Mofcom gives conditional approval to GM/Delphi and Pfizer/Wyeth

Mofcom identified four areas of possible anticompetitive concern arising out of the merger after consulting with car makers and dealer representatives. These included worries that the merged entity would be able to undermine the competitiveness of local Chinese car manufacturers, and concerns that Delphi would pass sensitive customer information to GM.

After GM and Delphi offered to comply with behavioural conditions – described as “quite mild” by one lawyer – that specifically addressed each of Mofcom's concerns, the deal was approved. According to the Ministry's official report, published on its website on September 28 (105 days after the start of the review process), the main conditions are that:

n Delphi is to be non-discriminatory in its supply of parts to manufacturers, and will not impose unreasonable conditions;

n Delphi must not try to obtain confidential information about other domestic manufacturers, and must not disclose what it has to GM;

n Delphi must not increase switching costs for other manufacturers;

n GM is to continue to follow policies of multi-source supply and non-discrimination; and

n both companies must make regular reports to Mofcom on their compliance with the conditions, and will be punished for any non-compliance.

GM/Delphi was approved unconditionally in the US and EU.

“Mofcom's decision to impose conditions on this foreign-to-foreign deal demonstrates its willingness to intervene in cases that give rise to local concerns in China,” said Freshfields Bruckhaus Deringer partner Michael Han. “Companies engaging in international M&As should not underestimate the China merger control process particularly where there are local interests involved.”

In the Pfizer/Wyeth case, Mofcom reportedly accepted the transaction notification on June 15 and, after the initial 30-day review period, identified areas of concerns sufficient to justify opening a second review phase – these included worries about overlap in China between the merging companies. Shortly before the phase two period expired (and just before the long PRC mid-autumn national holidays), Mofcom gave conditional clearance. Pfizer agreed to divest its PRC swine mycoplasmal pneumonia vaccine business, including IP assets, to an approved third party. It must also give technical and supply support to the purchaser for up to three years, and Mofcom may appoint a trustee to sell off the business if a suitable buyer is not found within six months.

In its announcement, Mofcom said the two companies would have a combined market share of 49.4% after merging, significantly higher than Intervet (part of Akzo Noble) which holds an 18.35% share. Mofcom also used the internationally-recognised Herfindahl-Hirschmann Index (HHI) in its analysis. This is a measure of market concentration obtained by squaring the market share of each firm competing in the market and then adding up the resulting numbers. In a market consisting of a large number of firms of relatively equal size, the index will tend to zero. In the case of
Pfizer/Wyeth, the Ministry calculated an HHI of 2182 post-merger, an increase of 336 points, which indicate a highly-concentrated market.

“[It's] interesting to see a decision that is for once substantiated by clear economic evidence,” one competition specialist commented to CLP.

“These decisions clearly demonstrate Mofcom's appetite for intervention in cases that raise 'local issues' in China, be it from an antitrust angle or industrial policy perspective,” said Han.

More of these so-called local issues have been rising to the surface recently, as Chinese competitors and customers become more willing to voice their concerns, perhaps realising that Mofcom is more likely to take them into account in its reviews.

Mofcom's announcement of these decisions brings the total number of publicised decisions to five, and the number of conditional approvals to four. Although both decisions have been labelled as uncontroversial by most specialists, they do highlight Mofcom's increased confidence and willingness to listen to local companies.

One firm said in a recent bulletin that multinational companies should be “conscious of the fact that Mofcom appears to attach considerable weight to concerns that may be expressed by Chinese competitors”.

It also appears that the number of cases being processed by the regulator is increasing. This has led to some firms issuing further reminders to multinational clients as to the potential delays and other hurdles which could arise when attempting to consummate M&A deals.

Mofcom's official announcements are available online (in Chinese only). PT

Click here to read an exclusive interview with Mofcom's anti-monopoly section, in which the Ministry discusses the development of the Anti-monopoly Law and some of its recent merger-control decisions.