Background

On 24 September 2024, the European Commission (the Commission) approved, subject to the conditions discussed below, the acquisition of Central Eastern Europe telco operator, PPF Telecom Group B.V. (excluding its Czech business) (PPF) by Emirates Telecommunications Group Company PJSC (e&). In addition to the excluded Czech business, PPF has activities in Bulgaria, Hungary, Serbia and Slovakia. 

The Commission opened an in-depth investigation of the acquisition on 10 June 2024 under the EU Foreign Subsidies Regulation (the FSR), having been initially notified of the transaction in April 2024. The FSR, which has only been in effect since July 2023, aims to limit distortions of competition caused by foreign subsidies and requires M&A transactions meeting certain thresholds¹ to be notified to the Commission.²

The Commission concluded that the following contributions to e& amounted to foreign subsidies under the FSR (Subsidies):

• The exemption of e& from UAE bankruptcy law. The Commission considered that this exemption (which it states extends to all companies fully or partially owned by the UAE) constituted an unlimited state guarantee by the UAE and, therefore, enables its recipients to obtain, e.g., more favourable financial terms than what would usually be available for companies without such a guarantee; and
• The receipt of various grants, loans and other debt instruments made to e& and the Emirates Investment Authority (e&'s controlling shareholder) (EIA). Precise details are not provided but the Commission's summary notice regarding the investigation referenced a loan to e& that was viewed as being made on favourable (i.e. non-market) terms for the purposes of the acquisition.

The Commission's findings

The Commission considered that the Subsidies could lead to a distortion of competition in the EU (e.g. by allowing the merged entity access to more attractive financing for its EU activities.) It drew particular attention to e&'s exemption from UAE bankruptcy law, stating that unlimited state guarantees are "considered ‘most likely to distort the internal market', and as such liable to distort the combined entity's activities in the EU internal market." 

To address the Commission's concerns, e& proposed the following remedies:

• A commitment that e&'s articles of association do not deviate from ordinary UAE bankruptcy law, thereby removing the unlimited state guarantee.
• A prohibition of any financing from EIA and e& to PPF's activities in the EU market, subject to certain exceptions concerning non-EU activities and “emergency funding”, which will be subject to review by the Commission, as well as the requirement that other transactions between EIA/e& and PPF take place at market terms.
• A requirement that e& inform the Commission of future acquisitions that are not notifiable concentrations under the FSR.

The Commission accepted these commitments, which are valid for a period of 10 years (extendable for a further 5 years if the Commission and e& agree), and appointed a monitoring trustee to watch over their implementation. 

Implications 

With the Commission's approval being the first of its kind under the FSR, it provides useful insight:

• The transaction timetable. The Commission's decision came more than two months earlier than what was required under the statutory timeline,³ showing that the Commission is willing to act quickly and approve transactions where the parties offer satisfactory remedies early in the process. This highlights the importance of engaging in proactive discussions as early as possible when faced with an in-depth review.
• Bankruptcy exemptions as guarantees. As discussed above, the Commission views exemptions from bankruptcy law as unlimited state guarantees. Given the prevalence of such exemptions in the UAE (perceived by the Commission as applying to all companies fully or partially owned by the state), the Commission presumably may raise similar concerns in other acquisitions / mergers involving a UAE state-owned company and an entity with EU activities.
• Onerous remedies. Although approval was granted swiftly, the remedies required are onerous and long lasting. The prohibition of financing from EIA and e& to PPF's EU activities is rigid and for some transactions such restrictions could raise challenging financing issues.
• Acquisition finance. It is clear that the Commission will closely scrutinise the funding provided for a transaction, asking whether it was provided on terms more favourable than what is generally available on the market. Borrowers may therefore be concerned that financing from state-owned banks could be viewed as foreign subsidy and may prefer to seek funding from banks without state links. Lenders and borrowers should therefore consider how to evidence that loans are made on market terms and on an arms-length basis from the state before advancing any acquisition financing. 

1. Namely that: (i) the turnover of the target (in the case of acquisitions), the JV (for creation of a JV), or one of the parties (for mergers) in the EU was at least €500 million in the last financial year; and (ii) the parties involved in the transaction received "financial contributions" of more than €50 million in the three years prior to the notification. ↩
2. The FSR also contains a notification obligation for public tenders and allows the Commission to conduct investigations into foreign subsidies. ↩
3. Under the FSR, the Commission has 25 working days to conclude its Phase 1 investigation and, for problematic transactions, a further 90 working days to conclude its Phase 2 investigation.↩