CELIS Update on Investment Screening – September 2024

European Union – European Commission has granted conditional approval in first in-depth review for an M&A transaction

On 24 September 2024, the European Commission has approved the acquisition by Emirates Telecommunications Group Company PJSC (ETGC) of sole control of PPF Telecom Group B.V. (PPF), excluding its Czech business, under the Foreign Subsidies Regulation. The approval is conditional on full compliance with the commitments offered by the parties. It is the first time, that the European Commission has accepted commitments in a merger case reviewed under the Foreign Subsidies Regulation.

ETGC is a telecommunications operator based in the United Arab Emirates controlled by a sovereign wealth fund controlled by the United Arab Emirates, the Emirates Investment Authority. PPF is a telecommunication operator serving more than 10 million customers in that sector in Czechia, Bulgaria, Hungary, Serbia and Slovakia, headquartered in the Netherlands.

During its in-depth investigation, the Commission found that the foreign subsidies received by ETGC from the United Arab Emirates did not lead to actual or potential negative effects on competition in the acquisition process. The foreign subsidies could have led to a distortion of competition in the EU internal market post-transaction, if the merged entity would have engaged in investments or acquisitions 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 the Commission’s concerns, ETGC and the United Arab Emirates offered a commitments package consisting of the commitment that ETGC’s articles of association do not deviate from ordinary United Arab Emirates bankruptcy law, the prohibition of any financing from the Emirates Investment Authority and ETGC to PPF’s activities in the EU internal market and the requirement that ETGC informs the Commission of future acquisitions that are not notifiable concentrations under the FSR.

Under the supervision of the Commission, an independent trustee will monitor the implementation of the commitments, which are valid for a period of 10 years.

European Union – EU General Court refused to suspend the European Commission’s request to access employees’ mailboxes located in China

The EU General Court decided on investigation measures of the European Commission (EC) under the FSR for the first time. In April 2024, the EC carried out the first unannounced on-site inspection (“dawn raid”) conducted under the FSR at Nuctech Wasaw Company Limited sp. z o.o., based in Poland and Nuctech Netherlands BV, based in the Netherlands, both entities being wholly owned subsidiaries of Nuctech Hong Kong Co. Ltd, which is ultimately controlled by a company registered in China and listed on the Shanghai Stock Exchange: Tsinghua Tongfang Co. Limited.

The EC sought access of various mailboxes of certain employees who are Chinese citizens. A legal hold was placed on these accounts whose data were on servers located in China. Only Nuctech’s Polish and Dutch entities were addressees of the EC’s dawn raid and legal hold request and these entities made the application to the GC to annul the EC’s decision ordering the dawn raid, as well as to suspend the EC’s request for the mailboxes, until the GC rules on the annulment.

The applicants argued the Commission infringed EU and international law by requesting documents stored on servers in China and that complying would force them to violate Chinese law, claiming also the inspections caused reputational damage and threatened their financial viability.

In its preliminary ruling the President of the EU General Court rejected the application, finding the applicants failed to establish a prima facie case that the EC’s actions were unlawful. It is not enough to show that providing the data would breach non-EU laws. Instead, the applicants would need to show that they had requested exemptions from Chinese authorities and such requests were denied.

The Court emphasized that the EC must be able to request information from non-EU entities to effectively assess potential distortions in the internal market caused by foreign subsidies. Otherwise, the EC’s investigative powers would be limited and there is the potential of encouraging companies to store data outside the EU to evade scrutiny.

United Kingdom – Third Annual Report on the National Security and Investment Act 2021

On 10 September 2024, the UK Cabinet Office published the third Annual Report on the National Security and Investment Act 2021 (Annual Report). The Annual Report sets out summary information and statistics relating to the review of investments and transactions on national security grounds in the United Kingdom during 1 April 2023 to 31 March 2024.

The UK Government remains open to foreign investment and is committed to ensuring that the NSIA regime is as frictionless as possible for the vast majority of transactions. The total number of notifications received by the Investment Security Unit was slightly higher than the year before with 906 notifications in 2023-24. 41 % of the call-in notices issued were transactions involving acquirers associated with China, so that transactions of this kind have continued to be subject to greater scrutiny under the NSI regime. Interestingly, 39 % of call-in notices were issued in respect of transactions involving acquirers associated with the UK. The top 5 sector for call-in notices were the defence sector (39%), military and dual-use (29%), communications (24%), advanced materials (24%) and academic R&D (24%). Of the 41 transactions called in for review, 4 related to non-notified transactions, showing that the Investment Security Unit pro-actively monitors market intelligence and is able to initiate on its own initiative a review into an non-notified transaction.

The third Annual Report on the National Security and Investment Act 2021 can be accessed here.

 Switzerland –National Council approves the Investment Review Act

The National Council approved the new investment screening law in the overall vote by 142 votes to 48 with 3 abstentions, which is designed to prevent takeovers if they endanger public order or security.

Whereas the Federal Council had only focused on state investors, the National Council decided that also private investors should be reviewed. Takeovers of Swiss companies are therewith subject to stricter controls, which should also cover non-state investors.

It is also explicitly mentioned, that in addition to public order and security, the supply of essential goods and services is worthy of protection.

The matter now goes to the Council of States.