Learnings from the first FSR Phase II merger decision: The Commission publishes a provisional public version of the commitment decision in e&/PPF (part 1)

Lena Hornkohl, University of Vienna, & Pierfrancesco Mattiolo, University of Antwerp

On 24 September 2024, the European Commission (EC) issued the long-awaited first decision (under phase II of the concentration tool) of the new Foreign Subsidies Regulation (FSR). It took another long wait of seven months, but a provisional public version of the commitment decision in the e&/PPF transaction (Case FS.100011) was published on 4 April 2025. As a first of its kind and relating to the strategic area of telecoms, the decision does not fall short of its expectations and clarified crucial areas of the FSR relevant for future enforcement and counselling in FSR proceedings. In particular, Part 1 covers the (1) the notion of foreign subsidies and (2) the concept of distortions in the internal market, particularly in the concentration tool. Part 2 will cover (3) the balancing test, (4) the commitments, and (5) procedural aspects.

The decision certainly underlines the wide understanding of the different aspects of the FSR, which has, with this decision, emerged as a full stand-alone assessment. The decision shows the different competition law (what does all of this has to do with competition on the merits?) and not-so-much-competition law (how to use the trade best-evidence available rule in FSR proceedings) related inspirations of the FSR. The Foreign Subsidies Regulation – a tool with surely an even bigger impact in the future!

Part 2 of the contribution will be published tomorrow on CELIS Blog. The contribution is also available on Kluwer Competition Law Blog.

Background and Overview

In April 2024, Emirates Telecommunications Group Company (e&), a company based in the United Arab Emirates (UAE) and controlled by the Emirates Investment Authority (EIA, the UAE’s sovereign investment fund), notified the Commission of the proposed acquisition of part of the telecom business of PPF, a Czech company. In particular, e& planned to acquire sole control of PPF’s activities in Hungary, Bulgaria, Serbia, and Slovakia for more than €2.15 billion. The concentration satisfied the thresholds set by Article 20(3) FSR (para 9).

In June 2024, the Commission opened an in-depth investigation into the transaction — the first under the concentrations procedure. During this phase, in response to a request for information (RFI) from the Commission, e& clarified that it constitutes a single undertaking with the EIA. After approximately three months of engagement with e& and its competitors, the Commission adopted a decision with commitments in September 2024, clearing the e&/PPF deal and delivering the first final decision under the FSR.

Learnings on the notion of foreign subsidies

The EC decided to move to the in-depth phase of the investigation after the preliminary phase indicated that e& and the EIA may have received some foreign subsidies, granted by different entities (para 47):

• a term loan granted to e& by a consortium of banks (four government-controlled and one private institution);
• an unlimited guarantee to e& directly granted by the UAE government;
• direct grants, loans and repayable advances to the EIA from the UAE Ministry of Finance;
• a revolving credit facility loan to the EIA by a consortium of UAE banks (some of which, government-controlled);
• two ‘foreign financial contributions’ that were redacted from the Decision, which benefitted respectively e& and the EIA.

The EC had to test each of these financial contributions under the notion of foreign subsidy described in Article 3 FSR, which is ‘deemed to exist where a third country provides, directly or indirectly, a financial contribution which confers a benefit on an undertaking engaging in an economic activity in the internal market and which is limited, in law or in fact, to one or more undertakings or industries’.

e& disclosed to the EC that the term loan (1) would be used to finance the acquisition. Loans are one of the examples of financial contributions listed by Article 3(2) FSR. Due to the heavy involvement of State-owned banks, accounting for 90 or 95% of the financing (para 54), the EC considered the contribution as attributable to the UAE. When assessing the conferral of a potential benefit, however, the EC was not able to confirm its presence (para 71). The loan’s conditions appeared comparable to other financing obtained by e& and similar transactions – even defining a ‘benchmark’ proved difficult due to the confidential nature of these agreements (para 60). With no benefit, the term loan does not constitute a foreign subsidy as it does not satisfy one of the requirements of the legal standard set by Article 3 FSR. Consequently, the EC did not proceed to assess the other requirements under the notion in Article 3 FSR (para 73) and reached a different conclusion than the one formulated in the Initial Decision that opened the in-depth investigation.

