Mergers and Acquisitions: China's New Anti- Monopoly Law Edward Lehman Managing Director – Lehman,...
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Transcript of Mergers and Acquisitions: China's New Anti- Monopoly Law Edward Lehman Managing Director – Lehman,...
Mergers and Mergers and Acquisitions: Acquisitions:
China's New Anti-China's New Anti-Monopoly LawMonopoly Law
Edward LehmanEdward LehmanManaging Director – Lehman, Lee Managing Director – Lehman, Lee
& Xu& Xu
[email protected]@lehmanlaw.com
Gerson Lehrman Group Gerson Lehrman Group Education SeminarEducation Seminar
November 8, 2007November 8, 2007
Introduction to M & A in Introduction to M & A in ChinaChina
China one of the hottest markets for FDIChina one of the hottest markets for FDI Previous preferred entry through green Previous preferred entry through green
field investment, M & A increasingly field investment, M & A increasingly popularpopular
In 2006 (11 months):In 2006 (11 months):o Domestic M&A: US$56 billionDomestic M&A: US$56 billiono Foreign M&A: US$30 billionForeign M&A: US$30 billion
In first half of 2007:In first half of 2007:o M&A increase of 20%M&A increase of 20%
M & A Models M & A Models (simplified)(simplified)
Foreign Investor 2
SPV/Foreign Investor 1
Domestic Co. Domestic Co.
Offshore
Onshore
China offshore/onshore
Share Purchase/Subscription Agreement
SPV/Foreign Investor
WFOE
Share Purchase/Subscrip
tion Agreement
Share Purchase/Subscription Agreement
Anti-Monopoly Law - Anti-Monopoly Law - GeneralGeneral
Anti-Monopoly Law of the People’s Anti-Monopoly Law of the People’s Republic of China Republic of China o Promulgated: August 30, 2007Promulgated: August 30, 2007o Effective: August 1, 2008Effective: August 1, 2008
13 Years to Draft13 Years to Draft Previous laws which governed (non-Previous laws which governed (non-
comprehensive framework):comprehensive framework):o Unfair Competition Law (1993)Unfair Competition Law (1993)o Price Law (1997)Price Law (1997)o Provisions on the Acquisition of Domestic Provisions on the Acquisition of Domestic
Enterprises by Foreign Investors (2006)Enterprises by Foreign Investors (2006)
Anti-Monopoly Law – Anti-Monopoly Law – Purpose and ScopePurpose and Scope
Purpose: Purpose: o guarding against and curbing monopolistic conduct, guarding against and curbing monopolistic conduct,
protecting fair market competition, enhancing economic protecting fair market competition, enhancing economic efficiency, maintaining consumer interests and public efficiency, maintaining consumer interests and public interests, and promoting the healthy development of a interests, and promoting the healthy development of a socialist market economy. socialist market economy.
Scope: Scope: o Within China. Within China. o AND outside the territory of China AND outside the territory of China
where eliminates or restricts competition on the domestic where eliminates or restricts competition on the domestic market. market.
o Includes use and abuse of intellectual property rights.Includes use and abuse of intellectual property rights. Exception:Exception:
o concerted actions of concerted actions of agricultural producersagricultural producers and and rural rural economic organizationseconomic organizations in the economic activities such as in the economic activities such as production, processing, sales, transportation and storage of production, processing, sales, transportation and storage of agricultural products. agricultural products.
Anti-Monopoly Law - Anti-Monopoly Law - AdministrationAdministration
State Council to establish: State Council to establish: o Anti-monopoly Committee which is Anti-monopoly Committee which is
responsible for overall development of anti-responsible for overall development of anti-monopoly regulationsmonopoly regulations
o Anti-monopoly Enforcement Agency (AMEA)Anti-monopoly Enforcement Agency (AMEA)• Enforcement/operations authorityEnforcement/operations authority• May delegate authority to provincial, autonomous May delegate authority to provincial, autonomous
region, or municipality under central government region, or municipality under central government levellevel
• Has been suggested that the AMEA will be a Has been suggested that the AMEA will be a combined effort between NDRC (monopoly combined effort between NDRC (monopoly agreements/price fixing), SAIC (abuse of dominant agreements/price fixing), SAIC (abuse of dominant market position) and MOFCOM (merger review)market position) and MOFCOM (merger review)
Anti-Monopoly Law - Anti-Monopoly Law - DefinitionsDefinitions
Monopolistic conduct includes:Monopolistic conduct includes:1.1. Monopoly agreementsMonopoly agreements reached reached
between Business Operators;between Business Operators;
2.2. Abuse of dominant market statusAbuse of dominant market status by by Business Operators; andBusiness Operators; and
3.3. Concentration of Business OperatorsConcentration of Business Operators that may have the effect of eliminating that may have the effect of eliminating or restricting competition. or restricting competition.
