Allow enough time to prepare a pre-merger report
October 12, 2011 | BY
clpstaff &clp articles &New provisions provide competition notification guidance
Early preparation of a pre-merger notification report is a primary matter addressed by new measures to bring business concentration activities in line with the antitrust review.
The Ministry of Commerce (Mofcom) released new regulations on September 5 relating to the evaluation of the competitive impact of business concentration activities of mergers and acquisitions. The Tentative Provisions for the Assessment of the Competitive Effects of Concentrations of Business Operators (关于评估经营者集中竞争影响的暂行规定) (Evaluating Rules) were adopted to implement Article 27 of the PRC Anti-monopoly Law (中华人民共和国反垄断法) (the AML) and provide guidance for businesses on the notification of concentration.
Henry Chen, a Shanghai-based partner at MWE China Law Offices has seen important ramifications for companies contemplating transactions that might have a significant nexus with the Chinese marketplace.
According to Article 4 of the Evaluating Rules, if relevant business operators are not actual or potential competitors at the same level of trade in a market, review of the concentration will focus on whether the concentration would eliminate or restrict competition in upstream or downstream markets, or in a market that is related to the relevant market.
“There are many key planning considerations and the most important one is to prepare your notification as early as possible,” said Chen.
This is because an anti-monopoly submission requires substantive information and detailed business and market analyses in a narrative format. “These include details of the parties' market position, the competitive landscape and the rationale for the transaction and public-interest considerations,” said Chen. For complex cases, a pre-merger report could run over 300 pages.
According to Chen, Mofcom places great importance on market information resources and their reliability. “While statistical data from internal studies are useful, a well-balanced report should also include sufficient data from reliable external resources,” he noted. This is why the collection of market information takes longer in China than in other jurisdictions.
Additionally, Chen suggested a “buffer period” to be factored into the timeline for anti-monopoly clearance. He said that the first stage of a 30-day period review does not commence until Mofcom considers a report complete.
“Thus, the actual timing of anti-monopoly clearance depends on the nature of the additional information that might be required by Mofcom before it formally deems that report as complete, which can range from several weeks to one or two months,” he said.
“It is most likely that the Chinese government will go after the concerned concentrating parties – at least some of them if not all – 'killing chickens to warn monkeys'.”
Commentators also noted that companies may encounter difficulties in selling their equity interests or assets in a concentrated entity because potential purchasers may challenge the legality of the concerned concentration, and thus depress the purchasing price.
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