EU Lawmakers Backed Tighter M&A Rules to Protect EU Targets

The Committee on International Trade at the European Parliament backed yesterday, April 25, a proposal that could make the acquisition of EU companies by overseas firms lengthier — and in some cases, more difficult. 

The draft law was unanimously approved and gives the EU Commission the power to investigate and counteract market-distorting foreign subsidies granted to companies set to acquire EU businesses or take part in the EU public procurement.  

The proposed law seeks to extend the European State aid rules to firms outside the EU. Companies who receive subsidies that could provide them with an undue advantage will be investigated, and if an acquisition process has started, it will be halted until the review is completed.  

Christophe Hansen, the member of the European Parliament that oversees the new law said that Europe should be “open, but not naïve.”

The European Union defines state aid broadly, including foreign capital injections, loans, fiscal incentives, tax exemptions, debt forgiveness and any other state measure that could provide an advantage. Any non-European company that receives state support could be subject to these new rules in any sector or industry.  

The new rules, first proposed in May 2021, were aimed at Chinese companies who very often rely on state support to finance their expansion in Europe.  However, the differences between Europe and the United Kingdom on state aid rules during the Brexit negotiations reinforced the idea that these rules would also be applicable to the U.K., the U.S., and other western countries.

These rules may play an important role in a post-pandemic world, where many companies have received state subsidies to navigate the economic uncertainties. For instance, the U.S. Senate approved in March a bill to provide $52 billion in U.S. subsidies for semiconductors chips manufacturers. If companies like Intel, Qualcomm or Nvidia benefit from these subsidies, they may have limitation to pursue some acquisition or participation in public bids in Europe. EU regulators also proposed a similar bill to provide financial support to companies investing in new semiconductor factories in Europe, but the bill still needs to be approved by the EU Parliament. Nevertheless, EU regulators may be poised to protect this industry, and the new M&A rules just provide an additional tool to do that. 

Read More: Europe Continues Regulatory Spree With European Chips Act 

The U.K. has also pledged companies public support, some of which has strong ties to Europe. However, the U.K. passed a new subsidy control regime, akin to the EU state aid rules, that may provide sufficient safeguards to U.K. companies to continue doing business in Europe. 

The new rules do not substitute existing EU merger rules. They add a new administrative layer by which companies who receive foreign subsidies wishing to acquire an EU company with a turnover over 400 million euro will have to notify the deal in advance. The European Commission will then review the proposed transaction to assess the effect of the subsidy and if needed, it will impose redressive measures and commitments, which may include structural and behavioral remedies, as well as a prohibition of the acquisition.  This analysis will be before the traditional merger analysis.  

These rules have been approved by a committee of the European Parliament, but they will still need to be approved in plenary session, which could happen as soon as early May. Then, the adopted report will serve as a mandate for negotiations with the Council to agree on the final version of the regulation.