Anti-Monopoly Law – Anti-Monopoly Law – Definitions (cont’d)Definitions (cont’d)
““Business Operator”Business Operator”o Natural person Natural person o Legal person, or Legal person, or o Any other organization Any other organization
that engages in the production or business of that engages in the production or business of commodities or provides services.commodities or provides services.
““Relevant market”Relevant market”o The commodity scope or territorial scope The commodity scope or territorial scope
within which the business operators compete within which the business operators compete against each other during a certain period of against each other during a certain period of time for specific commodities or services. time for specific commodities or services.
Anti-Monopoly Law – Anti-Monopoly Law – Monopoly AgreementMonopoly Agreement
Definition Definition o The term “monopoly agreements” as mentioned The term “monopoly agreements” as mentioned
in this Law refers to agreements, decisions or in this Law refers to agreements, decisions or other concerted behaviours that eliminate or other concerted behaviours that eliminate or restrict competition. restrict competition.
For example:For example:o Fixing or changing the price of commodities;Fixing or changing the price of commodities;o Restricting the production quantity or sales Restricting the production quantity or sales
volume of commodities;volume of commodities;o Dividing the sales market or the raw material Dividing the sales market or the raw material
procurement market;procurement market;o Restricting the purchase of new technology or Restricting the purchase of new technology or
new facilities or the development of new new facilities or the development of new technology or new products;technology or new products;
Anti-Monopoly Law – Abuse Anti-Monopoly Law – Abuse of Dominant Positionof Dominant Position
DefinitionDefinitiono The term “dominant market status” as mentioned in this Law The term “dominant market status” as mentioned in this Law
refers to a market status held by business operators that can refers to a market status held by business operators that can control the price or quantity of commodities or other trading control the price or quantity of commodities or other trading conditions in the relevant market or can block or affect the conditions in the relevant market or can block or affect the entry of other business operators into the relevant market. entry of other business operators into the relevant market.
For exampleFor exampleo Selling products at unfairly high prices or buying products at Selling products at unfairly high prices or buying products at
unfairly low pricesunfairly low priceso Selling products at prices below cost without any justifiable Selling products at prices below cost without any justifiable
causecauseo Refusing to trade with a trading party without any justifiable Refusing to trade with a trading party without any justifiable
causecauseo Restricting their trading party so that it may conduct deals Restricting their trading party so that it may conduct deals
exclusively with themselves or with the designated business exclusively with themselves or with the designated business operators without any justifiable causeoperators without any justifiable cause
Anti-Monopoly Law – Anti-Monopoly Law – ConcentrationConcentration
““Concentration of Business Operators” Concentration of Business Operators” refers to:refers to:
1.1. Merger of Business Operators;Merger of Business Operators;
2.2. Acquiring control over other Business Acquiring control over other Business Operators by acquiring equity or assets; orOperators by acquiring equity or assets; or
3.3. Business Operator acquires control over Business Operator acquires control over other Business Operator(s) or is able to other Business Operator(s) or is able to exert a decisive influence on other Business exert a decisive influence on other Business Operator(s) by contractual or any other Operator(s) by contractual or any other means. means.
Concentration - Concentration - Requirements for Requirements for
DeclarationDeclaration Prior declarationPrior declaration
o When threshold met, Business When threshold met, Business Operators must make prior Operators must make prior declaration to AMEAdeclaration to AMEA
o Threshold NOT yet determined Threshold NOT yet determined (to be (to be prescribed by the State Council)prescribed by the State Council)
Suggested to be based on:Suggested to be based on:o Sales turnoverSales turnovero Market shareMarket shareo Total assets Total assets
Concentration - Concentration - Requirements for Requirements for
Declaration (cont’d)Declaration (cont’d) Related Parties ExemptionRelated Parties Exemption
o Business Operators exempt from Business Operators exempt from declaration when:declaration when:
1.1. Among Business Operators involved, one Among Business Operators involved, one Business Operator owns 50% or more of Business Operator owns 50% or more of the voting shares or assets of every other the voting shares or assets of every other Business Operator; orBusiness Operator; or
2.2. A Business Operator not involved in the A Business Operator not involved in the concentration owns 50% or more of the concentration owns 50% or more of the voting shares or assets of every other voting shares or assets of every other Business Operator involvedBusiness Operator involved
Concentration - Declaration Concentration - Declaration DocumentsDocuments
1.1. A declaration paper which contains:A declaration paper which contains:1.1. names of the business operators names of the business operators 2.2. their domiciles, their domiciles, 3.3. business scopes, business scopes, 4.4. date on which concentration is to be implemented, and date on which concentration is to be implemented, and 5.5. other matters prescribed by AMEAother matters prescribed by AMEA
2.2. Explanations on the effects of the concentration Explanations on the effects of the concentration on the relevant market competition situationson the relevant market competition situations
