The EU FSR Decision and Its Implications for Middle Eastern Investors

The EU Foreign Subsidies Regulation (FSR) has introduced a new layer of regulatory review for non-EU companies investing, bidding, or operating in the European Union. For Middle Eastern investors, particularly state-linked companies, sovereign wealth funds, and government-backed groups, the FSR is now an important consideration in European M&A and public procurement strategy.

The first in-depth FSR merger case, involving e& (formerly Etisalat) and PPF Telecom, is especially significant. Although the FSR has often been viewed as a tool aimed at Chinese state-backed investment, the first major merger investigation under the regime involved a UAE-linked acquirer. This confirms that the European Commission intends to apply the FSR broadly, including to Middle Eastern investors that receive financial contributions from public entities.

What Is the EU Foreign Subsidies Regulation?

The FSR was adopted to address distortions in the EU internal market caused by subsidies from non-EU governments. It entered into force on 12 January 2023 and has applied since 12 July 2023. Since 12 October 2023, companies have been required to notify certain large mergers and public procurement bids that meet the relevant thresholds.

The European Commission is the sole enforcer of the FSR. The regime is similar in concept to EU state aid law, but it targets support granted by non-EU governments rather than EU Member States.

A foreign subsidy may include grants, loans, equity injections, tax advantages, government guarantees, or the provision of goods or services on preferential terms. The definition is broad. It may also capture conduct by private entities if their actions are attributable to a foreign state.

In practical terms, the FSR gives the Commission authority to examine whether financial support from a non-EU state gives a company an unfair advantage in the EU market.

How the FSR Applies to M&A and Public Procurement

The FSR has three main enforcement mechanisms: M&A review, public procurement review, and ex officio investigations.

For mergers and acquisitions, a transaction must be notified if at least one party, the target, or the joint venture generates EUR 500 million or more in EU turnover, and the acquiring side has received EUR 50 million or more in aggregate foreign financial contributions from non-EU states during the previous three years.

If both thresholds are met, the parties must notify the Commission before closing. The transaction is subject to a standstill obligation, meaning it cannot be completed until the Commission has reviewed it.

The FSR also applies to large public procurement procedures. A bidder must notify the Commission where the contract value exceeds EUR 250 million and the bidder has received EUR 4 million or more in foreign financial contributions during the previous three years. If the Commission finds that the bidder received a distortive foreign subsidy, it may prevent the award of the contract or require remedies.

The Commission can also open ex officio investigations on its own initiative. These investigations may cover non-notified transactions, public procurement matters, or other market conduct where the Commission has information suggesting that foreign subsidies may distort competition in the EU.

The First In-Depth FSR Case: e& / PPF Telecom

In June 2024, the Commission opened its first in-depth Phase II investigation under the FSR merger review mechanism. The case concerned e&’s acquisition of PPF Telecom’s operations in several Central and Eastern European Member States.

The transaction did not meet the jurisdictional thresholds of the EU Merger Regulation, but it did trigger the FSR. The target had significant EU turnover, and e& had received substantial financial contributions from UAE public entities.

During the review, the Commission identified two main concerns: an unlimited UAE government guarantee on e&’s obligations and a large loan from UAE-controlled banks that facilitated the transaction. Unlimited guarantees are particularly sensitive under the FSR because they fall within the categories of subsidies considered most likely to distort the internal market.

The Commission examined whether the subsidies distorted the bidding process and whether they could give the merged entity an unfair advantage after closing. It found no distortion in the bidding process, noting that e& was the sole bidder and had sufficient own funds. However, the Commission was more concerned about post-closing effects. It considered whether state-backed financial support could allow the merged entity to invest or compete more aggressively than rivals without similar backing.

On 24 September 2024, the Commission conditionally cleared the transaction. To address the Commission’s concerns, e& agreed to behavioral remedies. These included removing the unlimited guarantee, limiting financing from e& and the Emirates Investment Authority to PPF’s EU businesses, and accepting enhanced reporting obligations for future transactions.

Why This Matters for Middle Eastern Investors

The e& / PPF Telecom decision shows that the FSR is not limited to Chinese-backed transactions. Middle Eastern investors, including companies supported by sovereign wealth funds, state-owned entities, public investment vehicles, or government-controlled banks, may face the same level of scrutiny when investing in Europe.

For M&A transactions, the main risks are timing, uncertainty, and remedies. FSR review can add significant time to the deal process. It may also affect financing arrangements, closing conditions, long-stop dates, and auction strategy. Even where a transaction does not meet the mandatory notification thresholds, the Commission may still investigate if it believes foreign subsidies could distort competition.

The decision also shows that remedies under the FSR can affect post-closing operations. A company may be required to revise governance arrangements, limit parent-level funding, restrict state-backed financing, or provide additional transparency to the Commission.

Public procurement also requires careful review. Middle Eastern companies bidding on large EU contracts in sectors such as energy, infrastructure, telecommunications, transportation, defense, or utilities should assess whether foreign financial contributions trigger notification obligations. In competitive tenders, an FSR review can affect timing and award strategy.

Practical Steps for Investors

Middle Eastern investors should assess FSR risk early in any European transaction or tender process. This includes reviewing foreign financial contributions received over the previous three years, identifying any state-linked funding, and determining whether the relevant thresholds are met.

Investors should also prepare evidence showing that financing is on market terms where possible. Government guarantees, preferential loans, capital injections, tax advantages, and other forms of state-linked support should be documented carefully.

Where a transaction is likely to raise questions, early regulatory planning may help avoid delays. The e& / PPF Telecom decision demonstrates that the Commission will look closely at the commercial effect of state support, not only the existence of public funding.

Speak With BREMER About FSR Risk

The EU FSR is now an important part of European transaction planning for Middle Eastern investors. BREMER helps clients assess filing obligations, identify subsidy-related risk, and prepare for regulatory review in cross-border transactions.

If your business is considering a European acquisition, public tender, or strategic investment, BREMER can help you evaluate FSR exposure early and plan accordingly.