Antitrust Law Daily Wrap Up, ACQUISITIONS & MERGERS NEWS: EC conditionally approves Emirates Telecom takeover of PPF Telecom, (Sep 25, 2024)

By Martin A. Steinberg, J.D.

The Commission had concerns that e& may have been granted foreign subsidies that could distort the EU internal market.

The European Commission announced that it has approved the acquisition by Emirates Telecommunications Group Company PJSC (e&) of sole control of PPF Telecom Group B.V. (PPF). The acquisition excluded PPF’s Czech business and is subject to several conditions. 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). PPF serves more than 10 million customers in that sector.

The Foreign Subsidies Regulation (FSR), which took effect on July 12, 2023, enables the Commission to address distortions caused by foreign subsidies, and to allow the EU to ensure a level playing field for all companies operating in the internal market while remaining open to trade and investment. Under 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 an in-depth investigation the Commission may (1) accept commitments proposed by the company if they fully and effectively remedy the distortion, (3) prohibit the concentration, or (3) issue a no-objection decision.

The in-depth investigation by the Commission gathered information from the parties, as well as feedback from competitors of PPF in the EU internal market. The Commission 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 Commission found that these foreign subsidies did not alter the outcome of the acquisition process because (1) they did not lead to actual or potential negative effects on competition in the acquisition process, and (2) e& was the sole bidder for the target and had sufficient own resources to perform the acquisition, which reflected the target's market value.

The foreign subsidies received by e& and the EIA, however, 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.

Proposed commitments. e& and EIA offered three commitments to address the Commission's concerns. First, a commitment that e&'s articles of association do not deviate from ordinary UAE bankruptcy law, thereby removing the unlimited State guarantee. Second, 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. Third, a requirement that e& inform the Commission of future acquisitions that are not notifiable concentrations under the FSR.

Conclusions. The Commission found that the proposed commitments will (1) remove the existence of the unlimited guarantee to e&; (2) 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 (3) provide the Commission with appropriate monitoring mechanisms in particular areas of risk. An independent trustee under the supervision of the Commission will monitor their implementation. The commitments will remain valid for 10 years, can be extended by the Commission for another 5 years, or extended further upon the agreement of the Commission and e&.

The Commission thus 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.

Statement by e&. On September 24, 2024, e& announced in a press release that it received EC approval to complete its previously announced acquisition of a controlling stake (50% +1 economic Share) in PPF Telecom’s assets in Bulgaria, Hungary, Serbia, and Slovakia (PPF Telecom Group), with commitments from e&. This milestone marks the conclusion of e&’s extensive and fruitful dialogue with the Commission’s Foreign Subsidies Directorate that have enabled the EC to grant Foreign Subsidies Regulation approval of this transaction on an accelerated basis, almost three months ahead of the applicable legal deadline. Now that all regulatory approvals have been obtained, closing of the transaction will remain subject to customary closing terms.

Statement by PPF. In a press release published on September 24, 2024, announcing its 1H2024 results, PPF concluded with the following brief statement: “Our planned joint venture with e& received final regulatory approval yesterday, and we expect the deal to close in the coming weeks, following all customary closing conditions.”

Companies: Emirates Telecommunications Group Company PJSC; PPF Telecom Group B.V.

News: AcquisitionsMergers Antitrust