Summary
Originally published November 20, 2008
Keywords: china, antitrust, Anheuser-Busch, InBev, AML, Anti-monopoly law, MOFCOM, merger control
China's Ministry of Commerce (MOFCOM) has granted conditional antitrust clearance of Belgium-based InBev SA's proposed takeover of the Chinese operations of Anheuser-Busch Co.
The takeover, which is occurring as part of a global merger between InBev and Anheuser, triggered the mandatory antitrust review provisions in China's Anti-Monopoly Law (AML). MOFCOM's expedited review of the transaction, and its conditional approval terms, raise some useful lessons for other companies who may have to submit to China's antitrust review process in the future.
Full Update
InBev announced its proposed global takeover of Anheuser in June
this year. The merger will create the world's largest brewer,
combining global beer brands such as InBev's Stella Artois and
Anheuser's Budweiser.
Both InBev and Anheuser are part of corporate groups that have
significant sales revenues and operations in China. The Stella
Artois and Budweiser brands are growing in popularity in China, and
both parties also hold significant stakes in popular domestic China
brewers. Specifically, InBev holds a 28.56 percent share in
Zhujiang Beer Ltd, and Anheuser holds a 27 percent share in
Tsingtao Beer Ltd.
Accordingly, the transaction triggered the application of the
merger control provisions in Chapter IV of the AML. These
provisions require proposed mergers and acquisitions to be notified
to MOFCOM, and pre-approval to be obtained from MOFCOM, if certain
global and/or China turnover thresholds are met (our Client Alert
"
http://www.mayerbrown.com/publications/article.asp?id=5386&nid=11164").
MOFCOM's review of a notified transaction aims to determine
whether it will relevantly restrict competition in China, in which
case it may block or place conditions on the transaction. The AML
also provides for the authorities to consider national security and
related concerns in determining whether to allow transactions to
proceed.
Once a transaction is notified, MOFCOM conducts an initial
assessment that can last up to 30 days, and may then extend the
review period for up to a further 150 days if it determines that
the transaction requires more detailed scrutiny.
It is reported that notification of the InBev/Anheuser deal to
MOFCOM was completed on 27 October 2008. As MOFCOM's clearance
decision was published on 18 November 2008, it appears that the
formal review period lasted just 22 days. This demonstrates one of
the major improvements to China's merger control regime since
the introduction of the AML on 1 August 2008. Prior to this date,
antitrust merger review in China occurred under the Regulations on
the Acquisition of Domestic Enterprises by Foreign Investors
(M&A Regulations), and a mandatory 30 working day review period
applied to notified transactions even where it was clear that
MOFCOM had no substantive concerns.
However, it should also be noted that MOFCOM raised several
requests for further information with InBev and Anheuser after the
parties' first submitted details of the transaction. This
allowed MOFCOM additional time to consider the impact of the
transaction before the notification was deemed complete.
Although Article 23 of the AML sets out a basic outline of the
information that must be included in merger notifications (which
list is effectively supplemented by notification guidelines MOFCOM
published in the context of the M&A Regulations), the law
provides that MOFCOM can request such further documents and
information as it deems necessary to conduct its review. This
provides MOFCOM with wide scope to issue 'supplemental
information requests' to transaction parties, and to consider
that notifications are incomplete until this information is
provided.
MOFCOM's review process and decision
Under Article 27 of the AML, MOFCOM is required to consider a
multitude of factors when assessing the potential impact of a
notified transaction on competition in China. These factors include
the parties' market shares in China, the extent of
concentration in the relevant China market, and the likely effect
of the transaction on consumers, market access, technological
progress and the development of China's economy.
It is understood that MOFCOM held several seminars, symposiums and
public hearings about the InBev/Anheuser deal, to collect opinions
and suggestions from interested parties regarding the above
matters. Views were obtained from relevant industry associations,
local governments and competitors.
After completion of this information-gathering process, MOFCOM
determined that the merger would not reduce competition in
China's beer market.
