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Document Sample
January 2010
Mergers and Acquisitions Triggering Anti-Monopoly
Filing and Review in the PRC: Filing Practice and Tips
by David Livdahl / Jenny Sheng / Henry Li∗
Paul, Hastings, Janofsky & Walker LLP, Beijing Office
∗
David Livdahl is the Office Chair of Paul, Hastings, Janofsky & Walker LLP Beijing Office
Jenny Sheng is an Associate of Paul, Hastings, Janofsky & Walker LLP Beijing Office
Henry Li is a China Associate of Paul, Hastings, Janofsky & Walker LLP Beijing Office
Since its reform and opening-up in the late State Administration for Industry and
1970s, the People’s Republic of China Commerce on Merging and Splitting of
(“PRC”) used to focus its foreign Foreign-funded Enterprises,2 the Provisions
investment related-legislation on foreign on the Takeover of Domestic Enterprises
direct investment (such as green field by Foreign Investors (the “2006 M&A
Sino-foreign joint venture projects). Rules”), 3 and the Guide for the Anti-
However, it appears that, with the rapid Monopoly Declaration by a Foreign
development of foreign investment into Investor in the Merger or Acquisition of a
China in the past 20 years, greater Domestic Enterprise (the “2007 Filing
legislative effort has been shifted to Guide”).4
regulation of mergers and acquisitions
(“M&A”), particularly, acquisitions of In addition, after the Anti-Monopoly Law
domestic enterprises by foreign investors, came into effect on August 1, 2008 ， a
and even offshore M & A transactions number of anti-monopoly related
(where the offshore acquirer or target has regulations and guidelines have been
existing investment in the PRC that meets issued. On August 3, 2008, the State
certain thresholds). Council promulgated the Provisions of the
State Council on the Standard for the
On August 30, 2007, the PRC Anti- Declaration of Concentration of Business
Monopoly Law of the People’s Republic of Operators (the “Filing Thresholds
China (the “Anti-Monopoly Law”) 1 was Regulations”).5 On January 7, 2009, the
finally enacted by the National People’s Anti-Monopoly Bureau of MOFCOM
Congress after more than a decade of promulgated the Guideline Regarding the
drafting and various hearings and debates. Filing of the Concentration of Business
Before the issuance of the Anti-Monopoly Operators (the “2009 Filing
Law, the PRC already had a variety of Guideline”) 6 and the Guideline regarding
legislation addressing requirements for the Filing Documentation related to the
anti-monopoly filing and review in M&A Concentration of Business Operators (the
transactions, including, among others, the “2009 Filing Documentation Guideline”) 7 .
Regulations of the Ministry of Foreign On July 7, 2009, the Anti-Monopoly
Trade and Economic Cooperation and the Committee of the State Council (the
1
“Committee”) issued the Guideline for monopoly review until this March when
Defining the Relevant Market (the MOFCOM rejected the Coca-Cola-Huiyuan
“Relevant Market Guideline”).8 Also, as deal. To date, MOFCOM has published six
a supplement to the Filing Thresholds anti-monopoly review decisions. 11 On
Regulations, the Measures for Calculation November 18, 2008, MOFCOM published
of Business Turnover for the Reporting of its decision on the Belgium brewer, INBEV
Concentrations of Business Operators in N.V./S.A.’s acquisition of Anheuser-Busch
the Financial Sector was jointly issued by Companies Inc., which was the first case
MOFCOM, People’s Bank of China, China published and also the first case where
Banking Regulatory Commission, China restrictive conditions were imposed on the
Securities Regulatory Commission and transaction parties by MOFCOM since the
China Insurance Regulatory Commission AML came into effect on August 1, 2008.
on July 15, 2009 and became effective 30
days thereafter. Furthermore, as of the On March 18, 2009, MOFCOM rejected
date of writing this article, MOFCOM has Coca-Cola’s anti-monopoly filing in
issued five drafts of rules or measures connection with Coca-Cola’s proposed
related to the filing and review of business acquisition of China Huiyuan Juice Group
concentration transactions for soliciting the Limited, which was the first M& A
public’s suggestions and opinions, transaction formally rejected by the PRC
including without limitation, the Draft government in its anti-monopoly review.
