The EC launches its inaugural investigation under new anti-subsidy rules as e&’s investments raise national security concerns among European governments
The FSR allows the EC to tackle distortive support from third countries for acquisitions of EU businesses
On 10 June 2024, the EC launched its first in-depth investigation under the Foreign Subsidies Regulation (FSR) into the acquisition by e& – a state-controlled telecoms operator headquartered in the UAE – of sole control of PPF Telecom, excluding its Czech business. PPF Telecom is a subsidiary of PPF Group and operates in several European countries. The deal was announced in August 2023 and would see e& take a stake of 50% plus one share in the service and infrastructure assets of PPF Telecom in Bulgaria, Hungary, Serbia and Slovakia for a purchase price of up to €2.5bn (£2.11bn). The FSR has applied since 12 July 2023, enabling the EC to address distortions caused by foreign subsidies and to ensure a level playing field for all companies operating in the internal market, while keeping the EU open to trade and investment. Under the regulation, companies must notify concentrations to the EC when at least one of the merging companies – whether the acquired company or the joint venture – is established in the EU and generates an EU turnover of at least €500m (£422.7m), and when the parties were granted at least €50m (£42.3m) in combined aggregate foreign financial contributions from third countries in the three years prior to the concentration.
The EC has preliminary concerns about e&’s receipt of foreign subsidies
The transaction was notified to the EC on 26 April 2024, with the EC’s initial investigation finding that there are sufficient indications that e& has received foreign subsidies distorting the EU internal market. The alleged subsidies take the form of an unlimited guarantee from the UAE and a loan from UAE-controlled banks directly facilitating the transaction. The EC states that such subsidies are among the most likely to distort the internal market as set out in the FSR. It has concerns that such subsidies may have improved e&'s capacity to perform the acquisition, as well as the competitive position of the merged entity in the EU going forward, notably by improving its capacity to finance its EU activities at preferential terms. During its in-depth investigation, the EC will assess whether:
The foreign subsidies lead to actual or potential negative effects on the acquisition process. In particular, if the support has altered the outcome of that process 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; and
The foreign subsidies lead to actual or potential negative effects in the internal market with respect to the merged entity's activities.
e& remains confident that the deal will close by the end of this year
e& has emphasised the EC’s own statement that the decision to open an in-depth review is a “procedural step”, which does not prejudge the outcome of the investigation. According to e&, it remains fully committed to the transaction (with a view to closing it before year-end), and will continue work constructively with the EC throughout the FSR review process. PPF is not e&’s only investment in Europe having amassed a 14.6% stake in Vodafone; however, the UK Government has deemed this a national security risk, requiring the operators to introduce measures to mitigate it. At the end of its in-depth investigation into e&/PPF Telecom, the EC may:
Accept commitments proposed by the e& if they fully and effectively remedy the distortion;
Prohibit the concentration; or
Issue a no-objection decision.
The EC has 90 working days post-notification, or until 15 October, to reach a conclusion.
