The Commission investigated deal under the new Foreign Subsidies Regulation
The European Commission has granted approval for e& to acquire PPF Telecoms, subject to conditions. PPF Telecom has headquarters in the Netherlands and opcos in Czechia, Bulgaria, Hungary, Serbia (Yettel) and Slovakia (O2). The deal will give e& control of the opcos bar that in Czechia.
The proposed acquisition was announced in August 2023 and said to be worth up to €2.5 billion at the time of the announcement.
e& is controlled by a sovereign wealth fund, the Emirates Investment Authority (EIA), which in turn is controlled by the United Arab Emirates. The Commission viewed the unlimited guarantee from the UAE and a loan from UAE-controlled banks to complete the deal as potential foreign subsidies. Hence Commission’s concern that the ‘subsidies’ could distort the EU’s internal market and the opening of an investigation into the deal in the summer.
The Foreign Subsidies Regulation (SFR) came into force in January this year and this is the first final decision to be made under the aegis of the regulation.
The Commission concludes
The Commission has now concluded that the foreign subsidies themselves did not result in actual or potential negative effects on competition during the acquisition process. It did find though that the funds could distort competition in the EU’s internal market after the transaction was completed.
The Commission’s press statement said, “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.”
To address these concerns, e& and EIA has made these commitments:
- 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.
In other words, the EIA cannot channel funds to the activities of the merged entity in the internal European market after the transaction. The concessions also give the Commission “monitoring mechanisms in particular areas of risk”.
Margrethe Vestager (pictured) is the outgoing Executive Vice-President of the Commission responsible for Competition. She said, “Today we adopt our first final decision under the Foreign Subsidies Regulation. We found that e& benefited from subsidies from the United Arab Emirates that would give the merged entity an unfair advantage and could distort fair competition in the telecom sector.
“Today’s decision marks a positive outcome to these proceedings, thanks the parties’ cooperation and willingness to offer a comprehensive set of remedies to address our concerns.”