Provisional Measures regarding In its decision on Mitsubishi Rayon’s
Investigation of and Dealing with the acquisition of Lucite International, which
Concentration of Business Operators that was published on April 24, 2009, MOFCOM,
are not Reported According to the Law.9 for the first time, attached structural
restrictive conditions to its approval
These new regulations and guidelines, whereby, among others, the transaction
together with the new Anti-Monopoly Law parties must spin off 50% of the
that became effective on August 1, 2008, production capacity of Lucite China within
represent the beginning of a new era in five years. About half a year later, similar
PRC’s merger control regime. Before structural restrictive conditions were again
August 1, 2008, merger control rules in applied by MOFCOM to Pfizer’s acquisition
the PRC only covered foreign parties’ of Wyeth, and then to the Panasonic-
cross-border acquisitions of PRC domestic Sanyo deal, the MOFCOM decisions for
companies and offshore acquisitions where which were published on , respectively,
the acquirer or the target had pre-existing September 29, 2009 and October 30, 2009.
business activities in the PRC that met the The Panasonic-Sanyo deal probably will be
filing thresholds under the 2006 M&A Rules. regarded as a milestone case in respect of
The Anti-Monopoly Law and Filing China’s anti-monopoly review of offshore
Thresholds Regulations will supersede M&A transactions because in this case,
Articles 51 through 54 of the 2006 M&A MOFCOM, for the first time, compelled
Rules and expand the merger control divestments outside of China. It appears
regime to cover merger and acquisition that the PRC government has taken a
activities between domestic companies in more aggressive approach in its anti-
the PRC (including so-called foreign monopoly review of M & A transactions
invested enterprises which are technically since the promulgation of the AML.
“domestic PRC companies)”.
Companies registered outside the PRC
Although anti-monopoly review of M& A need to be aware that a merger or
transactions was first introduced into China acquisition occurring outside the PRC may
in 2003 with the issuance of the trigger anti-monopoly review and filing
Provisional Rules on the Takeover of with the relevant PRC governmental
Domestic Enterprises by Foreign authorities if such offshore merger or
Investors 10 (which was subsequently acquisition meets any of the new statutory
replaced by the 2006 M & A Rules), we thresholds under the Filing Thresholds
have not seen an M& A transaction blocked Regulations. Interestingly, we note that
by the PRC government in its anti- all the above-mentioned three cases
2
whose anti-monopoly review decisions merger control. 14 In fact, the
have been published by MOFCOM to date, establishment of the Committee is viewed
were offshore M & A transactions.12 as a compromise to address the demand
by some to create one unified enforcement
In addition, under the Anti-Monopoly Law agency and resistance to that concept by
and the new Filing Thresholds Regulations, those who preferred maintaining the
even if an offshore acquisition does not existing division of power among different
meet the new thresholds, if such offshore authorities under the State Council.
acquisition is deemed harmful to the
“national economic security” of the PRC In this article, we will discuss: 1) the
domestic market, it will still need MOFCOM criteria for determining the necessity of
review. filing an anti-monopoly review report for
an offshore acquisition; 2) a summary of
We have assisted several multi-national the reporting requirements; and 3) several
companies in their anti-monopoly review practical tips regarding anti-monopoly
with MOFCOM and SAIC. Recently, we review and filing procedures based on our
have noticed that the PRC governmental experience with MOFCOM.
authorities have tightened enforcement of
anti-monopoly review of M&A transactions.
I. When Must an Anti-Monopoly
For instance, the Anti-Monopoly Bureau, Review Report for an Offshore
previously under MOFCOM’s Treaty and Acquisition Be Filed
Law Department, has been removed from
the Treaty and Law Department and has 1. Activities Triggering Anti-
become a new bureau under MOFCOM. Monopoly Review
The anti-monopoly review procedures
Under the Anti-Monopoly Law and the
could become a key tool for the PRC
Filing Thresholds Regulations, the State
government to control and supervise
Council has delegated to MOFCOM the
foreign investment in China.
right to investigate any consolidation of
business operators which eliminates or
Under the Anti-Monopoly Law, China will
restricts competition, regardless whether
establish a two-tier anti-monopoly
the consolidation occurs within or outside
regulatory system, i.e., the Committee and
the PRC. We believe that the Anti-
the Anti-Monopoly Enforcement Authorities
Monopoly Bureau under MOFCOM will play
(“Enforcement Authorities”). The
the key role in any such investigation. A
Committee 13 will be responsible for
consolidation of business operators refers
organizing, coordinating, and supervising
to the following (“Business
anti-monopoly related activities. The
Consolidation”):
Committee’s functions mainly involve
formulation of competition policies and
guidelines and coordination of enforcement (i) merger of business operators;
activities, while the Enforcement
Authorities are responsible for enforcement. (ii) a business operator acquires control
Although the Anti-Monopoly Law does not over other business operators by
specify the composition of the Enforcement acquiring shares or assets; and
Authorities, it is generally believed that the
Enforcement Authorities would include the (iii) a business operator acquires control
over other business operators 15 or
three ministries that separately undertake
becomes capable of exerting decisive
anti-monopoly related enforcement
influence over other business
activities, namely, the National operators 16 by way of contract or
Development and Reform Commission otherwise.
