Advisory Board

  • Cai Hongbin
  • Peking University Guanghua School of Management
  • Peter Clarke
  • Barry Diller
  • IAC/InterActiveCorp
  • Fu Chengyu
  • China National Petrochemical Corporation (Sinopec Group)
  • Richard J. Gnodde
  • Goldman Sachs International
  • Lodewijk Hijmans van den Bergh
  • De Brauw Blackstone Westbroek N.V.
  • Jiang Jianqing
  • Industrial and Commercial Bank of China, Ltd. (ICBC)
  • Handel Lee
  • King & Wood Mallesons
  • Richard Li
  • PCCW Limited
  • Pacific Century Group
  • Liew Mun Leong
  • Changi Airport Group
  • Martin Lipton
  • New York University
  • Wachtell, Lipton, Rosen & Katz
  • Liu Mingkang
  • China Banking Regulatory Commission (CBRC)
  • Dinesh C. Paliwal
  • Harman International Industries
  • Leon Pasternak
  • BCC Partners
  • Tim Payne
  • Brunswick Group
  • Joseph R. Perella
  • Perella Weinberg Partners
  • Baron David de Rothschild
  • N M Rothschild & Sons Limited
  • Dilhan Pillay Sandrasegara
  • Temasek International Pte. Ltd.
  • Shao Ning
  • State-owned Assets Supervision and Administration Commission of the State Council of China (SASAC)
  • John W. Snow
  • Cerberus Capital Management, L.P.
  • Former U.S. Secretary of Treasury
  • Bharat Vasani
  • Tata Group
  • Wang Junfeng
  • King & Wood Mallesons
  • Wang Kejin
  • China Banking Regulatory Commission (CBRC)
  • Wei Jiafu
  • Kazakhstan Potash Corporation Limited
  • Yang Chao
  • China Life Insurance Co. Ltd.
  • Zhu Min
  • International Monetary Fund

