As our regular readers know, M&A deals in Europe face a complex interplay of merger control, foreign investment control and the Foreign Subsidies Regulations. Three very recent transactions illustrate how these regimes shape deal strategy and timelines. This post will dive into initial lessons to be learned from Universal/Downtown Music, Snam/Open Grid Europe and ADNOC/Covestro.
Universal/Downtown Music – Data and other concerns
When Universal Music announced its planned acquisition of Downtown Music Holdings in December 2024, many observers expected smooth sailing on the merger control front. But things worked out differently. While the transaction was not notifiable to the European Commission, the national regulators in Austria and the Netherlands, where the deal was notifiable, referred the deal to Brussels. And also following criticism from market participants, the Commission launched an in-depth investigation, with concerns focussing on:
- Access to commercially sensitive data of rival labels via Downtown’s platforms.
- Loss of an independent competitive force in artist and label services, potentially strengthening Universal’s already leading position.
The parties now reportedly face a so-called Statement of Objections by the Commission, an indication that the regulator has serious concerns which might require remedies to achieve clearance. It is too early to tell how things will play out, but three lessons from the proceeding already stand out:
- Data can be competition currency: Control over rivals’ data can be as problematic as horizontal overlaps.
- Beyond overlaps: The analysis of competitive overlaps might still be the first step in merger control, but ecosystems and the ability to leverage the position in one market also in other markets play an increasingly important role.
- Stakeholder activism matters: Loud and effective complainants can make merger control proceedings very challenging for the transaction parties.
Snam/Open Grid Europe – FDI screening as a deal breaker
Yet another deal in which regulatory scrutiny of this magnitude might have been difficult to forecast: Italian gas grid operator Snam abandoned its €920 million bid for a 24.99% stake in gas transmission firm Open Grid Europe after the German government raised concerns during its foreign investment control review. These related to an indirect minority shareholding in Snam by Chinese State Grid, or more precisely a minority shareholding of State Grid in a minority shareholder of Snam.
Snam proposed remedies, which the German government found unacceptable. Now the deal fell apart. Three key lessons from this one:
- Take a broad look: Even minority, indirect links to companies in perceived “critical” jurisdictions can derail deals, in particular when they concern certain industries.
- Political and economics are intertwined: As Europe is striving to be more self-sufficient, political and economic considerations can be very intertwined.
- The big picture matters: Developments not related to a transaction and beyond your control can still make things difficult. Think about the German foreign minister cancelling a trip to China on short notice due to very different expectations from both sides, and Norway discovering that Chinese-made buses can be controlled remotely by the manufacturer.
ADNOC/Covestro – FSR’s unexpected focus
Starting with Hollywood, ending with a happy end: The EUR 14.7 billion acquisition of Covestro by Abu Dhabi National Oil Company (ADNOC) marked only the second in-depth review of M&A deals under the EU’s Foreign Subsidies Regulation (FSR). When the FSR was introduced, the general expectation was that acquirers from China would be in focus. But for now, things turned out differently: Both in-depth reviews of transactions concerned acquirers from the United Arab Emirates.
While the deal did not face concerns from a merger control perspective, the Commission’s FSR review made the parties’ lives very difficult. The Commission raised concerns about ADNOC benefitting from unlimited state guarantees and about a planned capital injection into Covestro. Following a partially public dispute, with ADNOC claiming the Commission’s demands were invasive, Brussels ultimately cleared the transaction subject to remedies.
Lots to learn from this one, but I will (again) keep it to three lessons:
- Timing risk is real: The FSR clock can stop at crucial points, adding months to the deal timeline.
- Be prepared for broad information requests: State-backed bidders should anticipate subsidy scrutiny and prepare for requests for transparency that might feel very broad and could even go beyond information available to the acquiring company.
- Get creative: A creative approach to remedies with an overarching interest behind them can help to move things forward. In ADNOC/Covestro, the remedies involved granting access Covestro’s patents in the area of sustainability.
Conclusion
Europe’s regulatory landscape could be perceived as evolving from a pure competition focus to a strategic autonomy framework, blending antitrust, industrial policy, and security concerns. Getting to clearances successfully can hinge on integrated regulatory strategies, which anticipate not just market overlaps but subsidy exposure, data control, and/or geopolitical optics.
Picture by Nils Stahl on Unsplash
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