A WEEK after China’s two largest taxi-hailing firms announced plans for a US$35 billion merger, lawyers say China’s merger control watchdog is cracking down on companies that don’t seek approval for deals, and it wants greater powers to punish them.
Last Tuesday the Ministry of Commerce (MOFCOM) antimonopoly bureau took the unusual step of revealing that taxi operator Didi Chuxing had not yet sought clearance to buy rival Uber China’s assets but would need to if the deal met its thresholds — which was widely interpreted more as an order than a statement.
It is not yet clear if the deal breaches the MOFCOM’s thresholds or if a clearance application has been filed.
“We are in close communication with the authorities,” a Didi spokesman said.
Lawyers said companies sometimes fail to file due to ambiguity over how the revenue or control thresholds apply to certain structures, or because the deal is on the borderline.
There is debate over whether Didi should include driver payments in its revenue calculation, which could push the deal over MOFCOM’s thresholds.
Others, however, hope to dodge the MOFCOM review process, which has a reputation for being slow and opaque, fearing delays may kill the tie-up.
“Some players do not have the knowledge, but some companies deliberately avoid filing, including some State-owned enterprises, as it can be quite a lengthy and uncertain timetable,” said Jiang Liyong, partner at Gaopeng & Partners and a former MOFCOM legal official.
But the MOFCOM’s patience appears to be wearing thin.
Over the past 12 months, it has stepped up enforcement against such “gun-jumping,” naming, shaming and fining a total of 11 companies, including Microsoft, Canada’s Bombardier and Japan’s Hitachi, in relation to eight deals that were not filed.
Transactions must be notified to the MOFCOM before closing if the merging companies’ combined global turnover in the previous year exceeded 10 billion yuan (US$1.5 billion) or their combined China income exceeds 2 billion yuan.
In May, the MOFCOM said it fined Bombardier and China’s New United Group for deliberately failing to notify a 2015 joint venture because a delay might have prevented the new entity from participating in a railway project tender.
It was the second time the MOFCOM had fined Bombardier for gun-jumping.
Zhang Jianwei, president of Bombardier China, said the timing of the deals and the tender bidding process was complicated by the involvement of multiple regulators. He added that Bombardier cooperated fully with the MOFCOM and was satisfied with its decision.
Over the past 18 months, the MOFCOM has significantly improved its review process, with 75 percent of deals now going through a simplified procedure that takes on average 29 days, according to data compiled by Norton Rose Fulbright.
Antitrust lawyers say this is encouraging more would-be gun-jumpers to file and has also freed up watchdog staff for investigative work.
“The new procedure has allowed MOFCOM officials to focus on more substantive matters, including enforcement against noncompliance,” said Marc Waha, head of the Asia antitrust practice at Norton Rose Fulbright.
The MOFCOM can force gun-jumpers to dispose of assets or unwind transactions but has so far been reluctant to use these measures if the transaction does not ultimately pose competition concerns.
The regulator has preferred instead to issue public financial penalties. It is not the fine itself — capped at just 500,000 yuan — that is causing companies to think twice before skipping a filing, but the reputational damage.
“Because the statutory maximum fine is very low, the MOFCOM decided to start ‘naming and shaming’ noncompliant parties in late 2014,” said Waha. “MOFCOM officials remain frustrated, however, with some parties thinking the low sanctions are worth taking the risk, and have publicly advocated for an increase in these sanctions when China’s Antimonopoly Law is revised.”
China has scheduled a review of the law but it is not clear how long this might take or what any new maximum fine might be.
(SD-Agencies)
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