On 25 March 2015, the European Commission – the antitrust authority at the European Union (EU) level – cleared under its simplified merger review procedure the creation of a joint venture between Wärtsilä Corporation of Finland and China Shipbuilding Power Engineering Institute, a subsidiary of the China State Shipbuilding Corporation ultimately controlled by the Chinese State. The joint venture will be based in Shanghai and will produce 4-stroke medium speed diesel engines based on Wärtsilä’s technology in China. The European Commission concluded that the establishment of the joint venture would not raise competition concerns, and issued clearance.
This is one of the first merger control decisions in 2015 by the European Commission concerning a transaction involving a Chinese company, but is likely not to be the last in view of the continuing flows of EU investment coming from China and the broad jurisdiction of the EU merger control rules. In the past four years, the European Commission has reviewed more than 20 different transactions involving Chinese companies.
EU Merger Control Rules And Best Practices
EU merger control is applicable to all transactions that can be qualified as a “concentration” – i.e., a transaction involving a change of control on a lasting basis – and that meet the turnover thresholds sets out in the EU Merger Regulation. Many transactions involving non-EU purchasers fall within these thresholds, and as result the European Commission routinely reviews these transactions. Minority acquisitions can also be caught by the EU Merger Regulation if they confer the possibility of exercising control (e.g., veto over budget and/or business plan).
The practical implications of EU merger control include:
- mandatory notification and suspension: a reportable merger must be notified to the European Commission and cannot be implemented without approval.
- waiting periods: the European Commission has 25 working days from notification either to clear the merger or to start Phase II proceedings (extended to 35 days under certain circumstances). If it starts Phase II proceedings, the European Commission has a further 90 working days to take a final decision, although in various circumstances this may be extended by up to a total of a further 35 working days.
- Form CO: the information required in the notification form (Form CO) is extensive. Parties need to start assembling it at an early stage. Failure to provide complete information may cause the European Commission to refuse or suspend the notification until such information is provided.
- substantive appraisal: a concentration’s compatibility with EU competition law is appraised according to whether or not it will “significantly impede effective competition” within the EU.
- conditions: clearance may be made conditional upon satisfaction of structural or, more exceptionally, behavioural commitments given by the parties.
- timing of notification: proposed concentrations may be notified at any time after a good faith intention to conclude a transaction can be evidenced.
- pre-notification: it will often be appropriate to make an early informal approach to the European Commission for confidential discussion of substantive or jurisdictional issues, and to engage in a process of pre-notification contacts. Time for this process should be factored into overall transaction timing. • sanctions: the European Commission may impose substantial fines and, in appropriate cases, order divestiture, where prior clearance is not obtained for a transaction.
- joint ventures: the EU Merger Regulation applies not only to traditional merger or take-over situations, but also to the creation of “full function”(autonomous) joint ventures.
- application to complex transactions: although the European Commission has issued guidance, the application of the EU Merger Regulation to transactions such as strategic alliances, crossshareholdings and joint ventures is sometimes unclear and requires careful consideration at the planning stage.
- internal documentation: certain kinds of internal documentation assessing a merger will have to be provided to the European Commission with thenotification – care is required in the creation of such documentation.
- allocation of resources: parties need to ensure that adequate time and resources are allocated to consideration of the applicability of the EU Merger Regulation, preparation of Form CO or other required forms and to dealing with follow-up action required under the procedures.
EU Merger Control Decisions Involving Chinese Companies Since 2011
2011
- Case COMP/M.6111 – Huaneng/OTPPB/Intergen (11.02.2011)
- Case COMP/M.6082 – China National Bluestar/Elchem (24.02.2011)
- Case COMP/M.6120 – APMT/PSA/COSCO/DPPC/DPCT (21.03.2011)
- Case COMP/M.6142 – AVIC/Pacific Century Motors (21.03.2011)
- Case COMP/M.6082 – China National Bluestar/Elkem (31.03.2011)
- Case COMP/M.6151 – Petrochina/Ineos/JV (13.05.2011)
- Case COMP/M.6113 – DSM/Sinochem/JV (19.05.2011)
- Case COMP/M.6141 – China National Agrochemical Corporation/Koor Industries/Makhteshim Agan Industries (03.10.2011)
- Case COMP/M.6235 – Honeywell/Sinochem/JV (02.12.2011)
2012
- Case COMP/M.6700 – Talisman/ Sinopec/JV CO (16.10.2012)
- Case COMP/M.6715 – CNOOC/Nexen (12.11.2012)
2013
- Case COMP/M.6807 – Mercuria Energy Asset Management/Sinomart KTS Development/Vesta Terminals (07.03.2013)
- Case COMP/M.6894 – Syral China Investment/Wilmar China New Investment/Liaoning Jinxin Biology and Chemistry (24.04.2013)
- Case COMP/M.6860 – Volvo/Dongfeng Motor Group Company/JV (08.05.2013)
- Case COMP/M.6973 – AXA PE/Fosun/Club Méditerranée (19.07.2013)
2014
- Case COMP/M.7244 – China Huaxin Post and Telecommunication Economy Developments Center/Alcatel-Lucent Enterprise Business (27.05.2014)
- Case COMP/M.7391 – Huayu Automotive Systems/KSPG/KS AluTech JV (06.09.2014)
- Case COMP/M.7405 – Yanfeng/JCI Interiors Business (22.11.2014)
- Case COMP/M.7430 – Fosun/Club Méditerranée (26.11.2014)
2015
- Case COMP/M.7504 – Carlyle/CITIC/Asiasat (17.03.2015)
- Case COMP/M.7501 – China Shipbuilding Power Engineering Institute/Wärtsilä Technology/CSSC Wärtsilä Engine (30.03.2015)
Transactions Involving Chinese State-Owned Enterprises
There have been a number of recent European Commission merger control decisions involving Chinese State-owned enterprises (SOEs). A key issue for these transactions is whether the relevant SOE involved is an independent economic entity, or whether it belongs to a wider group including other businesses over which the Chinese State enjoys decisive influence. This assessment is relevant both in terms of jurisdiction (how to calculate the turnover attributable to the relevant SOE and consider whether the turnover thresholds of the EU Merger Regulation are met), and in terms of the substantive issues raised by the transaction. Careful consideration needs to be given to such issues.
Non-Discriminatory Application Of EU Merger Control Rules
The European Commission has actively reassured Chinese investors in the past that it applies the EU merger control rules in a non-discriminatory manner. The former EU Competition Commissioner, Joaquin Almunia, stated specifically in a speech in 2011 that acquisitions involving Chinese SOEs would be dealt with in a non-discriminatory manner. He stated that “in the cases that we have examined [involving Chinese SOEs], we have used the same criteria we adopt to assess mergers involving companies controlled by the [EU] Member States.[…] I remain firmly convinced that EU merger control must remain anchored to its own rules and purposes at all times, irrespective of the nationality of the companies concerned.” More broadly, the recently appointed EU Competition Commissioner, Margrethe Vestager, has been quick to speak out against economic protectionism by stating publicly her desire to “resist any kind of politicizing of cases” and to “keep protectionism at bay.” During her confirmation hearing before the European Parliament in October 2014, she rejected suggestions that competition laws should be relaxed in order to create European champions.
For further information, please contact:
Adrian Emch, Partner, Hogan Lovells
adrian.emch@hoganlovells.com
Andrew McGinty, Partner, Hogan Lovells
andrew.mcginty@hoganlovells.com
Liang Xu, Partner, Hogan Lovells
liang.xu@hoganlovells.com
