China: MOFCOM: Conditional Approval To Mitsubishi Acquisition Of Lucite

Last Updated: 15 May 2009
Article by Jonathan Selvadoray and Elaine Zhu

On 24 January 2009, China's Ministry of Commerce ("MOFCOM") issued a public announcement conditionally approving the proposed acquisition of Lucite International Group Limited ("Lucite") by Mitsubishi Rayon Co., Ltd ("Mitsubishi").

Mitsubishi intended to purchase all issued shares of Lucite, as a result of which Lucite would become a consolidated subsidiary of Mitsubishi. Although Mitsubishi and Lucite are foreign undertakings, both have large-scale sales in China which meet the relevant notification thresholds under the new PRC Anti-monopoly Law ("AML"). The proposed transaction therefore triggered the complementary notification review by MOFCOM according to the AML.

Mitsubishi submitted the notification of the transaction to MOFCOM on 22 December 2008. Having requested supplemental information, MOFCOM accepted the notification and started the 30-day preliminary review on 20 January 2009. As MOFCOM was concerned about the post-merger level of concentration and vertical foreclosure effects, it decided to initiate the substantive review (90 days plus 60 days extension) on 20 February 2009. Before the deadline of this second-stage review, MOFCOM published it final decision on 24 April 2009.

Relevant market

The relevant product markets are defined as methyl methacrylate ("MMA"), specific sulfopropyl methacrylates and polymethyl methacrylate ("PMMA") particle and panel products. As both parties mainly overlap on the production and sales of MMA products, MOFCOM's competition analysis focused on this product market. The geographic market is the Chinese market.

Anti-competitive concerns

After in-depth assessment of the transaction, MOFCOM found that Mitsubishi would have 64% market share in the Chinese MMA market post-merger and would therefore be in a dominant position on this market, which would enable Mitsubishi to eliminate and restrict competition. Furthermore, as Mitsubishi runs business in both upstream and downstream MMA markets, MOFCOM feared that the transaction would have vertical foreclosure effects to down-stream competitors.


Following rounds of communication with MOFCOM, the parties undertook the following commitments to mitigate the anti-competitive effects of the transaction, based on which MOFCOM conditionally approved the transaction.

1. Production divestiture

Lucite International (China) Chemical Industry Co., Ltd. ("Lucite China") shall divest 50% of its annual production capacity to one or more unaffiliated third parties at cost (production and management cost with no margin, verified by independent auditors annually) within 5 years. The divestiture shall be carried out within 6 months of the closing date of the proposed transaction, which can be postponed for another 6 months upon Lucite China's reasonable application.

If Lucite China fails to perform this commitment within the time limit, MOFCOM has the right to appoint an independent third party to acquire 100% share of Lucite China ("Full Divestiture").

2. Independent operation

During the period from the closing of the proposed transaction to the completion of the divestiture, or the Full Divestiture, as the case may be, Lucide China and Mitsubishi shall operate their business of MMA monomer in China independently, including having their respective management teams and directors, competing with each other in selling MMA in China, not exchanging any pricing, client or other competitive information about Chinese market.

A penalty between RMB 250,000 and 500,000 will be imposed for non-compliance of the above operation restrictions.

3. New acquisition and plants

Post-merger Mitsubishi shall, with in 5 years after the closing of the proposed transaction, not acquire any other undertakings or establish new plants manufacturing MMA monomer, PMMA polymer or cast sheet products without MOFCOM's prior approval.

Divestiture commitments (structural remedies) are regarded as the best way to eliminate competition concerns resulting from horizontal overlaps and vertical foreclosure effects. However, "production divestiture" is a creative commitment accepted by Chinese merger control authority, which is singular in comparison with other more mature jurisdictions.

Due to the lack of detailed competition analysis of the transaction, it is difficult to tell whether such types of commitments are appropriate and whether they are sufficiently viable to remove all competition concerns arising from the transaction.

MOFCOM set forth penalties to put pressure on the parties to complete the commitments in time. Nevertheless, it is doubtful that MOFCOM will have an effective long-term monitoring mechanism to ensure the full implementation of such commitments.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 11/05/2009.

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