Hungary has infringed EU merger regulation by vetoing the planned sale of Aegon’s subsidiaries in the country to the Vienna Insurance Group (VIG), according to a preliminary assessment by the European Commission.

The finding is the latest development in a tug-of-war between Hungary’s right-wing government and the EU, which could test the workings of the EU’s internal market.

The Austrian insurance group has been actively expanding in eastern Europe for several years and aims to become one of the top three insurers in most countries in the region by 2025.

This acquisition forms part of a wider transaction by which VIG would acquire Aegon’s Hungarian, Polish, Romanian and Turkish life and non-life insurance, pension fund, and asset management businesses.

When the deal was announced in late 2020, it was revealed that the acquisition, along with its existing business UNION Biztosító, would propel VIG to the top spot in Hungary, with a 19% share of the country’s insurance market.

In August last year, the transaction was unconditionally cleared by the EC under the EU Merger Regulation, but by then Hungary’s Interior Ministry had announced it was blocking the sale. Emergency powers passed by Hungary’s parliament allow the government to veto foreign takeovers of domestic companies.

Last October, the EC opened an investigation into whether Hungary’s action breached Article 21 of the EU Merger Regulation.

It now says it has preliminarily concluded that the veto does constitute a breach of Article 21.

Yesterday’s statement on the EC website said: “Prior to the Commission’s clearance, Hungary issued a veto decision based on emergency amendments to the Hungarian foreign direct investment screening legislation introduced in the context of the coronavirus pandemic, arguing that the acquisition threatened Hungary’s legitimate interests.”

But the EC said that under Article 21, it has exclusive competence to examine concentrations with an EU dimension, and requires member states not to apply their national laws to these transactions. Member states can only take appropriate measures to protect legitimate interests provided that such measures are compatible with the general principles and other provisions of EU law, and are [generally] communicated to the EC.

The statement continued: “The Commission’s preliminary assessment takes a preliminary position that there are reasonable doubts as to the measure being aimed to protect Hungary’s legitimate interests within the meaning of the EU merger regulation. The Commission preliminarily considers that Hungary’s reasoning is insufficient and that the veto should have been communicated to, and approved by, the Commission before Hungary implemented it.”

The preliminary assessment also argued that the veto decision is incompatible with Article 21, as it infringes freedom of establishment.

The EC is inviting Hungary to make a response within 10 days, after which the EC will consider next steps.

“If the response is not adequate to remove the concerns, the Commission might adopt a final decision concluding that Hungary has infringed Article 21 of the EU merger regulation and ordering it to withdraw the veto,” said the statement.

Meanwhile, in what may seem like a diplomatic way to defuse the stand-off, VIG announced in late December that it had reached an agreement with the Hungarian government in principle, which would see the government take a 45% stake in the Aegon subsidiaries and UNION Biztosító. VIG would retain a controlling stake and carry out operational management.

The two parties are now working to negotiate the participation and governance structure, obtain the necessary board resolutions, and apply for the necessary approvals.

The latest digital edition of IPE’s magazine in now available.