Planning Mergers and Acquisitions in the European Union: Things to Know About the Eu's New Foreign Subsidies Regulation

• Publication year: 2024
• Citation: Vol. 1 No. 2

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Christian Filippitsch and Max Seuster ^*

In this article, the authors highlight the key issues that businesses need to be aware of when planning mergers and acquisitions in the European Union in order to successfully comply with the notification obligation under the EU's new Foreign Subsidies Regulation.

As of October 12, 2023, mergers and acquisitions (M&A) in the European Union may trigger a mandatory notification to the European Commission (EC) under the EU's new Foreign Subsidies Regulation (FSR). Similar rules apply to participations in public tenders in the European Union. A failure to notify could trigger high fines.

The FSR aims to tackle foreign subsidies that distort the level playing field within the EU single market. It provides for a notification obligation for M&A transactions and increases red tape for closing M&A transactions involving state-supported investors in Europe. The FSR adds to existing notification requirements under EU and national merger control rules, foreign direct investment rules, and, possibly, other sector-specific rules (e.g., for certain energy infrastructure projects under the EU's Third Energy Package).

The scope of the FSR has been widely criticized. In particular, the definition of financial contributions is far reaching, increasing to the widest extent possible the likelihood of notification obligations, instead of focusing on financial contributions bearing a real risk of having distortive effects. The administrative burden imposed on companies is substantial.

Some view the FSR as a tool to make investments by state-controlled companies, sovereign wealth funds, or state-subsidized companies an unreasonable administrative burden.

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However, if approached strategically and in a timely manner, complying with the FSR (as well as merger control, foreign direct investment (FDI), and other regulatory notification obligations) should in most cases be a process that can be managed constructively and effectively.

This article highlights the key issues businesses need to be aware of when planning M&A deals in the European Union in order to successfully comply with the new FSR notification obligation.

What M&A Deals Must Be Notified?

An M&A transaction requires prior approval from the EC under the FSR if:

■ It constitutes a concentration (i.e., a merger or an acquisition of sole or joint control over another business);
■ One of the merging undertakings (in the case of mergers), the acquired business (the

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