"Competition Remedies for Mergers, Acquisitions and Joint Ventures: China’s Diverging Practice from EU and U.S. Agencies"

by Skadden, Arps, Slate, Meagher & Flom LLP
Contact

Skadden

[authors: Simon Baxter, Andrew L. Foster]

Companies contemplating global mergers,acquisitions and joint ventures should be aware that the Ministry of Commerce (MOFCOM), China’s antitrust agency tasked with merger control, is increasingly imposing competition remedies exceeding those required by the European Commission, U.S. Federal Trade Commission (FTC) or U.S. Department of Justice (DOJ) in the same transactions.

In the past four months, MOFCOM has issued a record five decisions imposing conditions for clearance on international transactions. By contrast, the EU and U.S. competition agencies imposed remedies in only one of those same five transactions. Moreover, four of the five decisions involved truly international transactions carried out between non-Chinese entities. The fifth involved a Chinese joint venture between a U.S. multinational company and a Chinese state-owned enterprise.

A brief analysis of the agencies’ different approaches with regards to two of those transactions in particular — the Seagate/Samsung and Western Digital/Hitachi hard disk drive (HDD) acquisitions — highlights the widening divide in practice between MOFCOM and its counterparts in the EU and U.S.

Seagate/Samsung

On October 19, 2011, the European Commission unconditionally cleared Seagate’s acquisition of Samsung’s HDD business, and, on December 7, 2011, the FTC also closed its investigation into the transaction without seeking to impose any conditions. Notwithstanding these unconditional clearances in the EU and U.S. on December 12, 2011, MOFCOM announced that it would only clear the acquisition subject to extensive global behavioral competition remedies: 

  • For a minimum of one year, Seagate must continue to operate Samsung’s HDD business as a viable independent competitor worldwide, maintaining its own, separate production, pricing, sales, and research and development under the Samsung brand while implementing firewalls to prevent the exchange of competitively sensitive information between Seagate and Samsung; 
     
  • For a minimum of one year, Seagate must maintain and expand the production capacity of the Samsung HDD products and “reasonably determine” capacity and output based on market demand; 
     
  • Seagate shall not materially change its business model or compel customers to purchase exclusively from Seagate or Samsung; 
     
  • Seagate shall not force an important supplier of magnetic HDD heads (TDK China) to supply exclusively to Seagate or Samsung; and
     
  • Seagate shall invest at least USD 800 million each year for the next three years (for a total of USD 2.4 billion) in research and development to “maintain the momentum” and “supply more innovative products” to customers.  

In particular, the first remedy — effectively forming an indefinite “hold-separate” that can only be lifted after reconsideration by MOFCOM no earlier than 12 months following implementation of the decision — is unknown as an effective competition remedy, and its indefinite nature will postpone the full scope of integration envisioned for the acquisition. MOFCOM viewed these remedies as necessary despite the fact that its own assessment of the combined post-transaction market share of Seagate/Samsung (both globally and in China) was only 43 percent. However, MOFCOM also was simultaneously considering the proposed combination of Western Digital and Hitachi (whose pre-combination shares MOFCOM estimated at 29 percent and 18 percent, respectively), which would leave Toshiba (at 10 percent) as the only other strong competitor.

Western Digital/Hitachi

The European Commission (November 19, 2011) and US FTC (March 5, 2012) both cleared Western Digital’s proposed acquisition of Hitachi’s HDD business (renamed Viviti), with the requirement that Western Digital divest essential production assets for the manufacture of 3.5-inch HDDs (including a production plant, intellectual property rights, key personnel and rights to continued supply of HDD components). These assets must be sold to a suitable purchaser, such as Toshiba, which can immediately use the assets to compete effectively with both Western Digital and Seagate post-transaction.

On March 2, 2012, MOFCOM announced its own set of conditions for the clearance of Western Digital’s acquisition. MOFCOM’s conditions include the same structural divestment required by the Commission and the FTC, but also include substantial global behavioral remedies, similar to those required in Seagate/Samsung: 

  • For a minimum of two years, Western Digital must continue to operate Hitachi’s worldwide HDD business in the same indefinite “hold separate” contemplated for Samsung;
     
  • Also as in Seagate/Samsung, Western Digital and Viviti must “reasonably determine” capacity and output based on market demand and are forbidden from changing their business models or compelling customers to purchase exclusively; and 
     
  • The two companies must continue to invest in R&D, although unlike Seagate/Samsung, no exact dollar figure has been specified.

As in the Seagate transaction, the process for “reconsidering” the indefinite hold separate has not been specified. Given MOFCOM’s currently lengthy review periods (for example, seven months for Seagate/Samsung and 11 months for Western Digital/Hitachi), this “reconsideration” procedure could add additional time to the minimum waiting periods already prescribed in the clearance decisions.

Given MOFCOM’s increasing use of extensive behavioral remedies for international transactions — and especially as its practice diverges from that of the EU and U.S. agencies — any global merger, acquisition or joint venture must include thorough planning of a comprehensive competition strategy for securing clearance in China.

Download PDF Version

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Skadden, Arps, Slate, Meagher & Flom LLP | Attorney Advertising

Written by:

Skadden, Arps, Slate, Meagher & Flom LLP
Contact
more
less

Skadden, Arps, Slate, Meagher & Flom LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.
Feedback? Tell us what you think of the new jdsupra.com!