Clifford Chance

The European Commission ("Commission") has conditionally approved the acquisition by e& of control over parts of the PPF Group, following its first M&A related in-depth investigation under the Foreign Subsidies Regulation ("FSR").

The Commission cleared, subject to commitments, under the FSR, the acquisition by Emirates Telecommunication Group Company PJSC ("e&") of sole control over the telecom company PPF Telecom Group B.V. ("PPF"), excluding its Czech business, following its first M&A related in-depth investigation. e& is majority-held by the Emirates Investment Authority ("EIA"), a UAE sovereign wealth fund.

The Commission's concerns

The Commission opened in June 2024 an in-depth investigation regarding this acquisition, considering that it involves subsidies that are most likely to distort the EU internal market. As indicated in its opening decision, the Commission focused its assessment in the following foreign subsidies: (i) an unlimited guarantee, implicitly granted to e& by the UAE, deriving from an exemption to the UAE Bankruptcy Law applicable to UAE owned undertakings; (ii) a loan by a syndicate of five banks for which the Commission stated having sufficient indications that it was not obtained under normal market conditions; (iii) certain other financial contributions that may qualify as foreign subsidies, including contracts awarded to e&.

The Commission assessed any potential distortive effects in (i) the acquisition process and (ii) the EU internal market post-transaction.

The Commission's clearance decision

Lack of distortions in the acquisition process

The Commission dispelled any concerns regarding potential distortion of competition caused by foreign subsidies in the acquisition process. This was on the basis that e& was the only bidder for the target, e& had sufficient own resources to finance the transaction and the consideration paid reflected the target's market value.

Distortions in the internal market post-transaction

In contrast, the Commission concluded that the foreign subsidies received by e& would have distortive effects in the EU post-transaction. In particular, the Commission is of the view that the subsidies would have artificially improved the capacity of the merged entity to finance its activities in the EU, including investments or acquisitions that an equivalent economic operator may not have done absent the subsidies.

The accepted commitments

To address these concerns, the following behavioural commitments were proposed by e& and accepted by the Commission:

• e&'s Articles of Association will not deviate from ordinary UAE bankruptcy law (thereby removing the unlimited State guarantee);
• any financing from EIA and e& to PPF's activities in the EU is prohibited, with an exception for "emergency funding" and PPF's non-EU activities;
• transactions between these companies will be at arm's length; and
• e& will inform the Commission of all future acquisitions, even if they are under the notification thresholds.

The commitments will last for ten years with the possibility of extension for at least another five years and will be monitored by an independent trustee supervised by the Commission.

First learnings from the decision

This first M&A conditional clearance decision highlights several important points:

• potential distortions in the acquisition process and the internal market post-transaction are to be separately and sufficiently addressed, as also confirmed by the July 2024 Staff Working Document and the Commission's decisional practice;
• thorough valuation of the target, indicating that the consideration paid reflects its market value, and demonstration of the acquirer's sufficient own resources are key to addressing concerns regarding distortions in the acquisition process. However, it remains to be seen whether this will suffice, in particular for acquisition processes involving competing bidders with possibly lower bids;
• behavioural commitments can be sufficient to clear the transaction. However, even if such commitments are often preferred by parties compared to more intrusive structural ones, they still impact significantly the merged entities' operations, and their implementation can be burdensome, costly and complex. For example, in order to prevent any risk of cross-subsidisation e& will have to ring-fence the financing of the target's non-EU activities from its EU activities. More generally, such commitments may not be acceptable / appropriate for acquisitions of targets which are driven by the need to obtain financing by the buyer for their future operations;
  
• the financing commitment affects future financial contributions for a period of at least ten years, despite the focus of FSR on assessing the impact of foreign financial contributions granted in the three years preceding the transaction. It will be interesting to see if and how the decision, when published, assesses the potential impact of such future contributions and their link with existing financial contributions;
• the Commission is keen to be informed of acquisitions below the notification thresholds, imposing it in a remedy which is aligned with the Commission's existing call-in powers under FSR and similar obligations under other instruments such as the Digital Markets Act. It remains to be seen whether the Commission would actually call in for review a transaction of which it was informed under this commitment; and
• the decision was issued ahead of the expiry of an in-depth investigation review period (but after a long pre-notification period), which evidences the importance of detailed pre-notification discussions and an early remedy consideration where potential distortions from foreign subsidies involved are likely. In this respect, whereas the FSR does not foresee commitments in Phase I (unlike merger control), it remains to be seen whether the Commission will find a way to flex the process and accept commitments without opening an in-depth investigation.

Conclusion

Whereas the publication of the full text of the decision may shed further insights on the Commission's assessment and several points would need to be further clarified in following decisions, this first conditional decision sets an important precedent, showing the Commission's determination to pursue distortions created by foreign subsidies but also its willingness towards a pragmatic approach.