The European Commission has approved, under the Foreign Subsidies Regulation ('FSR'), the acquisition by Emirates Telecommunications Group Company PJSC ('e&') of sole control of PPF Telecom Group B.V. ('PPF'), excluding its Czech business, subject to conditions. The approval is conditional on full compliance with the commitments offered by the parties.
Today's decision follows an in-depth investigation of the proposed acquisition.
e& is a telecommunications operator based in the United Arab Emirates ('UAE') controlled by a sovereign wealth fund controlled by the UAE, the Emirates Investment Authority ('EIA').
PPF, headquartered in the Netherlands, is a telecommunication operator in Czechia, Bulgaria, Hungary, Serbia (Yettel) and Slovakia (O2). Those activities include telecom companies and the underlying infrastructure. In total, PPF serves more than 10 million customers in that sector.
The Commission's findings
During its in-depth investigation, the Commission gathered further information from the parties, as well as feedback from competitors of PPF in the EU internal market, and found that:
- e& and EIA received foreign subsidies from the UAE, consisting notably in an unlimited State guarantee to e&, as well as grants, loans and other debt instruments to EIA.
- The foreign subsidies received by e& did not lead to actual or potential negative effects on competition in the acquisition process. e& was the sole bidder for the target and had sufficient own resources to perform the acquisition, which reflected the target's market value, so that foreign subsidies did not alter the outcome of the acquisition process.
- The foreign subsidies received by e& and the EIA could have led to a distortion of competition in the EU internal market post-transaction. Under the FSR, 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. Foreign subsidies benefiting e& and the EIA would thus have artificially improved the capacity of the merged entity to finance its activities in the EU internal market and increased its indifference to risk. As a result, the merged entity could have engaged in investments, for instance in spectrum auctions or in the deployment of infrastructure, or acquisitions, thus distorting the level-playing field relative to other market players by expanding its activities beyond what an equivalent economic operator would engage in absent the subsidies.
The proposed commitments
To address the Commission's concerns, e& and EIA offered a commitments package consisting of:
- 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 the EIA and e& to PPF's activities in the EU internal 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 those companies 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 found that those commitments will (i) remove the existence of the unlimited guarantee to e&;(ii) ensure that e& and the EIA cannot channel foreign subsidies to the activities of the merged entity in the internal market after the transaction, and (iii) provide the Commission with appropriate monitoring mechanisms in particular areas of risk. Under the supervision of the Commission, an independent trustee will monitor their implementation.
The commitments are valid for a period of 10 years and can be extended by the Commission to another 5 years, or further if the Commission and e& agree.
The Commission therefore concluded that the transaction, as modified by the commitments, would no longer raise competition concerns. This decision is conditional upon the full compliance with the commitments.
The procedure under the Foreign Subsidies Regulation
The FSR started to apply on 12 July 2023. The Regulation new set of rules enables the Commission to address distortions caused by foreign subsidies, and thereby allows the EU to ensure a level playing field for all companies operating in the internal market while remaining open to trade and investment.
According to the FSR, companies must notify concentrations to the Commission when at least one of the merging companies, the acquired company or the joint venture is established in the EU and generates an EU turnover of at least €500 million, and when the parties were granted at least €50 million in combined aggregate foreign financial contributions from third countries in the three years prior to the concentration.
At the end of its in-depth investigation the Commission may (i) accept commitments proposed by the company if they fully and effectively remedy the distortion, (ii) prohibit the concentration, or (iii) issue a no-objection decision.
