Regulatory Control of Megadeals: EU Merger Control, Foreign Subsidies Regulation and Cross-Border Investment Screening

Large M&A transactions — deals above €1 billion, transactions in critical sectors, or cross-border acquisitions involving state-affiliated buyers — face a regulatory environment of unprecedented complexity in 2025. Three parallel frameworks, each with its own notification thresholds, substantive assessment criteria and enforcement powers, must now be navigated simultaneously: EU merger control under the revised FKVO framework, the EU Foreign Subsidies Regulation (FSR, Regulation (EU) 2022/2560), and national foreign investment screening regimes (led by CFIUS in the US, with analogous regimes now operational in 18 EU member states). For deal teams advising on cross-border transactions, the interaction of these frameworks — overlapping timelines, inconsistent substantive standards and divergent political considerations — constitutes the most significant execution risk in large-cap M&A.

EU Merger Control: Jurisdictional Thresholds and the One-Stop Shop

The EU merger control framework under Regulation (EC) 139/2004 (FKVO) operates on a "one-stop shop" principle: transactions meeting EU-level turnover thresholds are assessed exclusively by the European Commission, precluding parallel national filings. The primary thresholds (Article 1(2) FKVO): combined worldwide turnover exceeding €5 billion and EU-wide turnover of each of at least two parties exceeding €250 million. The secondary thresholds (Article 1(3)) capture transactions where the parties have combined worldwide turnover exceeding €2.5 billion, combined turnover in each of at least three EU member states exceeding €100 million, and EU-wide turnover of each of at least two parties exceeding €25 million.

Phase I clearance (typically 25 working days, extendable to 35 working days with remedies) covers the large majority of notified transactions without serious doubts. Phase II investigations (typically 90 working days, extendable to 105 working days with remedies) are initiated where the Commission identifies serious doubts about compatibility with the internal market — reflecting a risk of significant impediment to effective competition (SIEC test). Phase II prohibition decisions are relatively rare (fewer than five per year) but carry existential transaction risk: prohibition cannot be appealed on the merits in the short term, and CJEU judicial review timelines of 2–4 years make prohibition effectively final for most transactions.

Article 22 Referrals: Catch-All for Below-Threshold Transactions

The Commission's practice of accepting Article 22 FKVO referrals from member states for transactions below national notification thresholds — initiated in 2021 and applied to digital economy and pharmaceutical acquisitions — created significant uncertainty for sub-threshold deals involving high-value targets with low revenue. Following the CJEU's judgment in Illumina/GRAIL (Case C-611/22, September 2023), which found that a member state may not refer a transaction it has no jurisdiction to review under national law, the scope of Article 22 referrals has been formally narrowed. However, the Commission has responded by initiating a reform process, and several member states have amended national thresholds to capture high-value, low-revenue transactions directly — meaning the effective coverage of EU merger review for high-value digital and technology transactions has not materially diminished.

For M&A transactions in sectors with high-value targets and limited current revenue — AI companies, biotechnology, critical raw materials, semiconductor design — deal teams must assess the Article 22 referral risk (or equivalent national threshold applicability) as a specific work-stream, rather than assuming below-threshold transactions proceed without EU-level scrutiny.

EU Foreign Subsidies Regulation: The New FSR Filing Obligation

The EU Foreign Subsidies Regulation (Regulation (EU) 2022/2560, FSR), applicable from October 2023, introduces a mandatory notification obligation for M&A transactions where: (i) the combined worldwide turnover of the parties is at least €500 million; and (ii) the parties together received foreign (non-EU) financial contributions exceeding €50 million in the three years preceding the transaction. This threshold captures a substantial number of large-cap transactions — particularly those involving parties with significant government contracts, state-backed financing, or operations in countries with active state subsidy programmes (China, Middle East sovereign entities, US defence contractors).

