Foreign companies involved in non-Chinese mergers need to be
aware of scrutiny by the Chinese anti-monopoly authority MOFCOM and
possible conditional measures that can be imposed, especially if
the merged companies provide key raw materials to China. This can
be derived from MOFCOM's recent conditional clearance of the
merger between Uralkali and Silvinit.
Uralkali and Silvinit are two leading Russian potash producers
that recently merged in a USD 7.8 billion merger. Prior to
MOFCOM's conditional approval, the merger proposal was already
approved by anti-monopoly authorities in Russia, Brazil, Poland and
MOFCOM accepted the notification of the merger on 14 March 2011
and carried out a two-phase 81-day review (the phase one review is
30 calendar days and the phase two review is 90 calendar days). On
2 June 2011, MOFCOM issued conditional approval in which certain
behavioural remedies were imposed. This is the seventh conditional
approval decision made by MOFCOM since the Anti-Monopoly Law of
China took effect three years ago.
The following are some interesting aspects of MOFCOM's
Market definition and competitive assessment
With regard to the relevant market definition, MOFCOM considered
the potassium chloride market as the relevant product market based
on the lack of substitutability between potassium chloride based
fertilizers and other fertilizers in terms of the product
characteristics and use.
As China is primarily an import market for potassium chloride,
MOFCOM considered both the global and Chinese market. It appears
that MOFCOM used a possible further delineation of the geographic
market by separating trading by ocean freight from trading by
Moreover, MOFCOM noted that the merger would create the second
largest exporter of potassium chloride with a market share of over
one-third of the global market. It also pointed out that China
relies heavily on imports for potassium chloride, of which more
than 50% are from Uralkali, Silvinit or their affiliated
As a result MOFCOM concluded that there were a number of
competition concerns. First of all, the concentration in the
relevant market would increase after the merger. The increased
market power could also restrict competition in the global ocean
shipping market, while there also were concerns about the border
trading market, as the number of major suppliers in that market
would drop from three to two. MOFCOM also considered there to be an
increased risk of coordination between major global players and
took high entry barriers into account.
After several rounds of negotiations MOFCOM finally accepted a
remedy package. These remedies are basically a standstill
commitment, pursuant to which the merging parties will have to:
follow the current mode of sale, which includes price
negotiations for spot sales (on a per-transaction or per-month
basis) and contract sales (semi-annually or annually)
continue to supply a broad range and sufficient volume of
potassium chloride products
follow current negotiation procedures, taking into account
historical and current trading situations with their Chinese
appoint a monitoring trustee and report on the progress to
MOFCOM on a six-month basis or upon request.
The decision provides more elaborate reasoning and this is
clearly presented compared with previous decisions, in line with
MOFCOM's development into a more sophisticated and efficient
anti-monopoly authority. The decision also shows MOFCOM's
willingness to accept behavioural or non-structural remedies.
MOFCOM stressed, moreover, that China is highly dependent on
potassium chloride and made a distinction between seaborne and
cross-border trade. This could indicate that MOFCOM, at least in
part, was motivated by industrial policy concerns. For companies
that provide key raw materials to China, it will therefore be
interesting to see how strictly MOFCOM will monitor and enforce
compliance with the conditions imposed.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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