What is Simplified under Anti-Monopoly Filing Procedures for Simple M&A Cases?

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The Ministry of Commerce in China (“MOFCOM”) has promulgated a series of implementation regulations as an effort to improve the enforcement of the Anti-Monopoly Law (“AML”), among which two regulations specifically relate to simplified premerger filing procedures: Announcement No. 12 [2014] of the MOFCOM—Interim Provisions on Standards Applicable to Simple Cases in Concentration of Business Operators (the “Interim Provisions,” 《关于经营者集中简易案件适用标准的暂行规定》 in Chinese) promulgated on February 12, 2014, and the Tentative Guidelines on Filing of Simple Cases in Concentration of Business Operators (the “Opinions,” 《关于经营者集中简易案件申报的指导意见(试行)》), together with simplified notification form and “public notice” form templates (collectively, “Forms”) on April 18, 2014. The Opinions and Forms provide guidelines for implementing the Interim Provisions. The Interim Provisions and Opinions became effective from their dates of publication, respectively, and were welcomed as a positive development in streamlining premerger filing procedures.

This alert examines the Interim Provisions and Opinions, discusses in what ways the current standard review process is simplified, and practical recommendations to apply for going through such simplified premerger filing procedure.

Qualified Simple Cases, Exceptions and Revocation
The Interim Provisions adopt both “market share thresholds” and non-market share tests to determine simple cases. Similar to the anti-trust laws of other countries, the “market share” test in the Interim Provisions is one of the most important indexes to assess whether an enterprise has a dominant position in a certain market.  MOFCOM set three thresholds: for enterprises in the same relevant market, in an upstream-downstream market relation and in different markets that are neither relevant nor upstream-downstream. The non-market share test is focused on whether the transaction will affect the Chinese economy. The transaction’s parties must specifically apply for simple case treatment if they would like to use the simplified procedure and they meet the qualification requirements. In total, there are six qualification requirements and six exceptions based on market definition, competition, entry, technological progress, consumers and national economic effect.

Details of the qualifications and exceptions are as follows:

Normal Cases [1]

Simple Cases [2]

Exceptions to Simple Cases [3]

1. The total amount of the global turnover realized by all business operators participating in the concentration exceeds RMB10 billion during the previous financial year, with at least two business operators to the relevant transaction achieving a Chinese turnover of more than RMB400 million each during the previous financial year; or

2. The total amount of the Chinese turnover realized by all business operators participating in the concentration exceeds RMB2 billion during the previous financial year, with at least two business operators achieving a Chinese turnover of more than RMB400 million each during the previous financial year.

1. The total market share of all business operators participating in the concentration is less than 15% in the same relevant market;

2. When an upstream-downstream relationship exists among the business operators participating in the concentration, and the market share of such business operators both  upstream and downstream is less than 25%;

3. When the business operators participating in the concentration are neither in the same relevant market nor have any upstream-downstream relationship, and their market share in each market relevant to the concentration is less than 25%;

4. When the business operators participating in the concentration intend to establish a joint venture outside Chinese territory, and the joint venture will not engage in any economic activities within China;

5. When the business operators participating in the concentration intend to acquire the equity or assets of an overseas enterprise, where the overseas enterprise does not engage in economic activities within China; or

6. When a joint venture, controlled jointly by two or more business operators, will be controlled by one or more of the existing business operators after the concentration.

1. When a joint venture, jointly controlled by two or more business operators, will be controlled by one of the existing business operators after the concentration, and this business operator and the joint venture are competitors in the same relevant market;

2. When it is difficult to define the relevant market involving the concentration of business operators;

3. When the concentration of business operators may have an adverse effect on market entry or technological progress;

4. When the concentration of business operators may have an adverse effect on consumers and other business operators;

5. When the concentration of business operators may have an adverse effect on national economic development; or

6. When MOFCOM’s opinion is that the concentration of business operators may otherwise have an adverse effect on market competition

     

 

MOFCOM still has broad discretionary powers in determining where a transaction qualifies as a “simple transaction.” The Interim Provisions also remain unclear on determining a relevant market and potential adverse effects which may disqualify a transaction from being considered a “simple” case. In practice, MOFCOM may also conduct certain procedural examinations before officially accepting a simplified case filing. The Opinions provide an opportunity, prior to an official filing, for the business operators to consult with the Anti-monopoly Bureau of MOFCOM regarding whether a transaction could be deemed a simple case, and on other issues related to the simplified filing procedures, in order to expedite a simplified filing. This is not mandatory, and the parties have discretion as to whether or not to consult with the Anti-monopoly Bureau.