As market researchers have estimated that the parties have a joint
market share in China of just 13%, this is not a surprising
outcome. The merger control regime that had existed under the
M&A Regulations required mandatory notification of relevant
transactions that would result in an entity having a 25% or greater
market share in China, and our experience is that MOFCOM has rarely
expressed strong concerns about mergers relating to non-sensitive
and relatively 'open' industry sectors that result in the
merged entity having a market share of less than 15%.
Additionally, it is likely that MOFCOM considered that China's
beer market, which overtook the U.S. as the world's biggest
beer market in 2001, is likely to continue to grow in size in
coming years and does not have unduly high barriers to new market
entry or growth of other existing market participants.
However, MOFCOM has placed some conditions on their clearance
decision, including a condition that the merged entity not increase
its existing stakes in Chinese brewers, or link up with two other
leading Chinese breweries (Huarun Snow Beer Ltd. and Beijing
Yanjing Beer Ltd.), without prior MOFCOM approval.
MOFCOM has stated that these restrictions are intended to reduce
the potential for negative impacts on competition in mainland
China's beer market that may result from further increases in
the merged entity's 'considerably large' market
share.
The merged entity is also required to notify MOFCOM if there are
relevant changes to its controlling interest or largest
shareholder.
Anheuser has conducted an aggressive growth campaign in China in
recent years, largely focussed on its Budweiser brand, and as a
result the proposed merger is likely to have been subjected to
significant scrutiny in China. MOFCOM's clearance decision will
be welcomed by many foreign businesses and international
commentators, particularly given the concerns that have been
expressed about the potential for the AML to be used as a tool for
industrial policy in China and to foster the growth of domestic
brands at the expense of foreign-invested or foreign-owned
companies.
China's clearance of the deal follows similar decisions by
regulators in the UK and US, where the combined market shares of
InBev and Anheuser are reported to be significantly higher. Indeed,
the Department of Justice has required InBev to divest its Labatt
brand to reduce its market position in the U.S as a condition of
its clearance decision.
Lessons for companies notifying deals to
MOFCOM
China's new merger control regime has the potential to apply to
a very broad range of both international and China-focussed M&A
deals, and many domestic and foreign companies in China are closely
monitoring how the new regime is applied. MOFCOM's latest
clearance decision, which is perhaps the most high profile
acquisition approved since the AML took effect, provides some
useful lessons for companies that may have to notify proposed
transactions under the regime.
Firstly, it is clear that MOFCOM consulted widely with interested
parties such as competitors of the transaction parties, customers
and relevant industry associations. Such broad industry
consultation by MOFCOM is becoming a more frequent occurrence as it
expands its resources and expertise in the area of merger control.
Accordingly, it will be prudent for parties submitting merger
notifications in China to conduct advance discussions with relevant
customers and industry associations, to brief them on positive
aspects of a deal that is to be notified. This will increase the
prospect of regulatory consultation with these parties proceeding
promptly and smoothly. To the extent practical, it is also useful
to try and obtain statements from such stakeholders supporting the
deal, to include in merger notifications.
Additionally, parties notifying transactions to MOFCOM should
consider whether they may improve their prospects for a beneficial
review outcome by offering MOFCOM assurances of a kind similar to
the conditions MOFCOM has imposed on the InBev/Anheuser merger. In
particular, it may be useful for parties acquiring moderate or
greater stakes in Chinese markets to offer commitments to consult
with MOFCOM before seeking to implement further transactions that
may impact on the relevant market (whether or not they may trigger
notification requirements under the AML).
Finally, notifying parties should aim to ensure the information
they provide to MOFCOM about a proposed transaction is sufficiently
comprehensive to maximise the prospect of expedited clearance. In
particular, frequent communications with MOFCOM (both before and
after information is first formally submitted about a deal) should
allow the parties to identify issues in respect of which MOFCOM may
be likely to require further information. Early identification of
these issues, and prompt information-gathering, can reduce the risk
of supplemental information requests delaying the review
process.
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