Mitsubishi/Lucite deal approved “with conditions”

“There is no power under the Anti-monopoly Law to impose conditions where there are no anti-competitive concerns,” said Norton Rose competition lawyer Philip Monaghan. “This time round Mofcom has been careful to identify anti-competitive consequences flowing from the transaction which the conditions imposed are intended to rectify.”

In its official announcement, labelled as Public Notice No. 28 of 2009, Mofcom said the proposed concentration would have certain “negative impacts”, both horizontally and vertically, and would have the effect of eliminating or restricting competition. The Ministry's reasoning was based on Articles 28 and 29 of the PRC Anti-monopoly Law.

Within six months, Lucite International (China) Chemical Industry Co must sell half of its annual methyl methacrylate (MMA) monomer production capacity to “one or more unaffiliated third party purchasers”. The divestment is only for five years, however, which makes this requirement more like a licensing arrangement, said Nicholson.

If Lucite can not do this in time, Mofcom has the right to unwind the transaction and arrange the sale of the whole of Lucite China to a third party.

“This is obviously intended to put pressure on the parties to complete the divestment in time,” said Nicholson.

Interestingly, until the divestment has been completed Lucite China must be managed independently from the MMA monomer business operations of Mitsubishi Rayon in China; during this period, Mofcom says the two companies will continue to sell MMA “in competition with each other in China” and must not share China-related competitive information. There are penalties of up to Rmb500,000 (US$73,250) for violation of these rules.

Francois Renard, head of the Asian anti-trust group with Allen & Overy, labelled these remedies as “creative” and said they represented a positive development for companies.

As it did in the InBev case, Mofcom has also imposed post-deal acquisition restrictions on the companies.

“This type of prospective remedies is an interesting feature of the case law of Mofcom,” Renard said.

Although neither of the companies involved in the deal are based in China, both have operations there. Their sales in China and worldwide both exceed the notification limits prescribed by the Anti-monopoly Law, which gave Mofcom grounds to conduct a review of possible anti-monopoly issues.

“This is not surprising at this stage in the regime's development,” a Hong Kong-based anti-trust lawyer said in April. “It's a horizontal merger, which is the kind that's of the most interest.”

The two companies' businesses overlap in the chemical and other related sectors, which are acknowledged to be very complex. Mofcom in the past has shown that it is keen to get a better understanding of complex products and their commercial uses before it passes any judgement.