The substantive assessment examines whether foreign subsidies distort the internal market. The Commission has broad investigative powers including requests for information from third-country governments, and the range of remedies — from structural divestitures to behavioural commitments — mirrors the EU merger control toolkit. Critically, FSR and FKVO are independent procedures with separate timelines: a transaction may be cleared under FKVO but blocked under FSR, or subject to different remedies under each framework. Deal teams must conduct parallel FSR and FKVO notification strategies where both thresholds are met — with the practical implication that closing timelines for FSR-affected transactions extend by an additional 25–90 working days relative to FKVO-only transactions.

Foreign Investment Screening: CFIUS and the EU FDI Framework

CFIUS (Committee on Foreign Investment in the United States) reviews acquisitions of US businesses by foreign persons that could result in control — or, since FIRRMA (2018), even non-controlling minority investments in certain critical technology, critical infrastructure and sensitive data businesses. CFIUS review of large-cap cross-border M&A involving US targets has become effectively universal for non-US buyers, with investigation timelines of 30–45 days (initial review) extendable to 45 additional days (full investigation), and further presidential review periods. Mitigation agreements — National Security Agreements requiring technology control plans, government security protocols and ongoing compliance monitoring — are now standard for cleared transactions in sensitive sectors.

Within the EU, Regulation (EU) 2019/452 (the EU FDI Screening Regulation) establishes a cooperation mechanism among member states and the Commission for reviewing foreign direct investment into critical sectors (critical infrastructure, critical technologies, supply of critical inputs, media). The Regulation does not create a unified EU screening authority: member state screening decisions remain national, but the cooperation mechanism allows the Commission and other member states to provide opinions. As of 2025, 23 of 27 EU member states operate national FDI screening mechanisms — with Germany (AWG/AWV), France (Décret Montebourg), Italy (golden power rules) and the Netherlands (Wet Veiligheidstoets investeringen, fusies en overnames) representing the most active enforcement jurisdictions in continental Europe.

Remedies Architecture: Structural vs. Behavioural Commitments

Where antitrust concerns are identified in Phase II, the Commission has a strong preference for structural remedies — divestitures of overlapping business units, brands or assets that eliminate the competition concern by restoring the competitive structure pre-merger. Structural remedies are preferred because they are self-executing: once the divestiture closes, the remedy is complete and requires no ongoing monitoring. Behavioural remedies — access commitments, supply obligations, interoperability requirements — are accepted only where structural remedies are not available or disproportionate, and require sustained monitoring by a monitoring trustee over multi-year periods.

Remedy design is highly technical: the Commission's Remedies Notice (2008) requires that proposed remedies be viable, implementable and effective in resolving the competition concern. Remedy package negotiations with DG COMP are conducted under significant time pressure (typically within the final 25 working days of Phase II) and require detailed financial modelling, operational analysis of the divested business and buyer identification. Acquirers should build remedy planning — including contingency analysis of which assets could be divested without destroying the core transaction value — into the deal preparation phase, not as a reaction to Phase II initiation.

Timeline Management in Parallel Regulatory Processes

For large cross-border transactions subject to FKVO, FSR, CFIUS and multiple national FDI screening procedures simultaneously, timeline management is the critical execution competency. Key principles: first, pre-notification engagement with all relevant authorities (DG COMP, relevant national screening authorities, CFIUS) should begin as early as possible — informal contacts with DG COMP can begin before signing and can substantially reduce the risk of Phase II initiation through early-stage remedy negotiation. Second, parallel filing strategies must be coordinated to align closing condition satisfaction across jurisdictions — CFIUS clearance and FKVO clearance must both be conditions precedent to closing, requiring careful sequencing of filings to optimise the overall timeline. Third, MAC clause architecture must be calibrated to the regulatory risk profile: long-stop dates (walk-away dates) should reflect realistic worst-case regulatory timelines, including the possibility of Phase II plus remedy negotiations, which can extend to 18–24 months from signing for highly complex transactions.