What happened?

The European Commission’s (EC) application of the new Foreign Subsidies Regulation (FSR) has reached another significant milestone. On 24 September 2024, the EC concluded its first ever second phase investigation under the FSR regime for mergers. The EC cleared the acquisition of assets of a Czech telecommunications company by a Middle Eastern buyer subject to commitments. When opening the in-depth investigation in June 2024, the EC had been concerned that the buyer benefited from foreign subsidies including an unlimited guarantee and loans from state-controlled banks. In the EC’s view, these could have had negative effects on competition in the acquisition process and led to a distortion of competition in the EU internal market post-transaction. The agreed commitments remove the unlimited guarantee, prevent financing of the target’s activities in the internal market and require the buyer to inform the EC of future acquisitions. The EC found that these commitments therefore eliminate the risk of distortions of competition caused by foreign subsidies. These behavioural commitments are valid for 10 years, can be extended by 5 years and an independent trustee will monitor their implementation. The FSR foresees fines or periodic penalty payments in case of non-compliance with commitments contained in a decision.

Why is this decision important?

The first clearance of a merger reviewed in depth under the FSR is an important development for the parties involved and also provides guidance on the new regime for other businesses. The FSR has now been fully applicable since 12 October 2023 and to date, guidance has been emitted in piecemeal fashion. The EC’s FAQs, a recently published FSR brief and the Staff Working Document on the concept of distortion in the internal market and the balancing test are helpful (see our briefing here); however, we may have to wait until January 2026 for fuller guidelines that will clarify additional issues of interpretation based on the EC’s FSR enforcement experience. Therefore, companies and their advisers have keenly awaited this second-phase decision. While the most in-depth insights may only become clear once the EC publishes the full text of the decision, we can already note three interesting takeaways.

Firstly, as regards the substantial assessment, whilst the impact of foreign subsidies on the acquisition process itself is important, we can see that the EC places great emphasis on the effects of an acquisition on competition in the internal market post-transaction as well. Secondly, the EC appears more willing to accept behavioural commitments in an FSR review than in EUMR cases where it prefers structural remedies. Thirdly, from a procedural angle, it is noteworthy that the EC adopted its decision well before the deadline of 4 December 2024, which would be very unusual for mergers reviewed under the EUMR. This might be due to the nature of the remedies offered here, which do not need much in the way of implementation or the approval of a suitable purchaser. According to a company press release, the EC even granted the clearance on an “accelerated basis.”

What next?

EC President Ursula von der Leyen has nominated Teresa Ribera as the new Commissioner responsible for competition (see our update here). In the Mission letter Teresa Ribera received she has been tasked with vigorously enforcing the Foreign Subsidies Regulation so we can expect that the new Commissioner will place just as much emphasis, if not more, on FSR enforcement as the outgoing Commissioner Margrethe Vestager. Finally, data collection remains one of the main challenges for businesses in relation to the FSR so take a look at our Foreign Subsidies Regulation Solution tool that facilitates the process here.