EK přijala první konečné rozhodnutí podle nařízení o zahraničních subvencích

EC adopts first final decision under the Foreign Subsidies Regulation

In our article of 18 June 2024 (available HERE), we informed you about the launch of the first ever in-depth foreign subsidies investigation concerning an acquisition by the Commission under Regulation (EU) 2022/2560 of the European Parliament and of the Council of 14 December 2022, on foreign subsidies distorting the internal market (the “Regulation”).

The investigation concerned a notified concentration of undertakings, which would have resulted in the acquisition of sole control of a major European telecommunications operator. Sole control would be acquired by a company based in the United Arab Emirates that is controlled by a State investment fund.

During its in-depth investigation, the Commission found that both the company concerned and the State investment fund received foreign subsidies from the United Arab Emirates in the form of, inter alia, unlimited State guarantees, grants, loans and other debt instruments.

On the basis of the in-depth investigation, the Commission came to two conclusions:

(i)    the foreign subsidies received do not lead to actual or potential negative effects on competition in the acquisition process itself; but

(ii)   the foreign subsidies received would give the merged entity an unfair advantage post-transaction and could lead to distortions of competition in the EU internal market in the telecommunications sector. The foreign subsidies thus would artificially improve the capacity of the merged entity to finance its activities and increase its indifference to potential risk.

In particular, the Commission was led to these conclusions by the provision of an unlimited State guarantee, which is considered by the Regulation “most likely to distort the internal market”.

In response, the company concerned and the State investment fund submitted a commitments package, which the Commission accepted as adequate and sufficient to remedy the distortion fully and effectively and approved the acquisition of sole control of the European telecommunications operator in question. The approval is conditional on full compliance with the following commitments submitted:

• the articles of association of the company concerned do not deviate from the ordinary insolvency law of the United Arab Emirates, which the Commission considers remove the unlimited State guarantee;
• the prohibition on any financing by the State investment fund and the company concerned in favor of the activities of the European telecommunications operator in the internal EU market (subject to certain exceptions concerning activities outside the EU and emergency situations, which will be however subject to Commission approval), which the Commission considers will ensure that foreign subsidies will not be directed to the merged entity's activities in the internal EU market; and
• the obligation of the company concerned to inform the Commission of all future acquisitions that are not notifiable concentrations under the Regulation, which is intended to provide the Commission with appropriate monitoring mechanisms in specific risk areas.

These commitments are valid for a period of ten years but may be extended by the Commission to another five years, or further by an agreement with the company concerned. Compliance will be monitored by an independent administrator under the supervision of the Commission. The full text of the Commission's press release is available HERE.

This shows that foreign subsidies may not only affect the transaction itself but may also restrict the activities of the companies concerned for several years after the closing. We therefore recommend not to underestimate this aspect in M&A.

If you would like more detailed information, please contact the authors of this article or other members of the EY team with whom you work.

Authors:

Vladimír Petráček

Jakub Marko

Johanna Roháčková