(“NDRC”), SAIC, and MOFCOM. The NDRC
primarily oversees monopoly pricing 2. Anti-Monopoly Filing Thresholds
concerns; the SAIC is mainly responsible
The Filing Thresholds Regulations also
for regulating abuse of market dominance,
provide that where a proposed Business
while the Anti-Monopoly Bureau of
Consolidation reaches any of the following
MOFCOM will mainly be in charge of
3
thresholds, filing with MOFCOM is The Filing Thresholds Regulations are only
required: triggered if the PRC business volume of
each of the two parties exceeds RMB400
million (approximately US$58 million).
(i) the worldwide business volume of the
business operators involved in the Thus, if only one party involved in the
consolidation exceeds RMB10 billion in acquisition has PRC business volume
the previous accounting year and exceeding RMB400 million, the
there are at least two business consolidation is not subject to anti-
operators involved, each having a monopoly filing even though the business
business volume exceeding RMB400 volume of all business operators involved
million in the PRC in the previous exceeds RMB2 billion in the PRC or
accounting year;17 or exceeds RMB 10 billion worldwide. In
addition, the new thresholds do not take
(ii) business volume in the PRC of all into consideration the total number of the
business operators involved in the
parties’ PRC subsidiaries nor does it
consolidation exceeds RMB2 billion in
consider the total value of assets or
the previous accounting year and
there are at least two business market share the relevant parties possess
operators involved, each having a in the PRC.
business volume exceeding RMB400
million in the PRC in the previous
3. Practices and Suggestions
accounting year;
Investors considering projects in the PRC
Although it is unclear under the Filing
should note the following:
Thresholds Regulations whether the
business volume of a party involved in the
acquisition includes the business volume of (i) The Filing Thresholds Regulations do
all of the party's affiliates within and not define the terms “control” and
outside the PRC (particularly if the acquirer “decisive influence.” As such, it is
is a special purpose vehicle formed for a unclear whether veto rights typically
requested by a private equity investor
specific acquisition), based on our
acquiring a minority equity interest in
experience and our informal discussions
a domestic company would constitute
with officials at MOFCOM, we understand “decisive influence.” However, based
that the sales volume of a party's affiliates on our informal inquiries with officials
should be included when calculating the at the Anti-Monopoly Bureau of
party's business volume.18 Since the Filing MOFCOM and which views are also
Thresholds Regulations do not define the reflected in the Draft Provisional
term "affiliates," MOFCOM officials Measures regarding the Filing of
suggested referring to the definition of Concentration of Business Operators
"affiliates" in the 2007 Filing Guide.19 The as discussed above (see footnote 14),
2007 Filing Guide suggests that "affiliates" obtaining typical minority shareholder
protection rights is very likely to
should include, with respect to any party,
require filing. As such, even a
any other person that, directly or minority shareholding in an acquired
indirectly, controls, is controlled by, is company may trigger PRC anti-
under common control with such party, or monopoly filing review if such
is otherwise affiliated to such party. minority shareholder is able to use its
de facto veto rights to exert “decisive
Foreign companies that intend to acquire influence” over production or
smaller Chinese companies may be operational decisions of its target
pleased to learn that compared to the company, such as adoption of budget
2006 M&A Rules, the “two-party business or business plans, or rights to approve
or reject significant investment
volume test” under the Filing Thresholds
decisions.
Regulations sets higher standards than the
2006 M&A Rules, where a filing with
(ii) The Filing Thresholds Regulations
MOFCOM was triggered if either the foreign contain a “catch-all” provision under
acquirer or the target company had more which MOFCOM is granted the power
than RMB1.5 billion of business in the PRC. to require filing if such authority
4
believes that a transaction could dispose of the shares or assets within a
potentially exclude or restrict specified period of time, transfer business
competition even though such within a specified period of time, take
transaction does not meet the other necessary measures to return to the
statutory thresholds. We have been
status quo ante, and may impose a fine of
told that the anti-monopoly authority
up to RMB500,000.
will factor in “national security” 20
related concerns when exercising such
discretionary power, and transactions In addition, under the Anti-Monopoly Law,
involving state-supported industries, any unrelated parties (such as
key industrial sectors, military-related competitors) may report on others’
industries, and infrastructure related activities. As such, even if the relevant
projects can expect to receive extra parties fail to report their proposed
scrutiny. As such, it is possible that offshore acquisition to MOFCOM, their
in true green-field joint ventures competitors may report the offshore
where both parties contribute cash, acquisition to MOFCOM, which can require
requiring the Chinese party to adhere
a filing or even unwind the transaction.
to certain non-compete obligations
(common in many joint ventures) Any such examination of the transaction
may trigger anti-monopoly filing by MOFCOM could be embarrassing for the
requirements. related parties from a public relations
perspective, even if the parties are not
Certain foreign investors who are parties forced by MOFCOM to unwind the
to an offshore acquisition and who have transaction.
