The Commission has preliminary concerns that e& may have been granted foreign subsidies that could distort the EU internal market
The European Commission has opened an in-depth investigation UAE telco group e& which agreed to buy a 50% plus one share in PPF Telecom’s assets in Bulgaria, Hungary, Serbia and Slovakia last August – excluding its home market Czech business.
The investigation is under the Foreign Subsidies Regulation (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.
The Commission has preliminary concerns that state-controlled e& may have been granted foreign subsidies that could distort the EU internal market. The preliminary investigation indicates that there are sufficient indications that e& has received foreign subsidies distorting the EU internal market.
The alleged subsidies notably take the form of an unlimited guarantee from the UAE and a loan from UAE-controlled banks directly facilitating the transaction. Such subsidies are among the most likely to distort the internal market as set out in the Foreign Subsidies Regulation. The Commission said it has concerns that such subsidies may have improved e&’s capacity to perform the acquisition as well as the competitive position of the merged entity in the EU going forward, notably by improving its capacity to finance its EU activities at preferential terms.
Last August the two telecom groups agreed that e& will pay €2.15bn upfront plus additional earn-out payments of up to €350m within three years after the closing if PPF Telecom exceeds certain financial targets. PPF Telecom Group has 18m mobile subscribers, 1.1m fixed broadband customers, and a consolidated EBITDA of €1.6bn, plus 12,700 employees.
PPF Telecom’s existing assets in the Czech Republic – including the Czech operator O2 Czech Republic and telecommunications infrastructure provider CETIN – were to be transferred outside the PPF Telecom Group and not be part of the transaction. PPF will instead retain its 100% indirect share in O2 CZ and its current indirect share in CETIN Czech.
CETIN Group N.V. will control CETIN Czech but was meant to transfer all its non-Czech subsidiaries to PPF Telecom as part of the e& deal. In March 2022, PPF Telecom Group sold 30% stake in CETIN Group to Singapore’s sovereign fund GIC, having received all regulatory approvals.
What the Commission is looking at
The Commission will assess whether the foreign subsidies lead to actual or potential negative effects on the acquisition process. In particular, if the support has altered the outcome of that process by allowing e& to deter or outbid other parties interested in the acquisition and/or by allowing e& to perform the acquisition in the first place.
It will also examine whether the foreign subsidies lead to actual or potential negative effects in the internal market with respect to the merged entity’s activities.
The transaction was notified to the Commission on 26 April 2024 and has until 15 October 2024 to decide.
“We open our first in-depth investigation into a concentration under the Foreign Subsidies Regulation – Emirates Telecommunications’ acquisition of parts of PPF Telecom,” said EC Competition Commissioner Margrethe Vestager.
“The FSR allows us to tackle distortive support from third countries for the acquisition of businesses in the EU. Our investigation will also assess whether e& may have received foreign subsidies that could distort fair competition in the telecom sector,” she said.
At the end of its investigation the Commission may either: accept commitments proposed by the company if they fully and effectively remedy the distortion; prohibit the concentration; or issue a no-objection decision.
e& provided Reuters with a statement: “e& continues to be in constructive discussions with the European Commission on its proposed acquisition of a majority stake in PPF Telecom Group and is working cooperatively towards a conclusion of the authority’s review.”