Legal Roundtable

  • Dimitry Afanasiev
  • Egorov Puginsky Afanasiev and Partners (Moscow)
  • William T. Allen
  • NYU Stern School of Business
  • Wachtell, Lipton, Rosen & Katz (New York)
  • Johan Aalto
  • Hannes Snellman Attorneys Ltd (Finland)
  • Nigel P. G. Boardman
  • Slaughter and May (London)
  • Willem J.L. Calkoen
  • NautaDutilh N.V. (Rotterdam)
  • Peter Callens
  • Loyens & Loeff (Brussels)
  • Bertrand Cardi
  • Darrois Villey Maillot & Brochier (Paris)
  • Santiago Carregal
  • Marval, O’Farrell & Mairal (Buenos Aires)
  • Martín Carrizosa
  • Philippi Prietocarrizosa & Uría (Bogotá)
  • Carlos G. Cordero G.
  • Aleman, Cordero, Galindo & Lee (Panama)
  • Ewen Crouch
  • Allens (Sydney)
  • Adam O. Emmerich
  • Wachtell, Lipton, Rosen & Katz (New York)
  • Rachel Eng
  • WongPartnership (Singapore)
  • Sergio Erede
  • BonelliErede (Milan)
  • Kenichi Fujinawa
  • Nagashima Ohno & Tsunematsu (Tokyo)
  • Manuel Galicia Romero
  • Galicia Abogados (Mexico City)
  • Danny Gilbert
  • Gilbert + Tobin (Sydney)
  • Vladimíra Glatzová
  • Glatzová & Co. (Prague)
  • Juan Miguel Goenechea
  • Uría Menéndez (Madrid)
  • Andrey A. Goltsblat
  • Goltsblat BLP (Moscow)
  • Juan Francisco Gutiérrez I.
  • Philippi Prietocarrizosa & Uría (Santiago)
  • Fang He
  • Jun He Law Offices (Beijing)
  • Christian Herbst
  • Schönherr (Vienna)
  • Lodewijk Hijmans van den Bergh
  • De Brauw Blackstone Westbroek N.V. (Amsterdam)
  • Hein Hooghoudt
  • NautaDutilh N.V. (Amsterdam)
  • Sameer Huda
  • Hadef & Partners (Dubai)
  • Masakazu Iwakura
  • TMI Associates (Tokyo)
  • Christof Jäckle
  • Hengeler Mueller (Frankfurt)
  • Michael Mervyn Katz
  • Edward Nathan Sonnenbergs (Johannesburg)
  • Handel Lee
  • King & Wood Mallesons (Beijing)
  • Martin Lipton
  • Wachtell, Lipton, Rosen & Katz (New York)
  • Alain Maillot
  • Darrois Villey Maillot Brochier (Paris)
  • Antônio Corrêa Meyer
  • Machado, Meyer, Sendacz e Opice (São Paulo)
  • Sergio Michelsen Jaramillo
  • Brigard & Urrutia (Bogotá)
  • Zia Mody
  • AZB & Partners (Mumbai)
  • Christopher Murray
  • Osler (Toronto)
  • Francisco Antunes Maciel Müssnich
  • Barbosa, Müssnich & Aragão (Rio de Janeiro)
  • I. Berl Nadler
  • Davies Ward Phillips & Vineberg LLP (Toronto)
  • Umberto Nicodano
  • BonelliErede (Milan)
  • Brian O'Gorman
  • Arthur Cox (Dublin)
  • Robin Panovka
  • Wachtell, Lipton, Rosen & Katz (New York)
  • Sang-Yeol Park
  • Park & Partners (Seoul)
  • José Antonio Payet Puccio
  • Payet Rey Cauvi (Lima)
  • Kees Peijster
  • COFRA Holding AG (Zug)
  • Juan Martín Perrotto
  • Uría & Menéndez (Madrid/Beijing)
  • Philip Podzebenko
  • Herbert Smith Freehills (Sydney)
  • Geert Potjewijd
  • De Brauw Blackstone Westbroek (Amsterdam/Beijing)
  • Qi Adam Li
  • Jun He Law Offices (Shanghai)
  • Biörn Riese
  • Jurie Advokat AB (Sweden)
  • Mark Rigotti
  • Herbert Smith Freehills (Sydney)
  • Rafael Robles Miaja
  • Robles Miaja (Mexico City)
  • Alberto Saravalle
  • BonelliErede (Milan)
  • Maximilian Schiessl
  • Hengeler Mueller (Düsseldorf)
  • Cyril S. Shroff
  • Cyril Amarchand Mangaldas (Mumbai)
  • Shardul S. Shroff
  • Shardul Amarchand Mangaldas & Co.(New Delhi)
  • Klaus Søgaard
  • Gorrissen Federspiel (Denmark)
  • Ezekiel Solomon
  • Allens (Sydney)
  • Emanuel P. Strehle
  • Hengeler Mueller (Munich)
  • David E. Tadmor
  • Tadmor & Co. (Tel Aviv)
  • Kevin J. Thomson
  • Barrick Gold Corporation (Toronto)
  • Yu Wakae
  • Nagashima Ohno & Tsunematsu (Tokyo)
  • Wang Junfeng
  • King & Wood Mallesons (Beijing)
  • Tomasz Wardynski
  • Wardynski & Partners (Warsaw)
  • Rolf Watter
  • Bär & Karrer AG (Zürich)
  • Xiao Wei
  • Jun He Law Offices (Beijing)
  • Xu Ping
  • King & Wood Mallesons (Beijing)
  • Shuji Yanase
  • OK Corporation (Tokyo)
  • Alvin Yeo
  • WongPartnership LLP (Singapore)

Founding Directors

  • William T. Allen
  • NYU Stern School of Business
  • Wachtell, Lipton, Rosen & Katz
  • Nigel P.G. Boardman
  • Slaughter and May
  • Cai Hongbin
  • Peking University Guanghua School of Management
  • Adam O. Emmerich
  • Wachtell, Lipton, Rosen & Katz
  • Robin Panovka
  • Wachtell, Lipton, Rosen & Katz
  • Peter Williamson
  • Cambridge Judge Business School
  • Franny Yao
  • Ernst & Young

