Alert

Who does this affect?

Any business contemplating a merger or acquisition with another business that has operations in China.

What do you need to do?

Consider whether Chinese authorities must be notified of the merger or acquisition. If so, take account of the time required to obtain clearance from Chinese authorities when planning the merger or acquisition.

Authors
Dave Poddar  
Partner

Jonathan Deves  
Solicitor

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John Shi  (史衛)
Partner
T +86 10 5927 2168

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Hong Kong
Nicola Wakefield Evans
(韋雅凡)

Beijing
John Shi  (史衛)

Sydney
Dave Poddar  

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In preparation for its first Anti-Monopoly Law (AML), which will take effect on 1 August of this year, the State Council of the People’s Republic of China has released draft Implementing Regulations for public consultations.

Published on 27 March 2008, these regulations provide guidance as to how the merger control regime will operate, specifying:

• what ‘concentration of undertakings’ are regulated under the AML, and
• what pre-merger notification thresholds apply to those concentrations.

‘Acquisition of Control’

Under the AML, a ‘concentration of undertakings’ can arise through:

• a) a merger among undertakings
• b) an undertaking assuming control of another, or
• c) an undertaking acquiring the ability to impose decisive influence on another.

The regulations clarify that an ‘acquisition of control’ under (b) includes:

• acquiring more than 50 per cent of the voting shares or assets of another undertaking
• becoming the largest holder of voting shares or assets of another undertaking
• acquiring the ability to direct the majority of the voting rights in another undertaking, or
• acquiring the ability to decide the appointment of more than half of the members of the board of another undertaking.

Pre-Merger Notification Thresholds

The AML Enforcement Authority must be notified of a concentration prior to implementation where:

• The total worldwide turnover of all undertakings in the previous year exceeded RMB 9 billion (approximately A$ 1.4 billion/€ 814.6 million/US$1.3 billion ) and the PRC turnover of each of at least two undertakings exceeded RMB 300 million (approximately A$46.9 million/€27.2 million/US$42.8 million) - (global merger between undertakings with significant PRC presence - turnover threshold).
• The total PRC turnover of all undertakings in the previous year exceeded RMB 1.7 billion (approximately A$265.6 million/€154 million/US$242.5 million) and the PRC turnover of each of at least two undertakings exceeded RMB 300 million (approximately A$46.9 million/€27.2 million/US$42.8 million) - (merger between operations in PRC - turnover threshold).
• The transaction will result in the parties holding a relevant PRC market share greater than 25 per cent - (merger between undertakings in PRC - market share threshold).

The notification thresholds may prove problematic for multinational companies with PRC operations that have multiple investments in the PRC with a significant combined turnover. Further, the AML Enforcement Authority has residual discretion to require notification if it believes the transaction will be likely to adversely affect competition, which may undermine certainty.

Conclusion

The Implementing Regulations mark the beginning of a series of guidelines in the period leading up to the AML coming into force. While the regulations offer welcome clarification regarding the impending changes to merger control in the PRC, they also raise potential concerns for international companies with a presence in China as to the likely heavy filing burdens. The State Council has sought comments on the draft Implementing Regulations by 12 April 2008.