China Clarifies Merger Control Rules
China’s Legislative Affairs Office of the State Council recently clarified certain key provisions relating to merger control in the Anti-Monopoly Law, which will come into force on August 1, 2008. One of the stranger pronouncements is that “being the largest shareholder” now qualifies as an “acquisition of control” and thus as a concentration. That makes no sense. There’s no connection between “being the largest shareholder” and a change in control. A pension fund holding 5% of a public company may well be its largest shareholder, but that doesn’t mean that it exercises any competitively relevant measure of control. Moreover, I can find myself in the position of being the largest shareholder just by virtue of the fact that someone else sold off their holdings. The public comment period expires on April 12, 2008, and I’m sure that this “clarification” will receive its fair share of hate mail attention.
Of the many comments on the Chinese draft regulations, here are two that I found particularly noteworthy/peculiar:
Lester Ross, a partner in charge of the Beijing office of law firm WilmerHale, agreed it was unwise to use annual sales as a threshold. He said antitrust laws in most key jurisdictions focused on the size of the deal rather than on sales. “Sales have nothing to do with [whether there is a] monopoly,” Mr Ross said. “The rules should focus on the size of the transaction.”It seems to me that the US is pretty much the only key jurisdiction that does not focus on revenues. In fact, staggered combined revenue tests are by far the most common and sensible way to design notification thresholds. The size of a transaction tells us nothing about the competitive impact. Combined sales, in contrast, are a pretty reasonable proxy. The same article offers further surprising insights:
Wang Xiaojun, a principal of law firm XJ Wang, said the threshold should focus more on market share rather than revenue.Market share thresholds are even worse than size of transaction thresholds. The latter are somewhat pointless but at least they are easy to apply. The former, in contrast, are a complete pain, which is why the ICN has consistently counseled to abolish them.
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