Merger Remedies with Chinese Characteristics

Posted by D. Daniel Sokol

Elizabeth Xiao-Ru Wang (CRAI), Joanna Tsai (U.S. FTC), & Sandra Chan (CRAI) explore Merger Remedies with Chinese Characteristics

ABSTRACT: Merger remedies imposed by China’s merger review agency, Ministry of Commerce (“MOFCOM”), have received considerable attention in the antitrust community. Understanding and being prepared for the unique aspects of merger remedies imposed by MOFCOM can be crucial to developing a successful global M&A strategy.

When a merger is determined to have anticompetitive effects, competition agencies may choose to approve the merger contingent upon conditions imposed on the transaction to preserve competition rather than blocking the transaction entirely. These conditions are one form of merger remedy. In general, merger remedies can be classified into two broad categories: structural remedies and behavioral remedies. Structural remedies are aimed at preserving competition by requiring the merged firm to divest certain assets, whether physical or intangible, to a new or existing competitor, to ensure that the competitor possesses both the “means and the incentive to effectively preserve competition.” Behavioral remedies, as the name suggests, regulate certain future behaviors of the merged firm. A hybrid approach consisting of a combination of structural and behavioral remedies may also be used to prevent harm to competition.

Since the enactment of China’s Anti-monopoly Law in August 2008, MOFCOM has reviewed more than 600 proposed mergers and acquisitions. MOFCOM approved 97 percent of the transactions without conditions, rejected one proposed merger, and approved 18 transactions with conditions. Of the 18 transactions MOFCOM approved with conditions, 11 (61 percent) involved behavioral remedies, four (22 percent) involved structural remedies, and three (17 percent) involved a combination of structural and behavioral remedies.

In this article, we analyze the remedies imposed by MOFCOM and discuss briefly the draft regulations that MOFCOM recently issued for public comment. The remainder of this article is organized as follows: Section II looks at MOFCOM’s use of structural remedies; Section III reviews its use of behavioral remedies; and Section IV examines hybrid remedies. Section V discusses MOFCOM’s relatively heavy reliance on behavioral remedies to date. Section VI concludes and provides thoughts on likely future trends.