On the other hand, the unlimited guarantee (2) was confirmed as a foreign subsidy (para 139). Loan guarantees are also listed in Article 3(2)(a) FSR. The guarantee was ‘attributable’ to a foreign government as it stems from a legislative provision that exempts e& from ordinary UAE insolvency rules (para 119). In case of e&’s insolvency, EIA – a public authority under the UAE government – can also intervene to veto the bankruptcy proceedings, manage and purchase its critical assets, de facto safeguarding e&’s existence. Additionally, the guarantee provides a benefit, as it makes e& more reliable for creditors and may improve the conditions it can receive for its commercial and financial transactions (para 123). Finally, it was also considered selective, as it is ‘limited, in law’, to publicly-owned UAE companies (para 132) and, ‘in fact’, to e& since the undertaking benefits from different insolvency rules via articles of association agreed by the UAE government via the EIA (para 133).

The (3 and 4) financial contributions received by the EIA were also considered foreign subsidies. The EC sent ‘several’ requests for information to e& on the matter, yet it did not receive satisfactory answers on the contributions received by the EIA (paras 187 et seq.). This led the EC to assess the existence of the subsidies ‘on the basis of the facts available’ (para 193)  – more on this below, when we will discuss the procedural aspects. Without sufficient information on the amount and conditions of the contributions, the EC assumed that the EIA obtained a benefit from them (para 199). The EC discussed how these subsidies received by the EIA may be linked to the transaction of e&. Although these financial contributions from the UAE government to the EIA were granted during the three years preceding the concentration, there were no financial flows or commercial transactions between e& and the EIA. So, the subsidies did not improve e&’s competitive position in the acquisition process (para 248). However, these subsidies may favour e& ‘post-transaction’, as the new combined entity could receive funding from the EIA (para 249). In conclusion, while conducting the legal test of Article 3 FSR, the EC already considers if a subsidy may produce effects on the acquisition process, the economic activity after the transaction or both. Then, the EC moves to assess the potential distortions.

Learnings on the concept of distortion of the internal market 

Together with the first EC guidance on the notion of distortions and the running consultations on that concept (see also the ASCOLA comments to that consultation, to which we contributed), the decision contains important takeaways to assess distortions of the internal market by foreign subsidies, particularly in concentration procedures.

Aim of the distortion test: level the playing field

The decision, first of all, confirms the aim of the distortion test in the overall objective of the FSR: ensuring a level playing field. The concept of level playing field is often viewed as opaque, similarly to the concept of competition on the merits in core competition law.

The decision confirms a comparable, while ultimately – as it is the case with competition on the merits for, e.g. Article 102 TFEU enforcement – still blurry understanding of the concept from the viewpoint of the EC. Using a similar wording, the Commission states that ‘notion of level playing field refers to the conditions in which undertakings compete with each other in the internal market based on merit’ (para 260). Yet, the EC does not explain what level playing field actually means. Rather and typically, the Commission takes a negative recourse to the non-respect of the level playing field – when there is no competition on the merits – in cases ‘when the chances of succeeding in the market are unduly altered, for instance, by support from a third country in favour of one or more market players’ (para 260).

However, the EC later comes back to the concept of level playing field and competition on the merits when assessing the negative impacts on competition in the activities of the combined entity post transaction, which sheds a bit more light to both. The EC is stating that ‘the competitive advantage obtained through foreign subsidies is that the combined entity gains the ability to expand its activities in the internal market beyond what its own merits should result in’ (para 367). Foreign subsidies could, for example, cover costs to aggressive commercial policy, e.g. undercutting competitors in auctions, without the need to generate the available funds to sustain such behaviour.

The different steps of the general distortion test

Second of all, the decision provides an important insight into conducting the general distortion test in different steps.

As Article 4(1) FSR itself shows, the distortion concept departs from the one we know from State aid law. In State aid law, State aid distorts of threatens to distort competition ‘when it is liable to improve the competitive position of the recipient compared to other undertakings with which it competes’. The FSR concept goes beyond that and mandates a two-step approach for a distortion: the foreign subsidy must be (1) liable to improve the competitive position of an undertaking in the internal market – similar to State aid law –, and (2) in doing so, actually or potentially negatively affect competition in the internal market – fully departing from the State aid notion. The e&/PPF decision underlines this approach (paras 255) – and nuances it especially in the context of concentrations, more on this in a minute.

