Chinese M&A approaches might face new EU filing obligation

05 Jun 2020 12:04 pm by Lewis Crofts

Mergers and acquisitions

Chinese companies acquiring control or at least 35 percent of shares in EU companies might face a new bloc-level review, according to documents seen by MLex.

The European Commission is exploring a system that would oblige such deals to be notified in Brussels to assess the role of subsidies and possibly impose "redressive measures."

The EU executive is planning to publish a policy paper on June 17 to set out new ways of limiting the competitive impact of foreign companies in the bloc, when subsidies may play a role.

This is part of a response to concerns that Chinese companies are using huge state backing to win business in Europe, defeating EU companies that don't benefit from such financial support.

In information shared last month with EU governments on the outline of the forthcoming paper, the commission said it was looking to create two new review mechanisms.

One would look at the general impact of subsidies, triggering a review if a foreign company, for example, distorted markets or a public tender.

A second proposal looks in particular at the role of subsidies in powering foreign companies to buy EU assets.

According to the plans, the commission is considering an obligation to notify such transactions before they can be completed.

This would go for instances where the foreign company acquires control or at least 35 percent of the shares or voting rights of an EU company, according to the document.

There are still open questions on whether the review would apply to all acquisitions or only those featuring subsidies, and how to set the thresholds.

Thresholds could apply, for example, to the amount of the subsidies received, the turnover of the target EU company, or the combined turnover of the companies in the deal.

The commission has floated the idea of a "one-stop shop" at the EU level, similar to powers for merger reviews.

This would see a centralized system in Brussels, where officials would assess whether the subsidies had facilitated the acquisition or were distorting competition.

The procedure envisages a compulsory notification, a preliminary review of whether the subsidy helped the deal, and then an in-depth probe if concerns arise.

The legal assessment could be similar to the other strand of the commission's concerns about foreign subsidies. This weighs the distortive impact against the "EU interest," which looks at the benefits to other policy areas such as the contribution to the environment or the digital economy.

If problems are found, the bloc could demand "redressive measures."

The policy will need to be assessed in the light of other EU tools such as rules on mergers, state aid and antitrust, the commission accepts.

It also needs to fit with trade-policy instruments such as investment screening, and with trade-defense instruments.

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