Hungarian FDI veto lifted after pressure from European Commission – all’s well that ends well or dangerous precedent? | Hogan Lovells

Relationship between merge control and IDEs

Under European merger control law, the Commission has exclusive jurisdiction to assess concentrations with a European dimension. This competence is determined on the basis of the turnover of the undertakings concerned: the cumulated worldwide turnover of the undertakings concerned must be greater than 2.5 billion euros and the cumulated European turnover of at least two undertakings concerned must exceed EUR 100 million (see Article 1(2) and (3) EUTMR).

At the same time, EU Member States can take measures to protect legitimate interests of public security, media plurality and prudential rules (see Art. 21(4) EUTMR). This includes FDI screening rules that allow national regulators to review, restrict or – as a last resort – prohibit acquisitions that threaten national security interests. Measures which serve another public interest must be notified in advance to the Commission. In this case, the Commission not only examines the proportionality of the measure, but also ensures that it effectively serves the protection of a legitimate interest.

If these principles seem clear, their application in practice is less simple. European and national regulators (currently 18 Member States have adopted FDI screening rules) will have different views on what constitutes a legitimate interest. Even the EU interprets the term in different ways: reasons of public order, such as security of supply of energy, raw materials and foodstuffs, are legitimate under the EU FDI Screening Regulation (see our previous Blog and update), but not under the EUTMR. For international investors, this can create significant risk of uncertainty and delays in transactions. More recently, this has been exemplified by Vienna Insurance Group’s (“VIG”) proposed acquisition of AEGON’s Hungarian subsidiaries, which we will describe below after a brief summary of Hungarian FDI rules.

The Hungarian dual FDI screening mechanism

Currently, there are two FDI screening mechanisms in Hungary. The scope of the two regimes is slightly different and it should be carefully assessed whether a transaction falls under one or the other:

  • The “permanent” IDE screening regime was introduced in 2019 and contains the applicable Hungarian rules based on the EU FDI Screening Regulation. It applies if a “foreign investor” intends to acquire a Hungarian company whose business activities are considered sensitive for national security (e.g. production of weapons and certain secret service devices, production of dual-use, supply of water, electricity, natural resources, gas and telecommunications services). It was designed not to cover transactions by EU investors.

  • The IDE “temporary” screening regime was introduced by the Hungarian government in April 2020 with the aim of protecting Hungarian companies active in the strategic industries concerned under the Covid-19 pandemic. Strategic industries include, among others, the construction, tourism and waste management sectors, as well as “traditional” strategic sectors (e.g. energy, transport, communications) affecting employment opportunities. investment and exit compared to Hungarian companies, which results in an approx. 80% coverage Hungarian industrial sectors. The “temporary” FDI control regime was enacted by emergency legislation and will remain in effect until the end of the state of emergency in Hungary (which was recently extended due to the war situation in Ukraine). Transactions resulting in indirect acquisition of a Hungarian subsidiary of a foreign legal person qualified as a strategic company do not fall within the scope of the “temporary” FDI screening regime. Thus, transactions which do not involve a direct change of ownership of Hungarian entities do not fall under the “temporary” regime, so that many cross-border transactions (e.g. any sale where there is a holding structure outside the Hungary) are exempt from the notification obligation.


In September 2020, AEGON decided to sell its various subsidiaries in the CEE region (Hungary, Poland, Romania and Turkey) to a single buyer in a single transaction, with the Hungarian operations being the largest. The best offer was submitted by VIG and the transactional documents were quickly negotiated with an agreed signing date of November 29, 2020.

The Hungarian government has introduced an amendment to the “permanent” FDI screening regime which was published in the Official Gazette on Saturday evening, just the day before the deal was signed (scheduled for a Sunday morning). In the form of a government decree and as a special measure authorized under the state of emergency, the definition of “foreign investor” has been extended to cover investors from the EU and EFTA . In addition, insurance activities have been included in the catalog of activities deemed sensitive to national security. Without this “last minute” legislation, the AEGON agreement would not have been subject to either the “permanent” FDI screening regime or the “temporary” regime: (1) For the “permanent” regime, VIG, listed on the Vienna Stock Exchange, does not was not a foreigner (i.e. non EU/EFTA country investor) and (2) for the “temporary” regime, only non-Hungarian holding companies had to be sold according to the structure of the transaction. As a result, the contemplated transaction was suddenly subject to the “permanent” FDI regime, which added additional regulatory approval to be obtained to complete the transaction.