Before taking on these two steps of Article 4(1) FSR, however, the e&/PPF decision shows that the Commission assess two previous stages.

First, the decision highlights the necessity to first ‘establish a relationship between the foreign subsidy and activities of the undertaking in the internal market which are open to competition’ (para 256). The EC must therefore establish the activities likely to be affected by the foreign subsidies (para 294). This activity can be any activity where the beneficiary is already active or in which it will likely become active, such as investments or provision or purchase of goods and services (para 259). This approach illustrates the nuanced assessment under the FSR, which emphasises the economic impact of the foreign subsidy on different activities of the beneficiary in the EU internal market. Before examining the distortion, it is, thus, sensible and necessary to assess where, i.e. in relation to what activities and therefore markets, distortions could even arise.

Second, the EC also takes a previous look into Article 5(1) FSR and the question whether the foreign subsidy qualifies at one that is ‘most likely to distort the internal market’ (paras 267, 305). This is equally sensible, given the reversal of the burden of proof by Article 5(2) FSR according to which the undertaking under investigation can bring forward exonerating evidence. The e&/PPF decision further underlines that a foreign subsidy falling in the Article 5(1) FSR category is presumed to be distortive, while Article 5(2) FSR gives the undertakings under investigation the possibility to rebut that presumption (Is anyone else reminded of by-object restrictions as well?). Upon finding, e.g. an unlimited guarantee within the meaning of Article 5(1)(b) FSR (paras 77 – 115, 306 – 310), the Commission, in line with recital 20 FSR, did not perform a detailed assessment of distortions based on indicators (paras 311 – 314). Rather, it assesses, if the undertakings under investigation rebutted such a presumption (paras 315 – 319). Consequently, the ECs further detailed examination based on concrete evidence of the Article 4(1) FSR mandated test of improvement of the competitive position and negative effect on competition through the unlimited guarantee is technically not necessary – as the Commission highlights itself (para 320) – but done as a precaution (and likely to provide more guidance on FSR notions).

Even though the e&/PPF decision does not tackle this part, it is likely that equally to considering first if the foreign subsidy is ‘most likely to distort the internal market’ under Article 5(1) FSR, the Commission would also explore the unlikely or not distortive foreign subsidies according to Articles 4(2) – (4) FSR before going into a detailed distortion-examination based on concrete evidence. In these categories, the foreign subsidies are not distortive (Article 4(3) FSR) or unlikely distortive, i.e. presumed not distortive (Articles 4(2) and (4) FSR), which warrants a previous assessment.

Therefore, the e&/PPF decision provides for a detailed step-by-step approach for the overall distortion test, which amounts to four points. The Commission will consider:

• which activities are likely to be affected by the identified foreign subsidy, and
• whether the foreign subsidy is most likely (Article 5 FSR) or unlikely/not distortive (Article 4(2) – (4) FSR), and
• if the foreign subsidy liable to improve the competitive position of the undertaking in the internal market (Article 4(1) first part of first sentence FSR), and
• by doing so, if the foreign subsidy actually or potentially negatively affects competition in the internal market (Article 4(1) second part of first sentence FSR)

A deeper look into the general notion of distortion

Before delving into the special concentration test, a few further general findings on the notion of distortion that we can take from the e&/PPF decision.

First, the decision sheds light on the concept of ‘unlimited guarantees’ as most likely distortive foreign subsidies under Article 5(1)(b) FSR (paras 305 – 319). The EC does not simply find that the merged entity has access to unlimited guarantees but also assesses its general and specific effects in context of the case (paras 309 – 312). This provides a deeper understanding into why unlimited guarantees are seen to be most likely distortive. Unlimited guarantees allow the beneficiaries to ‘to raise future financing for its operations in the internal market at preferential conditions’. Particularly, ‘creditors are expected to take into account the existence of an unlimited guarantee’ and have done so in the past. Because such guarantees are of an ‘unlimited’ amount, they ‘are liable to improve the competitive position of any undertaking, regardless of its size or presence on the internal market’, especially compared to competitors without such options. Distortive effects are not restricted, since unlimited guarantees are not restricted by ‘purposes’ or ‘conditions’.

