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FSR – New kid on the block

With the entry into force of the EU Foreign Subsidies Regulation (FSR), designed to try to address the impact of subsidies granted by non-EU countries (including the UK), it will be critical for dealmakers to consider the FSR regime in the context of cross-border M&A, alongside merger control and foreign direct investment (FDI) regimes, as a new key piece of the regulatory jigsaw.

The FSR regime introduces a new mandatory suspensory notification for larger transactions – but the European Commission is able to investigate and require notifications for transactions below the thresholds (and examine any other allegedly distortive foreign subsidies under a general 'ex officio' tool). M&A transactions and joint ventures will have to be notified to the European Commission, and clearance obtained prior to completion, if:

  • the undertaking to be acquired, one of the merging undertakings or the joint venture is established in the EU and has aggregate EU turnover of €500 million or more (including via one or more subsidiaries); and
  • the aggregate amount of the foreign financial contributions received by the undertakings concerned is more than €50 million over the three years prior to notification.

Whilst the purpose of the FSR is to address (and the Commission can only take action against) foreign subsidies, the notification is not triggered by “foreign subsidies” but by “financial contributions” received from any non-EU public entity. The concept of “financial contributions” is much wider in scope and covers any transfer of financial resources from, or directed by, foreign public authorities. It includes, for example, payments for goods and services, even if the price is in line with normal market rates and therefore there is no actual “subsidy”.

Impact on timing

The key impact of these regulatory regimes is on the deal timetable. The timelines for investigation under the FSR are aligned with those under the EU Merger Regulation to allow the two processes to run in parallel, although it remains to be seen how well this will work in practice – the two clearance processes are distinct and it will not always be possible to synchronise the timings. Combined with merger control regimes in other jurisdictions and FDI screening regimes that may apply to the deal, many of which are suspensory, there are many regulatory considerations that need to be factored into the deal timetable and long stop date.

It’s all in the screening

Parties and their advisers are well used to merger control analysis where it is relatively easy to work through turnover information in order to assess in which jurisdictions to notify.

The FSR regime, which requires information about financial contributions going back over a period of three years preceding the transaction, will be much more burdensome. Given this need for extensive background work, companies most likely to be affected by the FSR regime should already be gathering the information and creating tracking systems for foreign financial contributions, as this will avoid any unnecessary delays.

For FDI, the increasingly broad scope of many of the regimes, and the global trend towards mandatory notification requirements alongside greater use of "call-in" powers, mean that it is critical to understand the scope of the target company's activities, and where they are undertaken, in order to assess at the outset whether any filings are required and whether potential national security concerns could arise. Which sectors are in scope varies between different regimes and there can also be important differences in the activities within a sector that are in scope. It is therefore essential to ask the right questions of the target at an early stage - and what those questions should be will differ from country to country.

Deal documentation will need to be adapted to the new FSR regime to include relevant conditions precedent and warranties. Specific questions relating to the potential application of the FSR regime should also be added to due diligence questionnaires and the impact of the FSR timelines should be factored into the overall deal timetable.

Edouard Thomas

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Who should be on the team?

The expansion of regulatory regimes has driven an increase in the use of "clean teams". A clean team is a selected group of individuals (from the parties or their advisers) who carry out due diligence involving competitively sensitive information. The detailed information is not shared beyond the clean team and the purpose is to ensure there is no breach of anti-trust or other laws ahead of a transaction being cleared. A key issue when setting up clean teams will be to ensure the right people are on the team. This should be considered from the outset, taking into account the relevant regulatory regimes that could potentially apply to the transaction.

On what condition?

Deal documentation should include relevant conditions precedent and warranties to cover off the risks around this trio of regulatory regimes. The call-in powers that regulators have, and the potential for them to step in and ask questions, even where jurisdictional thresholds are not met, cannot be ignored. Illumina's fight with the Commission over its acquisition of Grail can to some extent be explained by failure of the deal documents to consider the possibility of the Commission stepping in.

Conduct during pre-clearance period

For suspensory regimes the parties will need to take care not to engage in conduct that would amount to implementation of the deal. The Commission recently imposed a fine of €432 million on Illumina for prematurely closing its acquisition of Grail. Not all cases will be as clear-cut and the test under EU merger control is whether the conduct contributes to a change in control of the target. The Commission can apply similar fines for gun-jumping under the FSR regime, and many regimes provide that failure to submit a mandatory filing means that the deal is void or voidable.

Whilst the UK merger control regime is a voluntary, non-suspensory regime, the Competition and Markets Authority (CMA) routinely imposes initial enforcement orders (IEOs) when it decides to review a completed merger, to prevent the merging parties from taking pre-emptive action. Such measures are notoriously burdensome and expensive for the buyer, often requiring the appointment of a monitoring trustee to monitor compliance.

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Ultimately a prohibition in one jurisdiction, no matter how insignificant it may seem for the wider transaction, can end up derailing the whole deal.

Marius Boewe


The CMA's Microsoft/Activision saga demonstrates how the approach by one regulator could potentially scupper a cross-border deal, despite favourable outcomes in other key jurisdictions. In April 2023 the CMA in the UK blocked the transaction, which could have meant the end of the road for Microsoft/ Activision. However, in an unusual twist, Microsoft subsequently notified a revised transaction, with a "fix-it-first" remedy, which was ultimately cleared. The CMA has strongly denied this was due to political pressure and has issued a wider warning for businesses not to consider its approach as a precedent for a new 'phase 3' under its merger control regime. Proposed reforms to its phase 2 process are also to some extent designed to negate the need for such a second bite at the cherry for merging parties, with greater opportunity for the parties to engage fully with the in-depth review process at an earlier stage.


For private equity firms, merger control used not to be an issue but that is no longer the case and they now need to consider competition issues for every acquisition.

Joseph Dennis

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Key contacts

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Linda Evans

Regional Head of Practice – Competition, Regulation and Trade, Australia, Sydney

Linda Evans
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Kyriakos Fountoukakos

Managing Partner, Competition Regulation and Trade, Brussels

Kyriakos Fountoukakos
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Joseph Falcone

Partner, New York

Joseph Falcone
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Veronica Roberts

Partner, UK Regional Head of Practice, Competition, Regulation and Trade, London

Veronica Roberts

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