The Commission unconditionally cleared the EUTMR transaction on 12 August 2021. However, the Hungarian government had already published its veto on April 6, 2021 to prohibit the transaction on national security grounds.

The parties have decided to file a request for a judicial review against the veto decision in the Hungarian courts and also filed a complaint to the Commission for violation of EU law. However, the Budapest Metropolitan Court having rejected the parties’ claims in its judgment of September 20, 2021, VIG announced that they would appeal the court’s decision. At the same time they were “continue the constructive dialogue with the Ministry of Finance to clarify the possibilities of a successful conclusion of the acquisition“.

The Commission has opened an investigation to determine whether the veto decision violated the exclusive competence of the Commission to assess concentrations with a European dimension and this measure was taken to protect the legitimate interests of public security.

While the infringement procedure was ongoing, VIG announced on December 22, 2021 that it had reached an agreement on the principles of cooperation and further action, which would include a 45% stake by the Hungarian state in (1) Hungarian subsidiaries of AEGON, and (2) UNION Vienna Insurance Group Biztosító Zrt. (existing Hungarian subsidiary of VIG).

The Commission closed its investigation on 21 February 2022 and found that Hungary broke EU law (1) by not communicating their intention to veto to the Commission before its implementation, and (2) by not demonstrating that the measure was justified, appropriate and proportionate, such that the veto was incompatible with the rules of the EU on freedom of establishment. The Commission therefore concluded that the veto violated s. 21 EUTMR and ordered the Hungarian government to withdraw its veto before March 18, 2022 (press release of February 21, 2022 available here).

On the same day, a few hours before the publication of the Commission’s press release, the Hungarian Finance Minister’s Facebook page reported that a agreement was signed between VIG and Corvinus Nemzetközi Befektetési investment fund 100% owned by the Hungarian state upon acquisition of a 45% stake in all Hungarian subsidiaries of AEGON.

Happy ending?

In the end, the Commission’s decision was already obsolete when it was issued: as the agreement was already concluded and dusted between VIG and the Hungarian government, the veto decision would have been withdrawn by the Hungarian authorities anyway – even without the Commission’s decision – in order to allow the initial transaction to pass. This was a precondition for the subsequent agreement between the Hungarian government and VIG.

The initial transaction with AEGON and the subsequent transaction with Corvinus have been successfully concluded since, i.e. end of March 2022, making VIG the main insurance company in Hungary and guaranteeing the Hungarian State a stake ( minority) in the insurance sector. It therefore seems that everyone involved in this agreement is satisfied, with the possible exception of the Commission.

However, the VIG/AEGON agreement raises several serious questions:

  • Can Member States successfully use FDI screening rules to block transactions without sufficient justification to enforce their own interests?

  • What options does the Commission have to act against such unjustified behavior by Member States before it becomes a dangerous precedent?

  • How can investors protect themselves against such unforeseen events that can cause delays and uncertainties in their transactions?

In M&A transactions where these issues could potentially become relevant, investors should seek the assistance of their FDI experts from the outset. Furthermore, the forthcoming decision of the Court of Justice in the Xella Magyarország case (C-106/22) could provide additional guidance, which – again – deals with a Hungarian FDI veto.

Overall, the case highlights once again that the regulatory environment for M&A transactions in Europe is becoming increasingly complex: not only has the Commission changed its policy to now accept agreements for the examination of concentrations which do not respect the EUTMR thresholds if seized by the Member States (see our previous Blog), but in a somewhat opposite development, the majority of Member States now have far-reaching FDI rules in place, while the Commission has no central competence under FDI rules. IDE. This may lead to requiring additional national security and public order clearances in addition to merger control. The VIG/AEGON case shows very concretely that FDI rules have to be considered on their own account – even for intra-EU/EFTA transactions. It is vital for deal teams to manage these developments and address the challenges of individual deals from the start.

Lena Westphal, intern in our Düsseldorf office, contributed to this article.

Laura T. Thrasher