PRC subsidiaries have decided not to
report and file their offshore acquisitions Our sources have suggested that MOFCOM
with the PRC governmental authorities, is likely to take a much more critical view
believing that their offshore acquisition of any transaction that is undertaken as a
does not meet the PRC filing thresholds. result of MOFCOM’s initiative. At the same
This is often the case if the offshore time, MOFCOM has indicated that it is by
acquisition will not require any statutory no means seeking to bar all foreign
approval with the relevant PRC authorities acquisitions and joint ventures involving
for changes in shareholdings and other industrial targets.
structures in the PRC subsidiaries.
We do not recommend avoiding anti- II. Summary of the Reporting
monopoly filing with the PRC government Requirements
if such acquisition meets the threshold Based on our inquiries at the Anti-
standards. MOFCOM is reviewing offshore Monopoly Bureau of MOFCOM, the 2009
acquisitions where the parties involved Filing Guideline, the 2009 Filing
have subsidiaries or significant sales within Documentation Guideline, and the 2007
the PRC. MOFCOM may raise questions for Filing Guide 21 serve as the roadmap for
those parties which have evaded anti- business operators to file a contemplated
monopoly review, even after completion of transaction to MOFCOM, which set forth
the acquisition. In addition, according to the following procedural requirements:
the Draft Provisional Measures regarding
Investigation on and Dealing with the
Concentration of Business Operators that 1. Filing Authorities. Under the 2006
M&A Rules, MOFCOM and SAIC are
are not Reported According to the Law,
the key authorities responsible for
MOFCOM may launch an investigation of reviewing anti-monopoly applications
any suspected concentrations based on and for determining whether any
lawfully acquired information. Note that reported acquisition would result in an
Article 48 of the Anti-Monopoly Law over-concentration in the domestic
provides that if business operators create a market. However, only MOFCOM will
concentration in violation of the Anti- continue to play a leading role in the
Monopoly Law, the Enforcement anti-monopoly review process, since
Authorities can order them to halt their the Filing Thresholds Regulations have
implementation of the concentration, delegated such role to MOFCOM.
5
MOFCOM has designated the newly behind such definitions;
established Anti-Monopoly Bureau in
MOFCOM to take charge of the anti- each party’s sales volume and market
monopoly filings as well as the review share in the previous two fiscal years,
and examination of transactions
including evidence and data source;
involving concentration of business
operators.
identification of main competitors;
2. Parties. According to the 2009 Filing
Guideline, the filing should be made basic information regarding the
by: 1) all parties to the transaction if “relevant market(s)”, including scale
it is a merger; or 2) the party that of market, market concentration rate,
would obtain control over, or exert status of import and export of
decisive influence on, another products, together with evidence and
business enterprise if the data source;
concentration is conducted by other
means (such as equity acquisition).22
description of market structure,
including upstream and downstream
3. Timing. In accordance with Article
entities;
21 of the Anti-Monopoly Law,
business operators must file
beforehand a contemplated analysis of market entry, including
transaction with the Enforcement entry barriers, significance of
Authorities if such transaction meets economics of scale for relevant
the filing threshold provided by the products,, intellectual property entry
State Council. According to the 2009 restrictions, and entries and exits in
Filing Guideline, a business operator the past several years;
must file with the Anti-Monopoly
Bureau of MOFCOM a contemplated vertical and horizontal cooperation
transaction when such operator is
agreements in the relevant markets;
able to submit the documents as
required by Article 23 of the Anti-
Monopoly Law according to the each party’s market share and
requirements under such article. 23 competitive ability in markets other
Normally, the Anti-Monopoly Bureau than the “relevant market(s)”;
requires a concerned business
operator to submit a written anticipation of impact of the
application to the Anti-Monopoly concentration on market structure,
Bureau for arranging a consultation industry development, competitors
with the Anti-Monopoly Bureau before and customers, economy
a formal filing. For the formal filing,
development and public interests;
the Anti-Monopoly Bureau suggests
that the filing party make an
appointment with the bureau before anticipation of efficiency that may be
such filing. brought by the concentration, with
documents supporting this;
4. Documents.24 According to the 2009
Filing Documentation Guideline, along anticipation of impact on the business
with certain documents such as operators and the “relevant market” if
certificates of incorporation, and basic the concentration is prohibited;
information about the parties and the
nature of the transaction, the parties Audited finance statements of each
are required to provide additional
party in the previous one fiscal years;
information, including25:
identification of all affiliates; Information regarding industry
associations in relevant markets;
definition of the “relevant market(s)”
affected by the proposed transaction, Opinions of local governments,
including definitions of product and competent authorities and the public
geographic markets, and the rationale on the concentration; and
6
the acquisition agreement (translated MOFCOM indicated that the review and
into Chinese; a summary thereof is examination of a waiver application may
acceptable), and other reports or be more complicated and may take longer
documents helping to analyze and than a standard merger-control anti-
assess the concentration (e.g. the monopoly filing.
