MOFCOM's Maersk block reveals the rules of the game

The Ministry of Commerce (MOFCOM)'s decision to block the P3 alliance sparked global interest, especially as EU and US competition authorities had already approved the deal. But the ruling just underlines policy consistency and shows that PRC antitrust approval will continue to be a hurdle for M&A.

“MOFCOM's rationale for blocking this deal is aligned with all its current practices,” said François Renard of Allen & Overy. “The ministry has been justifying its position increasingly clearly since its prohibition of the Coca-Cola-Huiyuan deal in 2009,” he added.

The marine container companies Maersk Line, Mediterranean Shipping Company and CMA CGM of the P3 alliance withdrew their application on June 17 as they considered the remedies MOFCOM had imposed too intrusive.

For deals involving multijurisdictional clearances, PRC approval is almost always granted last. In most cases, parties wait over a year to first hear back from MOFCOM.

While MOFCOM has been relatively open in its negotiations, its remedies have become increasingly invasive, especially over the last three years. A number of companies have chosen to scrap their deals completely rather than abiding by directives that they believe are disproportionate to what they want to achieve.

“The only surprise was that MOFCOM blocked another transaction, because based on our experience, it generally prefers not to,” said Janet Hui of Jun He. She agreed that the reasons MOFCOM provided were consistent with its practices, but said she had not expected the move because no deals have been blocked since Coca-Cola-Huiyuan.

“If, by the end of Phase 3, when the parties were informed of the remedies, they were willing to refile and MOFCOM blocked the decision afterwards, that would have been a surprise to me,” she said. Instead, the parties were reluctant to refile and arranged another form of cooperation that will not trigger filing.

Plan B

Maersk and MSC formed a new alliance (2M) on July 10 with a lower combined market share and scale of cooperation, structured to underpass MOFCOM's reporting threshold. The two companies have also abandoned the idea of establishing a jointly-owned independent network centre similar to the one in the P3 proposal, and instead have chosen to set up a more traditional coordination committee.

Although alliances such as P3 may threaten domestic industry, Hui said that MOFCOM will have to leave 2M alone if turns out to be below the threshold. She has never heard of the ministry involving itself in transactions that fall beyond its jurisdiction: “The threshold in China is already seen by MNCs as too low, and MOFCOM will not intervene if no filing is required.”

However, arguments have surfaced over the deviation of MOFCOM's decisions from the original purpose of protecting competition and consumers to shielding state-owned competitors, and the ministry is unlikely to soften its stance. The 2M companies will need to be careful because the new alliance may attract MOFCOM's attention – and remedies – as well.

Still vague

“The problem is that China's scope of merger control has remained and continues to remain vague,” said Renard. “With a transaction of this size, the parties may be advised to get legal certainty and make sure it will not risk any legal challenges by MOFCOM later on.”

While experts can't pin down any motives by MOFCOM to lower filing requirements, some developments have been made in terms of simplifying and expediting processes. PRC antitrust approval is notorious for its lengthy procedure and this has cost Chinese companies opportunities abroad. Overseas sellers do not wait on them since they want their deals executed as quickly as possible with the lowest degree of complexity. This has led Chinese companies to bid the highest prices and pay premiums for their investments.

The Tentative Provisions on the Criteria Applicable to Simple Cases of Concentrations of Business Operators (关于经营者集中简易案件适用标准的暂行规定) promulgated on February 11 have introduced a streamlined procedure for simple cases. “This has been highly encouraging,” said Hui. “We have handled three of the eight simple cases published on MOFCOM's website and each took eight to nine weeks from the day of submission to clearance,” she added.

The Guiding Opinion on Reporting of Concentrations of Business Operators (关于经营者集中申报的指导意见), published on June 6 has also helped clarify merger control notification rules by elaborating on the definition of “control” and on pre-notification consultation meetings. But the guidelines are short on detail when compared with those of the EU or the US.

“This is helpful to external counsel, but not so much to companies because what determines control is still widely open to interpretation,” said Hui.


By Katherine Jo