Healthcare

EU UPDATE – European Commission Considers Whether All Chinese SOEs should be Considered a Single Economic Entity for Merger Clearance Purposes

Editors’ Note:  Kees Peijster, Eric Pijnacker Hordijk and Geert Potjewijd are partners at De Brauw Blackstone Westbroek, resident in Amsterdam and Beijing, respectively, and are members of XBMA’s Legal Roundtable.  As leading Dutch M&A lawyers, they have broad expertise handling significant cross-border transactions involving China and the Netherlands, including the DSM/Sinochem transaction described below.  The issue of whether to view all Chinese SOEs as a single economic entity, and therefore to aggregate their ownership interests, could have important implications under many regulatory regimes and could prove to be rather controversial.  We invite comments and additional papers on this topic.

Executive Summary:

The European Commission recently issued clearance under the merger control rules for the proposed joint venture between DSM and Sinochem. The Commission considered the question of whether all Chinese State-Owned Enterprises (so called “SOEs”) should be considered a single economic entity, but left the question open for future determination after concluding that even if all Chinese SOEs act as one entity, in the DSM/Sinopec case the combined market share would remain moderate, and there would still be sufficient competition in the relevant market from a range of large independent competitors.  Future cases will be determined on a case by case basis, with the essential test being whether the SOE has independent commercial decision-making power.  It is noteworthy that while in prior press releases the Commission seemed to indicate that a difference exists between SOEs managed by the central SASAC and those by local SASACs, in DSM/Sinochem, the Commission did not make such a distinction but considered the market position of all Chinese SOEs active in the sector.

Introduction

Sinochem is one of the largest Chinese SOEs and is involved in agricultural and chemical products, energy, real estate and finance. DSM is a global life sciences and materials sciences company headquartered in theNetherlands. Their joint venture will be mainly active in the field of certain antibiotics products. The Proposed Transaction was notified to the Commission on 8 April 2011.

This notification is the latest clearance granted by the European Commission (the “Commission”) involving a Chinese SOE.  Commissioner Almunia, in a recent speech at the International Competition Law Forum, also specifically mentioned two other cases: the acquisition of Elkem by China National Bluestar and the acquisition of Intergen by Huaneng.  All three cases involve a Chinese SOE and a non-Chinese company. They were all decided in 2011.

Independent commercial decision-making power test for SOEs

When dealing with SOEs (irrespective of nationality) under the EU merger control rules, the Commission will have to assess whether the SOE concerned should be viewed  as an undertaking in its own right or as part of a larger “single economic entity” including other SOEs. This is relevant both for calculating the turnover of the SOE and for assessing the substantive competition concerns that the transaction may cause: the Commission will aggregate the market shares of all SOEs forming part of the same single economic entity for the purpose of calculating the market share of the SOE.

When assessing concentration involving private parties, the Commission will typically consider the ultimate parent company of a group together with all of its subsidiaries (which are deemed to be “controlled” by the ultimate parent) to constitute a single economic entity. Since by its very nature, an SOE is controlled by the State, the usual “control” test is not appropriate in the case of SOEs. The essential test is whether the SOE has independent commercial decision-making power and if not, what other undertakings should also be included in the scope.  This principle has been set forth in the so-called Jurisdictional Notice of the Commission.

In the past, the Commission has applied the test mainly in analysing SOEs in Europe, such as in France, Spain and Italy.  Recently, the Commission also applied the test in the context of Chinese SOEs, partly as a result of their increasing outbound investment activities and increasing turnover generated outside China.  In China, SOEs are managed by the State-Owned Assets Supervision and Administration Commission (the “SASAC”).  At national level, the central SASAC is a government agency under the State Council (the central government in China).  At provincial and local level, the local SASACs are part of provincial and local governments.  Among all SOEs, more than 100 SOEs are managed by the central SASAC and the rest (more than 12,000) are managed by the local SASACs.

