China: Chinese Merger Review Receives Its First Toast: InBev And The New Anti-Monopoly Law

Last Updated: 3 December 2008
Article by Martyn Huckerby

On 18 November 2008, the Chinese Ministry of Commerce (MOFCOM) announced that it has cleared the acquisition by InBev N.V./S.A. (InBev) of Anheuser Busch Companies Inc. (A-B), the largest transaction it has yet considered under China's new Anti-Monopoly Law (AML). The parties announced that the transaction had closed shortly thereafter.

MOFCOM's clearance decision provides the first real insight into its new merger review procedures under the AML, as well as how MOFCOM is likely to approach future transactions under the AML (especially as to the imposition of conditions). In particular, MOFCOM's decision suggests that it is prepared to adopt a more transparent approach than in the past, but that filing parties will need to plan their notifications carefully and allow additional time for the review process.

Background and merger review process

On 14 July 2008 InBev, the brewer of Stella Artois and Beck's beers, and A-B, the brewer of Budweiser beer, announced an agreement to combine the two companies (the Transaction), forming the world's leading global brewer.

InBev formally notified MOFCOM of the Transaction on 10 September 2008 in accordance with China's new merger control regime under the AML, which came into effect on 1 August 2008. Under the AML MOFCOM must be notified of transactions that meet specified turnover thresholds, and parties cannot close transactions until MOFCOM grants clearance. These turnover thresholds are set out in our previous alert. Companies that contravene the requirement to notify MOFCOM of mergers may be subject to penalties, including fines of up to RMB500,000 and divestiture orders.

Following InBev's notification, it provided supplementary materials to MOFCOM on 17 October and 23 October, before MOFCOM formally accepted the notification and commenced the 30 calendar day review period on 27 October. MOFCOM announced on 18 November that it had cleared the Transaction. While MOFCOM's decision was made well within the statutory clearance period, more than a month and a half elapsed in between the date of filing and the date on which MOFCOM accepted InBev's notification.

In making its decision, MOFCOM consulted extensively with other Government departments, the relevant beer industry association, major local beer brewers, suppliers and local distributors.

InBev also announced on 18 November that it had completed the Transaction, following approval from shareholders of both companies and has changed its name to Anheuser-Busch InBev. The Transaction has created one of the world's top five consumer product companies.

Conditions of clearance

In clearing the Transaction, MOFCOM imposed a variety of conditions on the new merged entity (Anheuser-Busch InBev). In particular, InBev must notify MOFCOM and obtain its consent before any of the following transactions are implemented:

  • increasing A-B's existing 27% shareholding percentage in Tsingtao Brewery
  • any change to the controlling shareholders of InBev or the shareholders of such controlling shareholders
  • increasing the existing 28.56% shareholding percentage in Zhujiang Brewery, and
  • purchasing any stake in China Resources Snow Breweries and Beijing Yanjing Brewery, two of the largest domestic brewers.

MOFCOM justified these conditions on the basis of the large scale of the acquisition and the resulting significant market share of Anheuser-Busch InBev in China.

Implications for businesses conducting mergers

In its first high profile application of the AML, MOFCOM has adopted a considered approach to the clearance process, demonstrating the important role that third parties will play in influencing MOFCOM's decisions. It is relevant to note that there has been public speculation that clearance of Coca Cola's proposed acquisition of Huiyuan Juice has been delayed due to the significant level of third party complaints.

MOFCOM's announcement in the current case suggests that it will be prepared to impose formal conditions and make announcements of such decisions, rather than informally settle with the parties behind the scenes to avoid public scrutiny. Under the AML MOFCOM is obliged to publish decisions blocking transactions or imposing conditions, but not other clearance decisions. The approach MOFCOM has taken here is a welcome development that, if continued, will provide greater transparency in relation to MOFCOM's procedures and, hopefully, more predictable merger decisions. In turn, this will make it easier for companies to make informed Chinese investment decisions.

However, MOFCOM's decision also shows that it will be willing to use the clearance process to ensure it can influence future developments in the relevant sector. Indeed, the conditions imposed on InBev relate primarily to InBev's future investment in the Chinese beer market and not to issues arising from the current acquisition.

Companies that are interested in acquisitions that meet the turnover thresholds (see our previous alert) should ensure they factor the notification and review periods into the transaction planning process, as well as carefully consider the way in which the transaction is described in public statements and internal documents on the assumption that they may become subject to MOFCOM review. Companies should also pay close attention to the implementation rules that MOFCOM is expected to publish shortly.

Source: MOFCOM Announcement, No. 95, 2008.

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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