In the news: MOFCOM blocks Maersk merger, pharma execs leave China, officials resign from company boards and PetroChina cuts staff in Iraq

MOFCOM blocks Maersk merger

The MOFCOM antitrust bureau published its decision on June 17 to block the alliance between container shipping companies Maersk Line, Mediterranean Shipping Company and CMA CGM. This rejection marks MOFCOM's second prohibition decision after the Coca-Cola-Huiyuan case in 2009. The proposed alliance allows the three companies to share vessels and enter into cooperative working arrangements with each other for a minimum of 10 years. It has received antitrust approval in the EU and US, though reporting requirements were imposed. Since the alliance is not a merger, it was doubtful at the start whether it needed to be submitted to merger review for clearance or whether the parties should consult the NDRC for approval. But MOFCOM views the alliance more like a JV than a simple cooperation agreement.

Source:
The Wall Street Journal

MOFCOM confirmed its ruling stating that the alliance would create a network centre for joint coordination and management, which would make many important operational decisions, whereas traditional shipping alliance members make such decisions individually. It also cited as competition concerns the high market share of the parties (20.6%, 15.2%, 10.9% individually and 46.7% combined) on the Asia-Europe route, high market concentration, increasingly difficult market entry and undermined post-transaction negotiation powers of shippers and ports. This decision undoubtedly changes the consolidation path of the shipping industry and puts other shipping alliances on the alert. Companies in transport and other industries are advised to review their existing and prospective alliances and cooperation agreements to ensure no antitrust laws are violated. The extent to which this decision was influenced by lobbying from domestic shipping companies is also a concern.

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Scared pharma execs consider leaving China

The crackdown on corruption in the pharmaceutical sector has frightened foreign executives, with many asking their lawyers if they should leave the country for six months or even permanently. The Chinese police recently shocked the foreign business community when it filed corruption charges against former GSK head Mark Reilly, who has been barred from leaving China and could face decades in prison. Many pharmaceutical company executives have been asking their legal counsel about personal liabilities and insurance, what will happen to their families and how the company will provide protection for them. Some managers are seeking advice on leaving China to avoid future probes while some are actively pursuing career options outside the country. Moving abroad, the executives would avoid being arrested if there were any formal investigation into their firms.

Source:
Reuters

All big foreign drug makers are under immense scrutiny. Last year authorities visited Swiss Novartis, British AstraZeneca, French Sanofi, American Eli Lilly, German Bayer and Danish Novo Nordisk. Recently, the SAIC in Hangzhou visited Swiss drugmaker Roche Holding. All companies said they were cooperating with the authorities. A leaked memo from the Hangzhou Health Ministry named Eli Lilly, Novo Nordisk and AstraZeneca as examples of drugmakers suspected of receiving kickbacks. Novo Nordisk, Eli Lilly and Roche have also changed their China heads in the past year, and Johnson & Johnson appointed a China chairman in a newly created role in August.

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Why officials are resigning from company boards

While in theory a company's independent directors serve to check power abuse and protect shareholders, in practice in China they are often seen as a vehicle for corruption. It is common for companies to stack their boards with government officials who receive compensation for the post. China has been cracking down on this phenomenon, as the CPC issued a circular last October banning officials and professors from holding second jobs. Xinhua reported that more than 200 listed companies have reported independent director resignations. In a survey of 5,760 independent directors at Shenzhen and Shanghai-listed companies conducted last year by China Youth Daily, 45% had government backgrounds.

Source:
The Wall Street Jounrnal: China Realtime

The party declared that it was important for officials to not convert their public power into private power and that official resignations from company boards would be a way to purify the party. The move comes as Xi pushes a broader anti-corruption drive aimed at changing the perception that the country's economic system is rigged (decades of economic growth has disproportionately benefited companies and individuals with political connections), particularly as growth has begun to slow.

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PetroChina cuts Iraq staffing, operations unchanged

The largest investor in Iraq's oil sector, PetroChina, is pulling some non-essential staff out of the Middle East nation or to safer zones in the country as militant Islamists threaten the unity of the Organisation of the Petroleum Exporting Countries' (OPEC) second largest producer. The move, however, does not affect PetroChina's production. China's energy SOEs including Sinopec and CNOOC collectively hold over a fifth of Iraq's oil projects. PetroChina's fields are all in the south, which has not been affected yet. The southern regions that produce 90% of the country's oil are said by the Iraqi officials to be safe from the Islamic State of Iraq and the Levant, which has seized much of the north.

Source:
Reuters

Some oil firms such as BP and Exxon were pulling foreign staff from Iraq. Japan's Japex has removed staff from southern Iraq as a precaution and Malaysia's Petronas has evacuated 28 of its 166 Iraq employees to Dubai. PetroChina partners with BP at Rumaila, the country's largest producer, operating the Halfaya and al-Ahdab fields. It was the first foreign firm to sign an oil service deal in Iraq after US forces overthrew Saddam Hussein and also agreed to acquire an oilfield from Exxon Mobil last August. Companies are hoping the situation does not develop into a large-scale evacuation like Libya.

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