by allowing the bidders to submit unduly advantageous tenders; all of which led to the parties withdrawing their bids. In addition, the EC also already made use of its ex officio power to investigate against specific parties in April.

While all previous detailed investigations related to Chinese companies, this probe marks the first time the EC is conducting an in-depth FSR investigation into the activities of a non-Chinese business.

The EC has 90 working days, until 15 October 2024, to finalise their probe and adopt a decision. At the end of this period, the EC can issue a non-objection decision, prohibit the transaction, or accept potential commitments proposed by e& if they fully and effectively remedy any alleged distortion identified in the EC's investigation.