Asia Desk is a column providing commentary on regulatory and policy developments across the region. The opinions expressed here are those of the writers only, unless otherwise indicated.
- The belated move should shorten pre-acceptance periods in future
- Parties need to be careful about accuracy, consistency when submitting data
- ‘Simple case filing first’ strategy may not work in future
- Hiring of external economists consistent with SAMR’s database initiative
After more than 14 years of conducting antitrust reviews of business concentrations, China’s merger review regulator has decided to set up a merger review database – a move that should facilitate the review process in the longer term, but is likely to cause delays to reviews taking place as it is being constructed.
Although the State Administration for Market Regulation (SAMR) – and its predecessor, the Ministry of Commerce (MOFCOM) – have been reviewing the implication of mergers since August 2008, the agency has surprisingly never had a merger review database, two competition practitioners and a source familiar with SAMR have told Asia Desk. The reason why is not clear, but one of the practitioners speculated that it may be due to a lack of budget.
Either way, because information has not been systematically kept, lawyers have had to repeatedly submit company and industry data, the second practitioner said. And it has left a loophole for some deal parties to file false data in order to gain simple case acceptance, the second practitioner added.
It also means that SAMR case handlers have to conduct surveys among industry participants or do their own research to verify certain filing data and to figure out whether a case should be placed under the simplified or normal review procedure each time.
In October last year, however, SAMR’s internal arm, the Competition Policy and Big Data Center (CPBDC), won a government service procurement project from SAMR to establish a data base, according to a public government notice.
The directive for the CNY 2.583m (USD 375m) project is to collect evidence and – once the data base has been set up – to provide data to assist the agency’s merger review enforcement.
The list of services to be provided by the CPBDC for the project include verifying case-related information and data filed by deal parties; collecting and processing data on relevant market definitions and historical merger control cases; providing a search service; and collecting market competition data for foreign and domestic key industries, as per the tender completion announcement.
The CPBDC will also be tasked with updating in a timely manner the data on market competition and M&A development; analyzing and monitoring market competition in key industries, and alerting SAMR to competition disorder risks; tracking the latest international developments in merger control-related theoretical research, legislation and enforcement; offering electronic merger review system design and installation, as well as on-site technical support; undertaking hotline consulting services and responding to company inquiries; and assisting with archiving merger control case files.
SAMR has kicked off its collection of market data by sending rounds of questions to deal parties undergoing a merger review since late last year. The first practitioner told Asia Desk that SAMR is asking for a large amount of market competition data not only for complex deal reviews, but for simple case reviews as well.
Previously SAMR did not require much data on simple cases, particularly those where the deal parties don’t have business activities in China, but now it will question companies regarding segmented markets and ask for lots of data on simple cases, especially when the involved parties have horizontal or vertical relationships, the first practitioner said.
As deal parties are asked to submit much more information and data, both on the companies themselves and on the industries in which they operate, review timelines will invariably be impacted.
One possible example of that happening is Regal Rexnord Corporation’s [NYSE:RRX] proposed USD 5bn acquisition of Altra Industrial Motion Corp [NASDAQ:AIMC] in the power transmission component sector, which was accepted for review by SAMR as a simple case on 19 January. Based on the agency’s typical timeline for clearing simple cases, the deal could have been expected to be approved by now, but it was not mentioned in SAMR’s announcement last week of approved cases up until 26 February.
However, given the extra information that companies are being asked to provide right now, Asia Desk does not – at the moment – view the fact that this review has dragged on beyond the average length of SAMR’s simple case timeline (17.7 days in 2022) as an indication of regulatory concerns.
The first practitioner commented that SAMR may be asking for supplemental relevant market data since the deal involves multiple Chinese markets. Such back and forth engagement with SAMR could explain the prolonged deal review timeline, the practitioner said.
Meanwhile, SAMR has been hiring external economists to help analyze complex transactions since the second half of last year. The practice goes hand in hand with CPBDC’s merger review database initiative, as economists will need a large amount of company and industry-wide information, as well as market data, for their analyses.
Hence it is contributing to the multiple rounds of SAMR requests for market information and data, with some requests occurring even at a late stage of the reviews.
This news service has reported that an external economist was hired to provide an economic analysis report on Intel’s [NASDAQ:INTC] proposed USD 5.4bn acquisition of Israel-based Tower Semiconductor [NASDAQ:TSEM]. SAMR did this towards the end of its statutory 180-day review period for this deal, which started in mid-June last year and was due to expire in mid-December.
Shortly before the deadline, Intel received a list of questions from SAMR that it has been busy answering since then. Intel applied for a clock suspension in order to have enough time to provide supplementary responses to these inquiries – an application that SAMR granted.
Another precedent deal that saw SAMR mandate an external firm to conduct an economic analysis was DuPont de Nemours’ [NYSE:DD] failed acquisition of Rogers Corp [NYSE:ROG], which lapsed in early November last year after the bidder failed to get SAMR approval before the termination date. As a result of the economic analysis, the deal parties were required to provide supplemental information and data by answering several rounds of SAMR questions.
According to a third practitioner, SAMR has hired external economists to work on both complex international transactions, and domestic deals that SAMR assumes will give rise to competition concerns. The hiring of economists happens not only for complex semiconductor deals, the practitioner noted.
External economists can also assist new case handlers in getting familiar with merger reviews.
SAMR appears to have obtained a sufficient budget for merger control enforcement and has to spend it within a specific period, an in-house counsel told Asia Desk. The increased budget may be related to the fact that SAMR’s antitrust unit has recruited a lot of new officials as a result of the expansion of the former Antimonopoly Bureau, which had around 30-40 officials, into the current National Antimonopoly Administration (NAA) that has a headcount of more than 90. The NAA consists of three departments focusing on merger control, antitrust investigation and competition policy, respectively.
Data collected by this news service show that the average duration for SAMR’s simple case reviews in 2022 was 28.3% longer than in 2021, and the longest since 2017. Unconditionally cleared cases reviewed under the normal procedure took an average 151 days and a median 125 days to gain SAMR approval after the deal announcement, 7.1% slower than that in 2021.
Along with the possible prolonged review duration and more back and forth communications with SAMR during a review, deal parties may need to be more careful about the accuracy and consistency of the information and data they submit to SAMR going forward.
With a merger review database, it will be easier for SAMR to verify market data and identify deals that should not be placed under its simplified review procedure. Hence, the strategy to try for a simple case review first, which, as previously noted by Asia Desk, has become increasingly common among deal parties, may not work in the future.
At the same time, SAMR’s pre-acceptance period should become shorter once the agency has a reliable database that it can use to quickly verify filings.