Feasibility Study Report and the Due
Diligence Report).
2. Tips for Definition of “Relevant
Market”
Although the above categories are quite
broad, our recommendation is to focus on Based on our no-names inquiries with
PRC market information, and to provide officials at MOFCOM, and officials on the
only summary information on sales and drafting committee of the M&A Rules and
competition worldwide. Anti Monopoly Law, the term “Chinese
market” may refer to the “relevant market
in China”. However, the terms “Chinese
5. Review Period. According to the market”, “relevant market”, “related
Anti-Monopoly Law, the initial review
industry” and certain other terms used in
period is 30 days. However, if the
enforcement entity decides to conduct the M&A Rules, the 2007 Filing Guide, the
further examination, the review 2009 Filing Guideline, the 2009 Filing
period may be extended another 90 Documentation Guideline, the Anti-
days (or even 150 days under certain Monopoly Law and the Relevant Market
circumstances), in addition to the 30- Guideline have yet to be explicitly clarified
day initial review.26 by the relevant PRC government agencies.
According to the Anti-Monopoly Law and
6. Consultation. MOFCOM welcomes the Relevant Market Guideline, the
any parties to consult on filing issues, “relevant market” refers to the scope of
including whether filing is necessary products and areas within which the
and how to define the relevant
relevant parties compete against each
markets, prior to the actual filing.
other during a certain period of time with
respect to the relevant commodities or
7. Confidentiality. The review by
MOFCOM of the materials filed will be services. Officials from MOFCOM have
made on a confidential basis. indicated that the “Chinese market” is not
However, the filing party must necessarily limited to mainland China, and
prepare and submit a non-confidential may include, for example, markets in Hong
version of the filing materials together Kong and Macao. Please note that on July
with the confidential version, if it 7, 2009, the Relevant Market Guideline
wishes to keep the critical part of its was promulgated by the Committee. We
submission confidential. believe that the approach using tests for
product market definition, geographic
III. Practical Suggestions
market definition and the “hypothetical
monopolist” test in the Relevant Market
1. Waiver Application
Guideline provide consistency with similar
– Not Recommended
approaches used by competition
According to Article 54 of the 2006 M&A enforcement authorities in the other major
Rules, a filing party may apply for antitrust jurisdictions, including Asia, North
exemption of examination on certain America, South America, Europe and
grounds (e.g., competition in the market Australia. The Committee’s approach
will be improved, or employment will be should therefore help to enhance
promoted), but such exemption is not predictability and transparency in this era
found under the Anti-Monopoly Law. of global economics and competition
Unless the parties involved in any regulation. The product market definition
proposed acquisition are a sister-company in the Relevant Market Guideline appears
or parent-company, 27 we do not to assess the relevant set of economic
recommend applying for an exemption, factors. It is unclear, however, whether
since no company has successfully the “Immediate Substitutability” test is
obtained a waiver of review. Officials at more stringent than the “reasonable
7
interchangeable use” tests applied in other average area of a single store over XX
jurisdictions. We believe that even after square meters, and the geographical
promulgation of the Relevant Market market to certain regions (e.g., north
Guideline, for each specific concentration east China, or Zhejiang and Fujian
transaction, the definition of “relevant provinces) or even certain cities. This
market” is still subject to discussion with may still be the case even if the anti-
MOFCOM on a case-by-case basis. monopoly review authority in the
filing party’s home country accepts
Based on our experience, MOFCOM the definition of “supermarket retail
appears to be reluctant to accept a filing if business.”
the “relevant market” is defined very
broadly. To define the geographical
3. Other Tips
market, MOFCOM prefers to narrow the
geographic scope to a province or even (i) Schedules for M & A Transactions
municipality. They will consider the
geographic areas in which the subsidiaries Both parties to acquisitions of PRC equity
of the relevant parties, the suppliers and interests or assets, and parties to offshore
downstream entities, etc., are located. To M & A transactions should factor in the
define a product/service market, MOFCOM PRC anti-monopoly review when designing
prefers to narrow the definition to specific the deal structure and formulating the
main products or specific services. transaction schedule.
