On 24 September 2024 the European Commission delivered its first final decision under the Foreign Subsidies Regulation, which started to apply a year earlier, in July 2023. Namely, the Commission conditionally approved the acquisition of PPF telecom by e&, a UAE state-owned telecom operator, despite its initial concerns.

The Commission found that e& benefited from subsidies from the UAE, which could have given an unfair advantage to the merged entity and distort fair competition in the EU telecommunications sector. Besides loans granted to e& by state-controlled banks, the Commission’s major concern was the exemption that e& enjoyed from the UAE bankruptcy laws, which was considered to amount to an unlimited state guarantee.

Ultimately, the transaction was approved under the condition that e& fully comply with several commitments—offered by e& itself. These include:

• removal of the unlimited state guarantee (e&’s articles of association must not deviate from ordinary UAE bankruptcy law)
• prohibition of financing of PPF’s activities by e& (with certain exceptions concerning non-EU activities and “emergency funding”)
• e&’s obligation to inform the Commission of future acquisitions below the FSR notification threshold.

There are several lessons from this decision that investors in future M&A deals should bear in mind. One is the transaction timetable—given that the notifiable transaction cannot be closed before the Commission’s approval (the standstill rule), the parties should prepare for potential delays. However, the good news is that the Commission has in this case shown they can act quickly, even well under the statutory timeline.  

Secondly, before engaging in M&A transactions, companies should carry out a risk analysis of their foreign financial contributions. Since loans from state-owned banks could be considered foreign subsidies, it seems prudent to have evidence that the loans were made on market terms, or alternatively to seek funding from banks with no connection to the state.

In some cases, it may be even necessary to modify the structure of the deal to include commitments such as those offered by e&, bearing in mind this could increase the complexity of the transaction. Finally, be open to proactive discussions with the Commission from the early stages. In this particular case, such approach was beneficial both timewise and result-wise.