The Foreign Subsidies Regulation (FSR) ' A Game Changer For M&A

• Published date: 08 September 2023
• Subject Matter: Corporate/Commercial Law, Antitrust/Competition Law, Government, Public Sector, M&A/Private Equity, Corporate and Company Law, Antitrust, EU Competition , Government Contracts, Procurement & PPP
• Law Firm: Wiersholm
• Author: Elisabeth Lian Haugsdal, Gunhild Dugstad, Karsten Kreiling and Ida Hestetun Dokken

The new FSR regulation changes the landscape for M&A transactions and high-value procurement procedures.

The FSR in a nutshell

On 12 January 2023, the EU Foreign Subsidies Regulation (the "FSR") entered into force. The FSR aims to address distortions in the internal market caused by foreign subsidies to create a level playing field for companies operating in the EU. Unlike state aid granted by EU Member States, which is subject to stringent EU state aid rules and in many cases approval by the European Commission ("EC"), foreign subsidies from third countries have previously escaped the EC's control. The FSR intends to close this regulatory loophole through filing requirements imposed on market participants and gives the EC a toolbox to tackle competitive advantages market participants operating in the EU obtain through foreign subsidies from non-EU Member States. The proposed information requirements in connection with the filings are extensive. The FSR regulatory regime is separate from and comes in addition to EU and national merger control/anti-trust filing regimes.

The FSR broadly provides the EC with three wide ranging tools to investigate, assess and endorse the compatibility of foreign subsidies with the internal market:

• examination of mergers and acquisitions exceeding certain thresholds (based on both turnover and size of financial contributions from third countries), entailing a standstill obligation and with the possibility for the EC to block transactions and in certain cases require the parties to reverse transactions that are not notifiable.
• examination of financial contributions in the context of high-value public procurement procedures with the possibility to suspend awards, require the successful bidder to offer commitments and block award decisions.
• ex officio review of foreign subsidies, with the possibility to order interim measures, request information and carry out inspections within the EU.

Failing to notify transactions exceeding the thresholds (turnover and financial contributions) or implementing notifiable transactions in breach of the standstill obligation can result in fines up to 10 % of the aggregate turnover the preceding financial year. The same applies in the case of failure to notify foreign financial contributions during a public procurement procedure or in case of attempts at circumventing notification requirements in the FSR.

In the following, we will look closer at the impact of the FSR on M&A transactions.

A game changer for larger M&A transactions

The FSR will have a significant impact on larger M&A transactions going forward. All transactions which are signed on or after 12 July 2023 (when the FSR starts to apply) and are not closed before 12 October 2023 (when the filing obligation starts to apply) will be subject to prior notification and a standstill obligation if meeting the notification requirements. This means even ongoing M&A processes (not signed before 12 July) may be affected, particularly in two ways.

• Firstly, dealmakers will have to cater for an increased risk of deals not being completed as it may be blocked by the EC, together with delays of completion pending approval.
• Secondly, the information that needs to be provided to the EC are particularly extensive and yet unclear, which needs to be...