The first announced merger control decision under the Anti-monopoly Law

Background to the transaction

Under the AML and the Provisions on the Reporting Threshold for Concentrations of Business Operators (关于经营者集中申报标准的规定), the parties to a proposed transaction shall notify Mofcom in advance of the transaction (or the concentration of business operators) if any of the notification thresholds stated therein has been reached; the transaction must not be implemented without the required notification.

On July 13 2008, InBev announced that it proposed to purchase all shares of AB. A merger-control filing was submitted to the Anti-Monopoly Bureau on September 10, together with supplementary filings on October 17 and 23. On October 27, the Anti-Monopoly Bureau accepted the merger control filing application and started its review process.

The Bureau's decision

Upon review and investigation, the Anti-Monopoly Bureau decided that, since the acquisition of AB by InBev would not have the effect of eliminating and restricting competition in the geographic market, the product market and the competition structure of the Chinese beer market, it would not prohibit the transaction under Article 28 of the AML.

However, given that the InBev-AB transaction is a large-scale acquisition, the new company would be able to increase its market share more quickly after the InBev-AB transaction, and its competition strength would be enhanced. In order to reduce the possible negative influence on future competition in the Chinese beer market, the Anti-Monopoly Bureau decided to impose the following additional restrictive conditions on the review decision:

(i) AB shall not increase its present share proportion of 27% in Tsingtao Brewery;

(ii) InBev must inform Mofcom of any changes of InBev's controlling shareholders or controlling shareholders' shareholders;

(iii) InBev shall not increase its present share proportion of 28.56% in Zhujiang Brewery; and

(iv) InBev shall not seek to hold any shares of China Resources Snow Breweries or Beijing Yanjing Brewery.

If any one of the above undertakings is breached, InBev must submit an application to Mofcom in advance. No related action shall be taken by InBev without the approval of Mofcom.

Possible implications

Public announcement by Mofcom

Under Article 30 of the AML, the Anti-Monopoly Enforcement Agency under the State Council (the Anti-Monopoly Bureau of Mofcom) shall timely publicise a decision on prohibiting the concentration of business operators or a decision on imposing restrictive conditions to the concentration of business operators. Since Mofcom has indicated that it has made eight decisions on merger control filing since August 1 2008, but only one has been publicly announced, it seems that Mofcom will not announce any approved merger control filings unless it rejects or conditionally approves such a filing.

Shortened review period

Mofcom formally accepted the InBev-AB merger control filing on October 27 but a decision was announced on November 18 – well before the expiry of the 30-day waiting period. It appears that the 30-day review period for merger control filing may be shortened in special cases.

Extensive information and consultation may be required

In the InBev-AB transaction, InBev first submitted its merger control filing to Mofcom on September 10, but Mofcom did not accept such filing until supplementary information had been provided to it on October 17 and 23. Further, the decision reveals that Mofcom consulted different “interested parties”, including governmental agencies, beer trade associations, domestic beer and raw material producers and distributors, before it announced its decision. This indicates that Mofcom may require parties to provide rather extensive information and documents and conduct substantial consultations with relevant third parties before it makes a decision on merger control filing.

The way forward

The decision made by Mofcom on the merger control filing for the InBev-AB transaction is an important milestone after the effectiveness of the AML. But some questions remain unanswered:

(a) Among the four restrictive conditions, especially in condition (ii), Mofcom has required that “InBev must inform Mofcom of any changes on the InBev's controlling shareholders or controlling shareholders' shareholders”. It is interesting to see what action Mofcom will take if InBev breaches the conditions; and

(b) Mofcom has made its clearance decision to the InBev-AB transaction in less than 30 working days; however, it is yet to make clear under what circumstances Mofcom will grant its decision in less than 30 working days.