3.3. The concentration agreementThe concentration agreement4.4. The financial and accounting reports for the The financial and accounting reports for the
previous fiscal year of the business operators previous fiscal year of the business operators involved in the concentration, as audited by an involved in the concentration, as audited by an accounting firmaccounting firm
5.5. Other documents and materials as required by Other documents and materials as required by AMEAAMEA
Concentration – Approval Concentration – Approval TimelinesTimelines
Concentration Declaration Documents to ALEA for Preliminary Investigation
Investigation Required
Decision
No Further Investigation
Required
30 days
90 days to 150 days (on extension)
Concentration – Question Concentration – Question and Factors Consideredand Factors Considered
Issue: Whether concentration ‘will or may Issue: Whether concentration ‘will or may eliminate or restrict market competition’eliminate or restrict market competition’
Factors:Factors:1.1. Relevant Business Operators’ Relevant Business Operators’ market sharemarket share in the in the
Relevant Market and their controlling power over that Relevant Market and their controlling power over that marketmarket
2.2. Degree of market concentrationDegree of market concentration in the Relevant Market in the Relevant Market3.3. Impact of the concentration on market accessImpact of the concentration on market access and and
technological progresstechnological progress4.4. ImpactImpact of concentration on of concentration on consumers consumers and and other other
Business OperatorsBusiness Operators5.5. ImpactImpact of concentration on of concentration on national economic national economic
developmentdevelopment6.6. Other factors that may affect market competition and Other factors that may affect market competition and
as determined by the AMEAas determined by the AMEA
Concentration - Concentration - DecisionsDecisions
Allow concentrationAllow concentration Prohibit concentrationProhibit concentration Allow concentration with conditionsAllow concentration with conditions All prohibition decisions will be publicized All prohibition decisions will be publicized
in a timely manner.in a timely manner. Regardless of concentration, if Business Regardless of concentration, if Business
Operators can prove either that: Operators can prove either that: o the favourable impact of concentration on the favourable impact of concentration on
competition obviously exceeds the adverse competition obviously exceeds the adverse impact, or impact, or
o the concentration is in harmony with public the concentration is in harmony with public interests interests
the concentration will be permitted.the concentration will be permitted.
Concentration - AppealConcentration - Appeal
If dissatisfied with the decision, a If dissatisfied with the decision, a Business Operator may: Business Operator may:
1.1. apply for an administrative apply for an administrative reconsiderationreconsideration
2.2. if dissatisfied with the reconsideration, if dissatisfied with the reconsideration, lodge an administrative lawsuit lodge an administrative lawsuit according to lawaccording to law
National SecurityNational Security
If foreign company merges with or If foreign company merges with or acquires domestic enterprise or by any acquires domestic enterprise or by any other means and national security is other means and national security is involvedinvolvedo Additional examination on national security Additional examination on national security
issues shall also be conducted according to issues shall also be conducted according to the relevant provisions of the State. the relevant provisions of the State.
o Previously included in M&A Provisions, Previously included in M&A Provisions, however, related to “national economic however, related to “national economic security”security”
Concentration – Legal Concentration – Legal LiabilitiesLiabilities
Concentration without approval:Concentration without approval:o AMEA shall orderAMEA shall order
• stop to concentration, stop to concentration, • disposal of shares or assets, disposal of shares or assets, • transfer of business or transfer of business or • adopt other necessary measures to restore adopt other necessary measures to restore
the market situation before the the market situation before the concentration within a time limit concentration within a time limit
o May be subject to a fine of less than May be subject to a fine of less than RMB 500,000RMB 500,000
Concentration – Some Concentration – Some Unresolved IssuesUnresolved Issues
1.1. Various definitions/requires further Various definitions/requires further regulations:regulations:
1.1. Triggering thresholds for DeclarationTriggering thresholds for Declaration2.2. ““national economic development”national economic development”3.3. ““national security” national security”
2.2. Objective and fair consideration of Objective and fair consideration of FactorsFactors
3.3. Coordination with M&A Provisions Coordination with M&A Provisions (2006) which require notification of (2006) which require notification of MOFCOM and SAIC (above certain MOFCOM and SAIC (above certain threshold)threshold)
Concentration – Some Concentration – Some Unresolved IssuesUnresolved Issues
4.4. Use of concentration review to Use of concentration review to protect national interestsprotect national interests
o Not likely because of several factors:Not likely because of several factors:• Length of time to draft law – careful Length of time to draft law – careful
consideration of international practiceconsideration of international practice• Length of time between promulgation and Length of time between promulgation and
effective date (11 months) allows for time effective date (11 months) allows for time to promulgate many necessary regulationsto promulgate many necessary regulations
• Includes foreign AND domestic companies Includes foreign AND domestic companies (in comparison to M & A Provisions)(in comparison to M & A Provisions)
• International attention/WTO pressureInternational attention/WTO pressure
Questions?Questions?
Edward LehmanLehman, Lee & Xu
Email: [email protected]
Phone: 86-10-8532-1919
Fax: 86-10-8532-1999