Ministry of Commerce approves M&A share swaps

From September 8 2006, share swaps will be allowed instead of cash payment when foreign companies merge with or acquire PRC companies, according to the Provisions for the Acquisition of Domestic Enterprises by Foreign Investors(关于外国投资者并购境内企业的规定), jointly issued by the Ministry of Commerce (MOFCOM), the China Securities Regulatory Commission and four other government agencies.

The new regulations provide procedures on share swaps and detail how foreign companies can pay in the form of stock, cash or a combination of both when merging with or purchasing a domestic company. Wang Zhile, director of the Research Centre on Transnational Corporations affiliated to MOFCOM, says the regulations are in line with internationally-accepted practices and clarifies many points on mergers involving foreign-invested companies in China.

Also addressed in the provisions is the issue of monopolistic practices, which specifies which mergers require approval from government agencies. For example, companies must get approval for a potential merger when the foreign investor has a sales volume of Rmb1.5 billion (US$188 million) or more in the Chinese market. A foreign investment that alters the control of a prominent Chinese brand or a firm with more than 2,000 staff would also require approval.