Is there a “China Co”?

The Commission has adopted a rather cautious approach in examining the relationship between Chinese SOEs and SASAC and also the relationship between Chinese SOEs managed by the central SASAC and those managed by local SASACs.  The Commission looked into the decision-making process, the relevant laws and regulations inChina, and the history of coordination by the State intervention.  In this connection, the Commission not only viewed possible coordination by SASAC, but also into possible coordination by other bodies of theChineseState, such as Ministries or Chambers of Commerce.

In the two earlier cases, the Commission left the question of the composition of single economy entity open, as it would not change the conclusion of lack of competition concerns in the relevant markets. In DSM/Sinochem, the Commission also did not adopt a final position as to the exact scope of the “single economy entity” involving Sinochem. The Commission adopted a cautious approach also in the light of responses from market players that expressed concerns over possible coordination between Chinese SOEs in the field of antibiotics.

For these reasons, the Commission conducted its substantive analysis based on two alternative scenarios where: (1) Sinochem is deemed as a single economic entity with independent decision-making power, and (2) all Chinese SOEs act as one entity in the sector concerned.  The Commission reached the conclusion that even if all Chinese SOEs act as one entity, in the present case the combined market share would remain moderate, and there would still be sufficient competition in the relevant market from a range of large independent competitors. Therefore, the Proposed Transaction would not lead to competition concerns.

It is noteworthy that in the press release of Bluestar/Elkem, the Commission seemed to indicate that a difference exists between SOEs managed by the central SASAC and those by local SASACs.  However, in DSM/Sinochem, the Commission did not make such a distinction but considered the market position of all Chinese SOEs active in the sector.

Future filings involving Chinese SOEs

Commissioner Almunia stated in the same speech thatEuropewill not import principles and practices from the non-market economy countries. Instead, it will apply its rules to all companies irrespective of nationality.

The Commission has thus far not provided a definite answer as to whether a Chinese SOE is a single economic entity or whether all Chinese SOEs are to be considered as one entity.  It adopts a case-by-case approach which unavoidably requires more information and data for the assessment.

Currently, there are cases still pending involving Chinese SOEs before the Commission and the parties have been required to provide a broad range of information and data, not only for the SOE concerned but also for all other SOEs active on the same market.

Companies should be prepared to devote additional time and resources in the pre-consultation period and may consider collecting a broader scope of information even before contacting the Commission. It will facilitate communication and the filing process with the Commission and thus prevent unnecessary delays.

The full text of the DSM/Sinochem decision can be found here.

The views expressed herein are solely those of the author and have not been endorsed, confirmed or approved by XBMA or any of the editors of XBMA Forum, nor by XBMA’s founders, members, contributors, academic partners, advisory board members, or others. No inference to the contrary should be drawn.

XBMA – Quarterly Review for Q1 2011

Editor’s Note: This is an example of the type of post and content the XBMA Forum seeks to showcase.

The attached slides summarize trends in cross-border M&A and strategic investment activity throughout the first quarter of 2011.

 

Highlights:

  • Global M&A volume for Q1 2011 was US$671.8 billion, up 29.5% as compared to Q1 2010.
  • Cross-border transactions have rebounded substantially from 2009: 38% of Q1 2011 global M&A was cross-border — up slightly from 37% in 2010 and up significantly from the low of 26.8% in 2009.
  • Canada and Australia’s shares of global M&A each more than double their respective shares of world GDP, perhaps reflecting the large number of deals involving natural resources.
  • Distressed deals have exceeded US$75 billion per annum since 2009.
  • Energy M&A remains the most active among cross-border transactions – reflecting the ongoing pressure to acquire natural resources to fuel emerging economies and the churn created by political instability in the Middle East and by the widespread adoption of technological improvements in the natural gas industry – with Materials and Financials cross-border M&A in the second tier.

XBMA Quarterly Review for Q1 2011

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