The European Commission ("EC") has published the FSR in the Official Journal of the EU, meaning it will take effect on January 12, 2023, and notifications will become mandatory as of October 12, 2023. Although the prenotification requirements in M&A and public bids do not begin until October, the FSR empowers the EC to launch investigations as early as July 12, 2023. 

As detailed in our July 2022 Commentary, the FSR introduces a mandatory notification regime for certain large M&A transactions and public procurement (€250 million) involving companies that receive foreign subsidies. The FSR, like EU antitrust review, prohibits parties to a notifiable transaction from closing their deal (or participating in a bid) until they have EC approval. The FSR also establishes new EC investigatory and remedial powers. The EC expects to hire approximately 150 additional staff to police the FSR, which suggests that the EC plans aggressive enforcement.

The FSR empowers the EC to block M&A transactions or public bids that involve a foreign subsidy that distorts competitions—i.e., the subsidies improve the competitive position of a company and are capable of negatively affecting competition in the EU's internal market. The EC will perform a balancing test to weigh the positive and negative effects of that foreign subsidy. If the negative effects outweigh the positive effects, the FSR empowers the EC to impose redressive measures or to accept commitments that remedy the alleged distortion.

By January 2026, the EC must publish guidelines regarding the criteria for determining the existence of a distortion, the application of the balancing test, the application of its power to request a notification in otherwise non-notifiable deals and bids, and the assessment of a distortion in public procurement. The EC is likely to publish preliminary guidance on the scope of the FSR in 2024. 

Companies have roughly six months to prepare for potential EC investigations and nine months before the notification obligation begins. For the first time, companies with a notification requirement will have to gather comprehensive, historic data from their global corporate organizations about government subsidies (as defined broadly in the FSR) to identify filing and disclosure obligations. The FSR will be an additional regulatory hurdle in certain large M&A transactions. Merging parties will need to add the FSR to their evaluation of deal risks and consider whether a notification affects their closing timeline.