Second, for steps 3) and 4) of the distortion test, liable to improve the competitive position and negatively effecting competition, the Commission will take into account the list of indicators in Article 4(1) second sentence FSR. The e&/PPF decision stresses that the distortion test is an ‘overall assessment relying on indicators’, the latter list of Article 4(1) second sentence FSR is not conclusive or cumulative (paras 261, 262). Throughout the decision, the EC takes recourse to all indicators, such as amount (paras 272, 334), nature (paras 272, 337), situation of the undertakings (para 343), level and evolution of economic activity of the undertaking on the internal market (para 343), use (para 343) and conditions of the foreign subsidy (para 338).

Third, as mentioned above, step 3) of the distortion test – the question whether the foreign subsidy is liable to improve the competitive position of an undertaking in the internal market – is similar to State aid law (only the second part of the FSR distortion test departs from State aid law). However, in State aid law, this is generally presumed ‘when the State grants a financial advantage to an undertaking in a liberalised sector where there is, or could be, competition.’ This overlap would argue in favour of applying a similar presumption for the FSR as well. The e&/PPF decision initially seems to follow such an approach due to the lack of detailed assessment of step 3) at first (para 275). However, a more thorough examination of step 3) was only avoided at this point because step 4) was rejected later on for this activity, making a more thorough examination of step 3) unnecessary (para 276). For a different activity, step 3) was conducted in depth (paras 321 et seq.). The Commission speaks of a ‘detailed assessment’ (para 320).

Fourth, when conducting step 3), the e&/PPF decision clarifies what can be taken into account to examine whether the foreign subsidy is liable to improve the competitive position of an undertaking in the internal market. In that context, the EC assess if the subsidy is improving the conditions at which the beneficiary can conduct activities in the internal market (paras 281, 322). The Commission specifically considers the access to subsidised financial capacity (paras 322 et seq.) and subsidised assets and services (para 340 et seq.). The EC underlines, firstly, the role of the ability and incentive to provide subsidised financial capacity (or subsidised assets and services) (para 332). Beyond that, secondly, the EC analyses ‘a concrete risk’ that the foreign subsidies will actually ‘be used to improve the competitive position of the economic activities’ of the beneficiary (para 333). Consequently, a foreign subsidy can, e.g., result in preferential credit ratings (paras 326, 327), or further beneficial unconditional funding (paras 338, 249, 250).

Fifth, for step 4) – whether the foreign subsidy actually or potentially negatively affects competition in the internal market – the EC considers ‘the extent to which the outcome of that [affected activity] has been altered by the foreign subsidy’ (para 278), factoring in the situations of the beneficiary’s competitors. Consequently, step 4) consists of a counterfactual (but for) analysis (is anyone else reminded of by-effect restrictions here as well?). the EC highlights particularly for 4), the possibility to recognize ‘potential distortions that are liable to occur as a result of the foreign subsidies’ (para 258). As this refers to the temporal dimension of an analysis, the EC underlines the prospective nature the distortion test can maintain: distortions do not actually have to occur, they can also potentially materialise in the future. Consequently, the EC takes future capital expenditures, future investments, future auctions into account (para 360 et seq.). Generally, the EC recognised the following aspects in step 4): outbidding of competitors (para 279), preventing competitors from participating in that economic activity (para 280), necessity of the foreign subsidy to conduct the activity (paras 281 et seq., paras 344 et seq.), ability and incentive for risks (para 354), already weakened competition (para 356), financial constraints of competitors (para 359), rationale of transaction (para 365), ability to discipline competitors (para 366) or possibilities to recoup aggressive commercial strategies (para 367).

Adding complexity: special test for concentrations (and public procurement?)

In the FSR concentration procedure, however, the decision shows that the previously described general four-step distortion test is even more complex. The complexity relates to the importance of establishing the mentioned ‘relationship between the foreign subsidy and activities of the undertaking in the internal market which are open to competition’ (para 256).