Example 1: If an offshore acquisition (ii) Pre-filing Consultation
involves two fruit-processing
companies each having several Pre-filing consultation with MOFCOM may
subsidiaries in the southern region of help in defining the relevant market.
the PRC, MOFCOM may not accept the However, a pre-filing consultation with
“PRC fruit-processing market” as the MOFCOM will not be deemed to be
relevant market. It may prefer to MOFCOM’s formal acceptance of
define the main relevant market as declaration and filing.
“Pineapple juice manufacturing in
Guangdong province” and “Canned (iii) Bargaining Leverage
yellow-peach manufacturing in
Sichuan Province”, etc. if the sales Defining the relevant market requires
volume of pineapple juice and canned negotiation. It is advisable for the filing
yellow-peach products of the party to start with a broader definition to
subsidiaries of the relevant parties obtain a better bargaining position. In
amounts to more than 50% of the addition, if an offshore transaction is also
total sales volume of the subsidiaries reviewed by other anti-monopoly
and most of the manufacturing authorities, decisions made by such
subsidiaries and their suppliers are authorities in favor of the filing party could
located in Guangdong and Sichuan be presented to MOFCOM as persuasive
respectively. evidence (e.g., definition of the relevant
product market).
Example 2: Assume the PRC
subsidiaries of the parties to an (iv) Collection of Chinese Market
offshore acquisition mainly engage in Information
the operation of supermarkets in a
Data on the competition within the
score of large cities in China. The
relevant market (e.g., market shares,
filing party may suggest that the
competitors, etc.) in China is often difficult
relevant product market is the
to obtain from public sources like the
supermarket retail business and the
National Bureau of Statistics, so it may be
geographic market is the PRC. It is
necessary to engage a qualified PRC
very likely that MOFCOM will want to
market-research firm to collect such
narrow the product market from retail
information.
business to supermarkets with the
8
IV. Conclusion community in the coming months and
years. Based on our experience dealing
The Anti-Monopoly Law and the new Filing
with officials at MOFCOM, thorough
Thresholds Regulations are a mile-stone
research on US and European experience
for PRC’s merger control regime by
was conducted by MOFCOM, which will try
regulating domestic mergers and
to follow international practice in its
acquisitions. To a certain extent, the
enforcement of the Anti-Monopoly Law and
thresholds for Business Consolidation
the new Filing Thresholds Regulations.
filings have been simplified. On the other
One unknown issue is whether the Anti-
hand, the PRC regulators still keep much
Monopoly Law will be used to protect
discretion, particularly in light of the
domestic companies and how important
ambiguity of certain key legal concepts.
protecting local strategic industries will be.
How the Committee and MOFCOM exercise
this discretion will be closely observed by
the merger and acquisition and investment
(promulgated by the Anti-Monopoly Bureau of
1
Anti-Monopoly Law of the People's Republic of MOFCOM, January 7, 2009) the official website
China (promulgated by the Standing Comm. of the Anti-Monopoly Bureau of
Nat'l People's Cong., Aug. 30, 2007, effective MOFCOM,http://fldj.mofcom.gov.cn/aarticle/xgx
Aug. 1, 2008) LawInfoChina (last visited Oct. 16, z/200901/20090105993824.html?310518552=5
2008) (P.R.C.) [hereinafter “Anti-Monopoly 0119984 (last visited January 15, 2009)
Law”]. [hereinafter “2009 Filing Guideline”].
2
Regulations of the Ministry of Foreign Trade 7
Guideline regarding the Filing Documentation
and Economic Cooperation and the State related to the Concentration of Business
Administration for Industry and Commerce on Operators (promulgated by the Anti-Monopoly
Merging and Splitting of Foreign-funded Bureau of MOFCOM, January 7, 2009) the
Enterprises (promulgated by the Ministry of official website of the Anti-Monopoly Bureau of
Foreign Trade and Economic Cooperation, which MOFCOM,
has been reorganized as the Ministry of http://fldj.mofcom.gov.cn/aarticle/xgxz/200901
Commerce (“MOFCOM”), and the State /20090105993824.html?310518552=50119984
Administration for Industry and Commerce (last visited January 15, 2009) [hereinafter
(“SAIC”), Sept. 23, 1999, amended by the “2009 Filing Documentation Guideline”].
same authorities Nov. 22, 2001) LawInfoChina 8
(last visited Oct. 17, 2008) (P.R.C.) Guideline for Defining the Relevant Market
(promulgated by the Anti-Monopoly Committee
3
Provisions on the Takeover of Domestic of the State Council, July 7, 2009) the official
Enterprises by Foreign Investors (promulgated website of the Anti-Monopoly Bureau of
by MOFCOM, the State-Owned Assets MOFCOM,
Supervision and Administration Commission of http://fldj.mofcom.gov.cn/aarticle/j/200907/20
the State Council (“SASAC”), State 090706384131.html?4165895963=50119984
Administration of Taxation (“SAT”), SAIC, the (last visited November 5, 2009) [hereinafter
China Securities Regulatory Commission “Relevant Market Guideline”].