Notably, a simple case may lose that status if: (i) the notifying party conceals important information or provides false or misleading materials; (ii) a third party claims that the concentration has, or may have, the effect of restricting or eliminating competition, and the party can provide relevant evidence; or (iii) MOFCOM discovers material changes to the transaction or the competition status in the relevant market. That is to say, transaction parties that elect to pursue the simplified procedure may run the risk that MOFCOM rejects their simple case application, or later revokes their simple-case qualification decision.  Under such circumstances, the transaction’s parties will have to re-file their application as a normal case, and start the longer standard filing procedures, which can include a 30-day Phase 1 preliminary review; a 90-day Phase 2 further review; and 60-day Phase 3 extended review, if MOFCOM thinks necessary; or 180 days total.

Benefits of the Simplified Application Process
The Opinions and the Forms allow the parties to provide fewer documents and less burdensome information in comparison with normal cases.  The following documents and information, for instance, are not required in simple cases: notarized documents submitted in the past three years, business licenses and approval certificates of Chinese affiliates, the names and contact information for major suppliers and customers, detailed descriptions of the supply and demand structure of the market, the transaction’s expected efficiencies, an analysis of entry barriers and entry events, cooperation agreements relating to the relevant markets, and the parties’ scale and competition in other markets.

Further, the Opinions introduce a public announcement mechanism, whereby MOFCOM publishes details [4] of a simple case, after they confirm that the application’s documents are in order, and invites all interested parties to comment within a 10-day period.  It is worth noting the Opinions do not note how quickly MOFCOM issues an approval after the public announcement period; however, the simplified cases published on MOFCOM’s official website are good examples of how much time is saved in reality.

MOFCOM has implemented the Interim Provisions and relevant regulations to simplify the approval procedures relating to qualified cases after the adoption of the simplified procedure. The first public notice, published on May 22, 2014, [5] shows that a leading motor car company sought to acquire another motor company’s 50% stake of a jointly owned offshore power systems company and filed the acquisition as a simple case with MOFCOM. The public announcement expired on May 31, 2014, and on June 9, 2014, MOFCOM granted unconditional approval for the acquisition [6], completing its review in only nine days after public announcement. By the end of 2014, MOFCOM had approved 67 AML simplified premerger filing cases, with an average approval period of 18 days. The quickest approval came in the case filed by a leading aviation company and SIA Engineering Company to form a fleet-maintenance service joint venture located in Singapore. The parties obtained unconditional approval within five days following the public announcement procedure [7]. In another case, it took 82 days for the approval for an acquisition of a Shenzhen telecommunication company by Fujian Furi Electronics Co., Ltd., the longest review time so far [8]. Again, it is noteworthy that all the abovementioned approval time periods are calculated starting from the completion date of the public announcement procedure, but the time spent in preparation, submission and the public announcement are not included. The approval results demonstrate that, despite the varied review times, the simplified procedures have shortened the process when compared to normal cases’ 180 days.

Conclusion and Recommendation
The Interim Provisions and Opinions, as well as the implementation practices, all represent one positive improvement in China’s AML enforcement. While there are still some uncertainties in the exceptions to the simplified premerger filing procedures, the documentation requirements are lighter and the timing for approval is shorter than in normal cases. If a transaction’s parties plan to file a simple case with MOFCOM, to mitigate uncertainties and facilitate approval, it would be advisable that they use the consultation procedure before making an official application.  

Notes:
[1] Article 3 of the Provisions of the State Council on the Standards for Declaring Concentration of Business Operators (国务院关于经营者集中申报标准的规定) issued by the State Council on August 3, 2008, in effect on the same date.

[2] Article 2 of the Interim Provisions.

[3] Article 3 of the Interim Provisions.

[4] Details of public notices regarding simple cases application are available at the website of Anti-Monopoly Bureau of MOFCOM at: http://fldj.mofcom.gov.cn/article/jyzjzjyajgs/.

[5] See public announcement available at: http://fldj.mofcom.gov.cn/article/jyzjzjyajgs/201405/20140500597172.shtml.

[6] See public announcement available at: http://fldj.mofcom.gov.cn/article/jyzjzjyajgs/201410/20141000759180.shtml; and Item 16 of list of cases approved without imposing restrictive conditions in the fourth quarter of 2014:  http://fldj.mofcom.gov.cn/article/zcfb/201501/20150100859173.shtml.

[7] See public notice available at: http://fldj.mofcom.gov.cn/article/jyzjzjyajgs/201408/20140800705650.shtml.

[8] See public announcement available at: http://fldj.mofcom.gov.cn/article/jyzjzjyajgs/201409/20140900730611.shtml; and Item 53 of list of cases approved without imposing restrictive conditions in the fourth quarter of 2014: http://fldj.mofcom.gov.cn/article/zcfb/201410/20141000755915.shtml.

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.

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