MOFCOM fast-tracks anti-monopoly reviews
July 12, 2012 | BY
clpstaff &clp articles &Classifying M&A transactions on the basis of market share could streamline anti-monopoly reviews
The authority has yet to decide on the threshold level of market share, but Shang Ming, director of MOFCOM's Anti-monopoly Bureau, said that it would not be very high, according to a report by China Daily.
Henry Chen of MWE China Law Offices said: “Whether an application can take advantage of fast-track procedures all depends on the accurate determination of relevant markets.” Chen estimated that more than half of the transactions are likely to be eligible for fast-track procedures.
However, the threshold for qualifying mergers is still considered too restrictive based on the Herfindahl-Hirschman Index (HHI), a commonly used calculation to measure business concentration, according to Stephen Harris of Baker & McKenzie, who was quoted in Law360. Although the fast-track process is similar to the EU's simplified merger process, its proposed timeline is much longer than the EU's, which offers decisions within 25 days.
The draft proposal classifies cases into three categories: simple, normal and major, each of which are subject to varying timeframes. These classifications will be defined by the combined market share and HHI (see table 1).
| Table 1: Classification categories | |||
| Categories | Simple cases | Normal cases | Major cases |
| Timeframe | Decision within 30 days | Decision within 30 days (i.e. Phase I) or within 75 days (i.e. first half of the Phase II 90-day period) * | Decision within 120 days (i.e. Phase II) or within 180 days (i.e. Phase III) * |
| Horizontal concentration | The combined market share is less than 10%; or the HHI after concentration is less than 1000; or | The combined market share is more than or equal to 10% but less than 20%; or the HHI after concentration is less than 1500; or | The combined market share is more than or equal to 20%; or the HHI after concentration is more than or equal to 1500; |
| Vertical or mixed concentration | The relevant market share is less than 20%. | The relevant market share is more than or equal to 20% but less than 30% | The relevant market share is more than or equal to 30%; |
| *After MOFCOM formally accepts the merger application | |||
The size of the deal, industry sectors and categorisation of markets are all relevant factors. For example, to define product market in the acquisition of a beer manufacturer, the relevant market would become larger if taking into account additional beverage products such as fruit juice. Likewise, it would become smaller if only limited to alcoholic drinks. There is also a geographical market, which varies according to the scope and location of the market.
“It is like a tagging war. The premise is that you have to define accurately what constitutes relevant market. The authorities would then decide whether your case could be assessed under the fast track process,” said Shanghai-based Chen.
“More haste, less speed,” he added. “If the determination is doubted, the review process could take even longer than the normal process.”
Harris, in the same report on Law360, said that combined market share exceeding 20% is unlikely to present competitive concerns, but many of these cases would be categorised into major cases.
Consultant Gerry O'Brien of Mayer Brown JSM believed that many transactions were normally between competitors in one or more markets, and it would be rare for companies to only have a combined market share of under 10% in a relevant market.
In addition, when the HHI scores trigger a major case review at 1,500, it is often taken as an indication of a moderately concentrated market. Reviews will still be subject to the pre-merger notification procedure. For example, if pre-merger notification takes 30 days, the proposal would result in a 60-day review (30 days for pre-notification and 30 days for review).
MOFCOM published its revised application form for anti-monopoly review on June 6. Market observers view it as a positive sign that the authority is cognisant that improvements need to be made.
By Janice Qu
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