(“CSRC”) and the State Administration of 9
Foreign Exchange (“SAFE”), Aug. 8, 2006, In addition to the Draft Provisional Measures
effective Sept. 8, 2006) LawInfoChina (last regarding Investigation of and Dealing with the
visited Oct. 16, 2008) (P.R.C.) [hereinafter Concentration of Business Operators that are
“2006 M & A Rules”]. not Reported According to the Law, MOFCOM
also published the following additional drafts: (i)
4
Guide for the Anti-Monopoly Declaration by a Draft Provisional Measures regarding the
Foreign Investor in the Merger or Acquisition of Evidence Collection on Concentration
a Domestic Enterprise (promulgated by Transactions that do not meet the Filing
MOFCOM, March 8, 2007) LawInfoChina (last Thresholds but are Suspected to Constitute a
visited Oct. 16, 2008) (P.R.C.) [hereinafter Monopoly; (ii) Draft Provisional Measures
“2007 Filing Guide”]. regarding the Filing of Concentration of Business
5 Operators; (iii) Draft Provisional Measures
Provisions of the State Council on the Standard
regarding the Review and Examination of
for the Declaration of Concentration of Business
Concentration of Business Operators; and (iv)
Operators (promulgated by the State Council,
Draft Provisional Measures on the Handling and
Aug. 3, 2008, effective Aug. 3, 2008)
Examination of Concentration Transactions that
LawInfoChina (last visited Oct. 16, 2008)
do not meet the Filing Thresholds but are
(P.R.C.) [hereinafter “Filing Thresholds
Suspected to Constitute a -Monopoly. All such
Regulations”].
drafts are expected to be issued in 2009.
6
Guideline Regarding the Filing of the 10
Provisional Rules on the Takeover of Domestic
Concentration of Business Operators
Enterprises by Foreign Investors
9
11
Under the AML, where a concentration is budget, operations and sales, pricing, major
approved, MOFCOM may impose restrictive investment and other important management
conditions on such concentration to reduce the and operation policies of another business
adverse effect of such concentration on operator, etc. The joint establishment of a new
competition. Also, MOFCOM is obligated to enterprise by two or more business operators,
publish the decisions it renders which prohibit according to the explanation of officials at
or attach restrictive conditions to concentrations MOFCOM, and which explanations are also
of business operators. In practice, MOFCOM reflected in the Draft Provisional Measures
does not publish its decisions on the M& A regarding the Filing of Concentration of Business
transactions which have been filed with and Operators, would be regarded as “concentration
unconditionally approved by it. According to an of business of operators by way of contract”.
announcement published by the Anti-Monopoly Pursuant to the explanation of one of the
Bureau of MOFCOM on its website drafting officials of the Filing Thresholds
(http://fldj.mofcom.gov.cn/aarticle/zcfb/200907 Regulations, “exerting decisive influence upon
/20090706409831.html?474515227=50119984 other business operators” means to exert
) on July 21, 2009 (“July 21 Announcement”), decisive influence over production or operational
MOFCOM accepted anti-monopoly filings for 58 decisions of other operators.
M & A transactions from August, 2008 through 16
Pursuant to the explanation of one of the
the end of June 2009. Most of these cases were drafting officials of the Filing Thresholds
unconditionally approved by MOFCOM except Regulations, “exerting decisive influence upon
one (i.e., the Coca-Cola-Huiyuan deal), and two other business operators” means to exert
were approved with restrictive conditions decisive influence over production or operational
attached (i.e., the INBEV N.V./S.A.’s acquisition decisions of other operators.
of Anheuser-Busch Companies Inc. and
17
Mitsubishi Rayon’s acquisition of Lucite It is provided in Filing Thresholds Regulations
International.) However, following the July 21 that the calculation of business volume should
Announcement , MOFCOM published another factor in the specific circumstances of special
three anti-monopoly review decisions where industries like banking, insurance, securities and
restrictive conditions were imposed. (i.e., futures in accordance with special rules to be
General Motor’s acquisition of Delphi, Pfizer's promulgated by the State Council. See Filing
acquisition of Wyeth, and the Panasonic-Sanyo Thresholds Regulations, supra note 5, at art. 7.
