According to the provisions of Article 11 of the Measures for the Administration of Major Asset Restructuring of Listed Companies (2016 Revision), a listco implementing major asset restructuring shall fully explain and disclose that it “conforms to national industrial policies and the provisions of laws and administrative regulations related to environmental protection, land management, anti-monopoly and other matters”. The mergers, acquisitions and reorganizations of listcos shall comply with the provisions of relevant laws and administrative regulations of anti-monopoly. Based on current laws and regulations of China, this article sorts out relevant legal requirements of anti-monopoly applied in the process of mergers, acquisitions and reorganizations of listcos.
The Anti-Monopoly Law deals with three kinds of monopolistic behaviour, namely monopoly agreements, abuse of market dominance and concentration of undertakings. Article 2 of the measures defines “major asset restructuring” as “an asset-trading activity of a listed company and its held or controlled company other than in the ordinary course of business, such as purchase, sale or other disposal of assets, which reaches the specified proportion and causes material changes in the main business, assets, and revenue of the listed company”.
It is not difficult to see from the aforementioned provisions that concentration of undertakings is one of the implementation methods of major asset restructuring of listcos, which means two or more independent entities aggregate and enhance market influence through equity acquisition (to obtain control power).
The essence of concentration of undertakings is to aggregate the market control power of different undertakings. According to the spirit of anti-monopoly laws and regulations, it can be seen that the concentration of undertakings that has or may have the effect of eliminating or restricting competition is the monopolistic behaviour provided by anti-monopoly laws and regulations. In this regard, China established notification standards for concentration of undertakings. The concentration of undertakings meeting such standards needs to be notified to the anti-monopoly law enforcement agency of the State Council in advance. Otherwise, the concentration of undertakings is prohibited. Such an approach is also reflected in relevant rules of mergers, acquisitions, and reorganizations of listcos.
The Working Plan for the Parallel Review and Approval of Administrative Licenses for Mergers, Acquisitions and Reorganizations of Listed Companies clarifies that review of concentration of undertakings is not a precondition for review and approval of administrative licences for major asset restructuring of listcos, but is parallel review and approval. The Standards for the Contents and Formats of Information Disclosure by Companies Offering Securities to the Public No 26 – Major Asset Restructuring of Listed Companies (2017 Revision) also clearly provides that “in the case of parallel review and approval, it shall be explicit that the proposed restructuring plan shall not be implemented before the approval is obtained” in “decision-making procedures and review and approval procedures performed and yet-to-be performed for the proposed restructuring” of article 11.
What Are the Anti-Monopoly Requirements in the Process of Mergers, Acquisitions and Reorganizations of Listed Companies?, a 2 August 2010 article from the China Securities Regulatory Commission also clarified that for domestic M&As, applicants of major asset restructuring of listcos need to explain if they meet the notification standards for concentration of undertakings. In addition, financial and legal consultants need to express professional opinions thereon. For M&As involving foreign funds, a review is also required if national security is involved.
From the links between the aforementioned laws, regulations and normative documents related to mergers, acquisitions and reorganizations of listcos and related Chinese anti-monopoly rules, it can be seen that review and approval of concentration of undertakings is the key concern.
NOTIFICATION AND APPROVAL
Notification standards for concentration of undertakings. Article 3 of the Provisions of the State Council on Thresholds for Prior Notification of Concentrations of Undertakings sets the following notification standards for concentration of undertakings in terms of turnover, meaning it is generally necessary to perform prior notification procedures with the Ministry of Commerce for the concentration of undertakings to meet such standards:
- The combined worldwide turnover of all the undertakings concerned in the preceding financial year is more than RMB10 billion (US$1.4 billion), and the nationwide turnover within China of each of at least two of the undertakings concerned in the preceding financial year is more than RMB400 million;
- The combined nationwide turnover within China of all the undertakings concerned in the preceding financial year is more than RMB2 billion, and the nationwide turnover within China of each of at least two of the undertakings concerned in the preceding financial year is more than RMB400 million.
Exceptions. If one of the undertakings participating in concentration holds more than 50% of the voting rights or assets of other parties, or more than 50% of the voting rights or assets of the undertakings participating in concentration are under the control of the same entity (non-participant), the notification may be waived.
Review time limit. Article 25 and Article 26 of the Anti-Monopoly Law provide that the time limit for the Anti-Monopoly Bureau of the Ministry of Commerce to review concentration of undertakings is: 30 days under normal circumstances; 90 days upon the decision to implement further review. If specific conditions are met, the review time limit may be extended for no more than 60 days. If the anti-monopoly law enforcement agency of the State Council decides not to implement further review or not to prohibit the concentration of undertakings, or fails to make a decision within the time limit, the concentration of undertakings can be implemented.
In addition, the Ministry of Commerce formulated the Interim Provisions on Standards Applicable to Simple Cases of Concentration of Undertakings, which clarifies the applicable standards for simple cases of concentration of undertakings.
Cao Yiran is a partner and Zhang Yu is a trainee at Grandway Law Offices