New merger-control regulations create uncertainty
12/01/2009 Source: China Law & Practice
As 2009 nears its end, China’s merger-control regulator shows no sign of slowing down, issuing two important regulations covering the reporting of concentrations. But it appears to have taken
a step backwards by completely removing a crucial definition from one of the regulations.
The anti-monopoly bureau of the Ministry of Commerce (Mofcom) issued the Measures for the Review of Concentrations of Business Operators (?????????) and Measures for the Reporting of Concentrations of Business Operators (?????????) on November 27 2009. Both take effect on January 1 2010.
Lawyers who had hoped the finalised measures would add more detail are instead finding themselves disappointed and facing increased uncertainty: an important Article defining what constitutes “acquisition of control” over an undertaking has been entirely removed from the second set of measures.
“The definition is critical, because a transaction other than a straightforward merger is only notifiable if it constitutes such an acquisition of control,” said JSM senior associate Gerry O’Brien.
The previous draft of the Measures for the Reporting of Concentrations of Business Operators defined acquisition of control as occurring in situations such as: where 50% or more of the voting shares or assets of an entity were acquired; or where a party obtained rights to appoint directors or key executives of a target, among others. The uncertainty created by the removal of the definition means companies may need to consult with Mofcom before going ahead with many deals, even those that concern only minority share acquisitions.
The finalised Measures for the Reporting of Concentrations of Business Operators are also missing guidance on joint ventures (including if and when joint ventures constitute concentrations under the AML).
“Without formal rules limiting the kind of transactions covered by merger review, Mofcom may be tempted to argue that acquisitions of minority shareholdings and limited control rights, as well as the creation of joint ventures of a more limited nature, have to be notified where the thresholds are met,” Linklaters’ antitrust team wrote in a recent client alert.
The move also gives Mofcom more discretion to investigate transactions in which it is particularly interested.