deal) 18
According to the Draft Provisional Measures
12
China Huiyuan Juice Group Limited is a regarding the Filing of Concentration of Business
company incorporated in Cayman Islands and Operators, the business volume of the party
listed on the Hong Kong Stock Exchange. participating in the concentration shall be the
13
sum of the business volume of the following: (i)
It was reported that the Committee was the single business operator which is the party
established by the State Council on August 1, in the transaction; (ii) other business operators
2008. However, the composition of the which directly or indirectly controlled by the
Committee remains unknown. See the official business operator listed in item (i); (iii) other
website of Central People’s Government of business operators which directly or indirectly
People’s Republic of China, control the business operator listed in item (i);
http://www.gov.cn/jrzg/2008- (iv) other business operators directly or
08/01/content_1062161.htm indirectly controlled by the business operators
14
Before the promulgation of the Anti-Monopoly listed in item (iii); and (v) other business
Law, MOFCOM (together with SAIC, but operators directly or indirectly controlled by two
MOFCOM was generally viewed as the key or more business operators listed in items (i) to
player) only oversaw acquisition of domestic (iv).
companies by foreign investors or offshore 19
The 2009 Filing Guideline does not provide a
mergers and acquisitions in accordance with definition for “affiliate”.
the 2006 M&A Rules, since purely domestic
20
mergers or acquisitions were not subject to anti- Article 31 of the Anti-Monopoly Law provides
monopoly review. for a government review of national-security
15
concerns raised by foreign investors'
According to informal explanations of officials acquisitions in China, a process that is separate
at MOFCOM, which explanations are also from an antitrust probe. In an organizational
reflected in the Draft Provisional Measures plan published by the State Council on August
regarding the Filing of Concentration of Business 23 2008, the PRC government will establish a
Operators, “acquiring control over other "Joint Ministerial Meeting" system (which
business operator” includes the following includes MOFCOM, NDRC and other ministries)
activities: (i) acquiring more than 50% voting which will serve as a kind of committee for
shares or assets of other business operators; investigating national security concerns arising
and (ii) being able -through acquisition of equity from foreign companies' investments in China.
with voting rights or assets, and by contract or However, the composition of the “Joint
other means- to decide the appointment of one Ministerial Meeting” and the rules on how the
or more members of the board of directors of national security review will operate remain
other business operators and key management, unknown.
10
21
Based on our no-names inquiries with officials shares with voting rights or assets of each of
at the Anti-Monopoly Bureau of MOFCOM, the the participant Operators in the Consolidation.
2007 Filing Guide is still valid and applicable to See Anti-Monopoly Law, supra note 4, at art. 22.
the filing of acquisition of domestic companies
by foreign investors. If some issues are covered
in the 2007 Filing Guide but are not covered by
the 2009 Filing Guideline, the 2007 Filing Guide
shall be applicable. However, if there are any
conflicts between the 2007 Filing Guide and the
2009 Filing Guideline, the provisions in 2009
Filing Guideline shall prevail.
22
According to the 2009 Filing Guideline, the
filing could be made by the filing parties, either
in their own names, or through an authorized
attorney. See the 2009 Filing Guideline, supra
note 6, at art. 2 and art. 3.
23
According to the Anti-Monopoly Law, the
submission should include the following: 1) an
application letter; 2) explanation of the impact
of the contemplated concentration on the
competition in the relevant market; 3) the
agreement for the contemplated concentration;
4) audited financial statements of all the parties
to the contemplated transaction for the last
fiscal year; and 5) other documents or data
required by the “anti-monopoly enforcement
entity of the State Council”. See Anti-Monopoly
Law, supra note 4, at art. 23.
24
Article 23 of Anti-Monopoly Law provides a list
of documents to be submitted for the anti-
monopoly review. However, we were informed
by a high-ranking official from MOFCOM that the
2009 Filing Documentation Guideline would
continue to be effective in terms of the
documents required by MOFCOM in relation to
its anti-monopoly review. See Anti-Monopoly
Law, supra note 4, at art. 23 and 2009 Filing
Documentation Guideline, supra note 7.
25
Please refer to the 2009 Filing Documentation
Guideline for a complete list of required
materials. See 2009 Filing Documentation
Guideline, supra note 7.
26
The Anti-Monopoly Law does not identify
whether the 30-day review and its extension
refer to calendar days or working days.
According to the 2007 Filing Guide, the initial
review period is 30 working days, but may be
extended to 90 working days. Based on our
experience, in practice, currently, the officials at
MOFCOM use calendar days to calculate their
review period. See 2007 Filing Guide, supra
note 3, at ch. 4.
27
According to the Anti-Monopoly Law, business
operators may be exempted from filing with the
anti-monopoly enforcement entity of the State
Council if:
1) one participant Operator in the Consolidation
holds more than 50% of the shares with voting
rights or assets of each of the other participant
Operators in the Consolidation; or
2) one Operator not participating in the
Consolidation holds more than 50% of the
11
