On February 9, 2012, the Ministry of Commerce
("MOFCOM") published its first conditional clearance
decision in 2012, approving the proposed joint venture
("JV") established by Henkel Hong Kong Holdings Co., Ltd.
("Henkel HK") and Tiande Chemical Industry Co., Ltd.
("Tiande") ("Transaction"). This is the second
conditional clearance decision in relation to a joint venture and
reaffirms MOFCOM's approach that formation of a joint venture
does constitute a notifiable transaction under the Anti-monopoly
Review Process. MOFCOM received the
notification on 8 August 2011 and officially accepted it on 26
September 2011. The case entered into Phase II on 25 October 2011
and the parties submitted the proposed remedies on 13 January 2012,
shortly before MOFCOM decided to extend the Phase II period for
another 60 days on 19 January 2012. On 9 February 2012, MOFCOM made
the final decision to approve the Transaction with conditions.
Relevant Markets. MOFCOM found that
the main products involved in the Transaction were ethyl
cyanoacetate ("Product A"), cyanoacrylate monomer
("Product B") and cyanoacrylate adhesive ("Product
C"). The three products are at different levels of the supply
chain as upstream, midstream and downstream products respectively.
Taking into account their applications, properties, demand-side and
supply-side substitution, export and import, and etc, MOFCOM found
that each of the above three products constitutes a separate
relevant product market. The relevant geographic market is global
Competitive Assessment. MOFCOM is
mainly concerned with the input foreclosure effects likely to arise
in this case.
Tiande and the other China-based supplier are the only two
suppliers in Product A market both worldwide and in China, each
accounting for 45%-50% of the market share. Therefore, Product A
market is high concentrated with an HHI of more than 4050. MOFCOM
also found that there are significant barriers for entry into
Product A Market. Because the production process involves use of
dangerous chemicals and is highly pollutive, suppliers in other
countries have mostly been shut down. In light of the above, MOFCOM
concluded that Tiande has strong market power in Project A
The JV is to produce and supply Product B, a downstream product
of Product A. MOFCOM found that Tiande does not supply Product B,
while Henkel, Henkel HK's parent company, produces Product B
mainly to be used for self-production of Product C. MOFCOM also
found that Henkel has advantages in both Product B and Product C
markets with respect to branding, technology, capital and skilled
Currently Product A sold to Henkel by Tiande accounts for 5% of
Tiande's output of Product A. After the Transaction, JV's
demand of Product A will mostly be filled by Tiande. Therefore,
about 25% of Tiande's output would be sold to the JV and Henkel
Considering the affiliated relationship between Tiande and the
JV, and Tiande's strong market power in Product A market,
MOFCOM concluded that the Transaction may reduce or limit the
competition in Product B market because Tiande is likely to
leverage its market power in Product A market into Product B market
by discriminating against other suppliers of Product B.
Remedies. In order to solve the
competition concerns, MOFCOM requested Tiande to supply Product A
to all downstream customers on "fair, reasonable and
non-discriminatory" basis. More specifically, Tiande shall not
sell Product A at an unreasonably high price, offer more favorable
terms of supply to the JV, or exchange competitive information with
Henkel or the JV.
As mentioned above, this decision reaffirms MOFCOM's
approach that formation of a joint venture does constitute a
notifiable transaction under the AML.
Furthermore, this is yet another case where MOFCOM is concerned
with the foreclosure effects likely to arise in a vertical or
conglomerate merger. In the past, MOFCOM has applied similar
theories of harm in the GM/Delphi deal and the GE/Shenhua deal.
However, the decision itself seems to focus only on the ability of
Tiande to adopt a foreclosure strategy and does not address whether
Tiande will have the incentive to do so.
This is also the 7th case among the 11 conditional clearance
decisions where only behavioral remedies were
1 MOFCOM's first conditional clearance of
a JV is the GE/Shenhua deal. For more information, please refer to
our article entitled
"MOFCOM imposed Conditions on SOEs – GE/Shenhua
Deal". 2 The other cases where only behavioral remedies were
imposed include InBev/AB deal, GM/Delphi deal, Novartis/Alcon deal,
Uralkali/Silvinit deal, GE/Shenhua deal and Seagate/Samsung
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