For concentrations we have two activities, or rather markets, concerned: the market for M&A transaction itself and the operational markets. The effect on the acquisition process therefore warrants a distinct distortion examination. This is further stressed by Article 19 FSR, according to which ‘[w]hen assessing whether a foreign subsidy in a concentration distorts the internal market within the meaning of Article 4 or 5, that assessment shall be limited to the concentration concerned’ (para 263). The Commission underlines this two-perspective merger test straightforward in e&/PPF: ‘In notified concentrations, the Commission thus assesses whether foreign subsidies distort the internal market in the economic activities affected by the concentration, including (i) in the context of the acquisition process of the Target and (ii) in the activities of the combined entity in the internal market post-Transaction’ (para 264). The EC highlights the further overall prospective nature of the assessment of the existence of distortive foreign subsidies in a concentration (para 265).

Consequently, this amounts to the following two-prong test for the concentration procedure, each consisting of the four steps.

First, the Commission considers for distortions of the acquisition process:

• the acquisition process as the activity of the undertaking under investigation, and
• whether the foreign subsidy is most likely (Article 5 FSR), in particularly, whether it is directly facilitating a concentration under Article 5(1)(d) FSR, or unlikely/not distortive (Article 4(2) – (4) FSR), and
• if the foreign subsidy is liable to improve the competitive position of the undertaking in the acquisition process (Article 4(1) first part of first sentence FSR), and
• by doing so, if the foreign subsidy actually or potentially negatively affects competition in acquisition process (Article 4(1) second part of first sentence FSR)

Second, the Commission considers for distortions in the activities of the combined entity post-concentration:

• which activities are likely to be affected by the identified foreign subsidy, and
• whether the foreign subsidy is most likely (Article 5 FSR) or unlikely/not distortive (Article 4(2) – (4) FSR), and
• if the foreign subsidy is liable to improve the position of the combined entity’s economic activities in the internal market (Article 4(1) first part of first sentence FSR), and
• by doing so, if the foreign subsidy actually or potentially negatively affects competition for the combined entity’s economic activities in the internal market (Article 4(1) second part of first sentence FSR)

Following the e&/PPF decision, the question arises if a similar two prong test applies also for the procurement procedure. Such an approach would be supported by the fact that that Article 27 FSR is comparable to Article 19 FSR, which the Commission used to support the two-prong test in the case at hand (para 263). Furthermore, when considering that the ‘relationship between the foreign subsidy and activities of the undertaking in the internal market which are open to competition’ are decisive, the EC only mentions acquisitions as an example of activities in which the beneficiary is, or will likely be, active (‘for instance acquisition of other undertakings’, para 259). Consequently, for the procurement procedure, the two-prong test could amount to an assessment if (i) the foreign subsidy enables an economic operator to submit a tender that is unduly advantageous in relation to the works, and (2) the foreign subsidy leads to distortions in the activities of the beneficiary in the internal market after (or beyond) the procurement bid.

If we consider that DG GROW opened the very first in-depth investigation under the FSR towards Chinese train manufacturer CRRC – leading the company to withdraw its bid –, it comes naturally to remember the debate that followed the 2019 Siemens-Alstom decision. The failure to account for CRRC's rise was sometimes cited as an example of the limits of the decision and the need for a new instrument to address foreign subsidies. Today, with the FSR, the EC could look at the distortions a subsidy may cause following a concentration or a tender award and ensure that competition in the internal market does not deteriorate even some time after the decision. This type of forward looking assessment appears well-aligned with the type of assessment traditionally carried out in merger reviews. Yet, it may appear less familiar in the context of public procurement procedures, where the competitive position of bidders or the market structure post-tender are not part of the assessment – even if procurement rules are there to ensure fair competition lato sensu. It will be interesting to see whether DG GROW will follow DG COMP on the matter or whether the two specialised procedures will require different methodologies.

On the contrary, regarding the ex officio procedure, it seems unlikely that the Commission would apply a special distortion test. Rather, the above-mentioned general distortion test applies. The decision indicates that this is even the case for below-threshold mergers falling under the catch-all ex officio procedure, as the Commission states that the two-prong test only applies to ‘notified concentrations’ (para 264). On the contrary, a call-in concentration according to Article 21(5) FSR (and Article 29(8) FSR for public procurement) are ‘notified concentrations’, and, thus, subject to the special two-prong distortion test for concentrations.

In the next blogpost on the decision, we will have a deeper look at the distortions in the acquisition process and post-transactions, the balancing test, the commitments agreed by e& and the Commission, and some procedural elements.