The European Commission has launched its inaugural Phase II probe into a transaction under the Foreign Subsidies Regulation, scrutinising e&’s proposed acquisition of parts of Czechia-headquartered PPF Telecom.
The agency revealed today it has “sufficient indications” that the United Arab Emirates state-owned telecoms operator may have received foreign subsidies that distorted the EU’s internal market.
The commission said that the alleged subsidies take the shape of an “unlimited guarantee” from the UAE government and a loan from “UAE-controlled banks” that directly aided the Emirates Telecommunication Group Company’s (e&) acquisition of sole control of PPF Telecom Group’s non-Czech businesses, the commission said.
The enforcer added that these types of subsidies are “among the most likely to distort the internal market as set out in the Foreign Subsidies Regulation”, which entered into force in January 2023. The commission began to apply the rules in July.
The UAE government owns a 60% share in e&, while the remaining 40% is traded publicly.
Last August, PPF Group and e& entered an agreement under which the latter would acquire a stake of 50% plus one share in PPF Telecom Group’s assets in Bulgaria, Hungary, Serbia and Slovakia. The transaction was notified to the commission on 26 April.
The commission today warned that the alleged subsidies may have bolstered the company’s capacity to complete the takeover. The new entity’s future competitive position in the EU may also have been affected, the agency said – namely, its ability to fund its activities in the bloc at “preferential terms”.
The in-depth probe will examine whether the alleged foreign subsidies had “actual or potential negative effects” on the process of acquiring parts of PPF Telecom, including whether e& was able to “deter or outbid” other interested parties due to the alleged boost.
It will also explore whether there were such effects on the internal market relating to the merged company’s activities.
The probe marks the first time the agency has scrutinised a deal under the new regulation, as the previousthree in-depth probes have focused on subsidies in public procurement. All three scrutinised companies subsequently withdrew from the affected tender procedures.
The outcome of this latest investigation will therefore be closely watched by competition practitioners, who have been eagerly awaiting the agency’s first assessment of a merger situation. The impact of foreign subsidies on a concentration is expected to be more complicated to determine than in public procurement cases.
Today’s probe also marks the first time that Chinese investment is not in the crosshairs.
The apparent focus has led Chinese officials to vocally criticise the regulation, while the China Chamber of Commerce to the EU told GCR last month that World Trade Organization rules mean the European Commission had no jurisdiction to launch one of the in-depth probes.
Marie-Laure Combet, a partner at Orrick in Paris, said that this case will likely develop a “FSR substantive analysis grid” relating to the two varieties of alleged subsidies – the unlimited guarantee and the loan – for which there are already well-established tests in EU state aid law to determine the existence of aid and whether it had a distortive nature.
“The case will hence likely shed some light on the question of whether, and if so to what extent, the FSR tests may differ from those well-established state aid tests,” Combet said.
She also noted that under state aid rules, defending an unlimited guarantee by a state is “a very tough nut to crack”, meaning the outcome of today’s probe could be instructive as to what types of remedies may be required by the agency in an FSR context.
In a statement, e& said that it “continues to be in constructive discussions” with the agency and “is working cooperatively towards a conclusion of the authority’s review”.
PPF was contacted for comment.
The Commission has until 15 October to reach a decision.
Counsel to e&
Sullivan & Cromwell
Partner Juan Rodriguez in London, assisted by Marielena Doeding
Counsel to PPF
White & Case
Partners James Killick and Irina Trichkovska in Brussels and Ivo Janda in Prague, and counsel Magda Olysarova in Prague