Bud Deal Shows Chinese Merger Watchdog Can't Be Taken Lightly

Everything You Need to Know About SABMiller in 60 Seconds
  • China's MOFCOM is on radar of all multinationals doing M&A
  • But authority faces criticism over delays, unpredictability

In the world’s most populous country, an office of about 30 bureaucrats is in charge of reviewing hundreds of mergers a year, including Anheuser-Busch InBev NV’s plans for the biggest ever consumer deal.

Aside from the brewing giant’s $106 billion bid for SABMiller, CEOs in industries from shipping to mobile phones have also been forced to win approval from China’s merger-control authority as the nation’s transformation to economic and political superpower takes hold.

“Now China is on everyone’s radar,” said Natalie Yeung, a lawyer at Slaughter and May in Hong Kong. But given merger control has only been in place in China for seven years, she said there’s still a “steep learning curve” for the country’s regulator, often the slowest to review global deals and prone to industrial policy considerations.

The creation of Anheuser-Busch InBev made antitrust history in 2008. It was the first high-profile case to test new powers of China’s merger watchdog in the Ministry of Commerce, or MOFCOM.

Since then, the 2009 rejection of Coca-Cola Co.’s $2.3 billion bid for China Huiyuan Juice Group Ltd. placed MOFCOM on the map, according to Qing Ren, a lawyer at Zhong Lun Law Firm in Beijing. The regulator has gone on to become one of the three key merger jurisdictions alongside U.S. agencies and the European Commission.

The notoriously unpredictable regulator is now gearing up for a decisive role as AB InBev, the maker of Budweiser and Bud Light beer, sets out to tighten its grip on the industry. MOFCOM officials in Beijing didn’t immediately respond to faxed queries about their process.

Best-Selling Beer

AB InBev’s proposed acquisition of SABMiller will face reviews across the globe, with particular scrutiny expected from MOFCOM possibly leading to the sale of the planet’s best-selling beer -- China’s Snow.

In the U.S., the companies may have to sell SABMiller’s 58 percent stake in the MillerCoors joint venture to win approval from the Justice Department, lawyers have said.

Cooperation between leading agencies will play a role in designing appropriate concessions in the deal.

In an attempt to make that easier, EU Competition Commissioner Margrethe Vestager announced Thursday the signing of a new cooperation agreement with MOFCOM to process large international deals.

But such efforts haven’t always produced uniform decision making, according to Hans Urlus, a lawyer at Greenberg Traurig LLP in Amsterdam.

“Chinese merger-control laws are still developing and have not yet reached a state of maturity or consistency,” Urlus said. It’s hard for companies to predict the outcome of a review because MOFCOM doesn’t disclose its reasoning in most past cases, he said.

Another “frequent complaint” from multinationals is the length of Chinese probes, although this issue has to an extent been mitigated since the introduction of a fast-track procedure for simple cases in early 2014, Ren said. Delays occur from the get-go. When companies notify a deal the regulator usually comes back to them with questions and requests additional documents.

Stalling Tactics

“It can take months before the filing is formally accepted” and the clock starts officially ticking on a review, Slaughter and May’s Yeung said.

That’s not the only stalling tactic regulators have. When MOFCOM hasn’t finalized its assessment in time it simply asks companies to withdraw and re-file their deal before the deadline. This sleight of hand was used during the probe of Western Digital Corp.’s proposed acquisition of Hitachi Ltd.’s storage business.

All of this means there is “no real certainty on how long reviews can last” and the situation isn’t likely to improve in the short-term, Yeung said.

“From a timing perspective, MOFCOM is incredibly under-resourced,” she said. “Until the government is ready to address that, it is difficult to be able to speed up the reviews if you have only around 30 people working in the bureau and reviewing hundreds of cases every year."

Beer-loving China was always going to be an antitrust hurdle for AB InBev. But competition concerns aren’t always the only yardstick by which the Chinese regulator measures issues at hand.

In China, “other ministries or associations of related industries -- upstream or downstream -- have a voice in the procedure,” Ren said, referring to the legal framework which took effect in 2008. Sometimes “there may be a feeling that not only competition issues are considered. But this kind of problem doesn’t take place in the majority of cases.”

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