On 18 November 2008, the Antimonopoly Bureau of the Chinese Ministry of Commerce ("MOFCOM") published its decision to clear Inbev NV SA's ("Inbev") proposed US$52 billion acquisition of Anheuser-Busch Companies Inc ("Anheuser-Busch").
This ruling is the first published decision issued under China's Antimonopoly Law, and will be closely scrutinised by companies with an interest in the Chinese market.
The Inbev-Anheuser-Busch merger
The Inbev-Anheuser-Busch merger will create the world's largest brewer, owning some of the most popular global beer brands such as Inbev's Stella Artois and Anheuser-Busch's Budweiser. Both entities also have an important presence in the Chinese market, and also held stakes in domestic Chinese brewing companies. The transaction therefore triggered the application of the merger control provisions contained in China's Antimonopoly law.
Following its review, which included extensive consultation with local stakeholders, MOFCOM cleared the transaction but it proceeded to add that:
- the size of the acquisition was enormous;
- the market share of the combined enterprise would be huge, and
- the competitiveness of the combined new company would be increased significantly.
In order to minimise any future anti-competitive impact on China's beer market, MOFCOM imposed a number of conditions prohibiting Inbev from acquiring further interests in major Chinese brewing companies. The MOFCOM conditions specifically required that:
- Anheuser-Busch's 27% equity shareholding in Tsingtao Brewery would not be increased;
- Inbev would promptly notify MOFCOM if there were any changes in its controlling shareholders;
- Inbev would not increase its existing 28.56% stake in Zhuijang Brewery; and
- Inbev would not hold any stake in two other Chinese breweries viz. China Resources Snow Breweries and Beijing Yanjing Brewery.
Inbev would have to notify, and obtain prior approval from, MOFCOM if it wished to deviate from any of these conditions.
Legitimate competition concerns or strategic industrial policy?
Generally, competition lawyers expect regulators to focus their merger analysis on the substantive competitive impact of the transaction at hand. In this case, however, it seems that MOFCOM may have stepped outside this familiar framework.
First it has imposed conditions on a transaction which did not, of itself, appear to raise competition concerns (observers have estimated that the parties' combined market share in China is only around 13%). Most regulators, by contrast, are only entitled to impose conditions which are intended to remedy substantive competition problems. Secondly, the conditions imposed by MOFCOM are intended to restrict the merged entity's ability to enter into future transactions. Under normal circumstances, one would expect the competition impact of future transactions to be analysed independently, as and when such transactions take place.
It is, perhaps, interesting to contrast MOFCOM's approach with that taken by the UK's Office of Fair Trading ("OFT"), which also reviewed the transaction. In contrast to the situation in China, the merger led to very high market shares in the UK (up to 50% in some segments), which would normally ring regulatory alarm bells. The OFT, however, found that competition between the two parties prior to the merger had not been particularly intense, which meant that the impact of the transaction on the competitive dynamics of the market was relatively limited. Accordingly, by focusing clearly and carefully on the likely impact of the transaction in practice, the OFT was able to clear the deal unconditionally.
By contrast, MOFCOM's approach has raised concerns that the conditions imposed were intended to protect the interests of the domestic Chinese brewing industry rather to ensure fair competition in China's rapidly expanding beer market.
Are the MOFCOM conditions compatible with WTO law?
The MOFCOM conditions also appear to be in tension with China's obligations under the World Trade Organization ("WTO") regime, especially with specific commitments made by China at the time of its accession. In acceding to the WTO, China specifically undertook to grant "permission to invest ... without regard to the existence of competing Chinese domestic suppliers". The stringent conditions now imposed by MOFCOM sit uneasily with this undertaking that is legally binding and enforceable through the WTO dispute resolution process.
Secondly, China has undertaken a number of market liberalisation commitments under the General Agreement in Trade in Services ("GATS") and these include commitments in relation to wholesaling and distribution services as well. In the event the Chinese companies named in the MOFCOM decision are also engaged in the business of providing wholesaling and distribution services, the conditions preventing InBev from acquiring further interests in such companies may also violate China's GATS commitments. In particular, such conditions would likely be caught by Article XVI(2)(f) of the GATS which expressly obliges China to not maintain or adopt "limitations on the participation of foreign capital in terms of maximum percentage limit on foreign shareholding or the total value of individual or aggregate foreign investment."
The MOFCOM decision in this high-profile acquisition marks the first time that merging entities have been required to provide undertakings in order to obtain clearance under China's Antimonopoly law, and provides useful insights for companies who may have to submit to China's competition review process in the future. Parties faced with overly restrictive conditions will be well-advised to also assess their rights under the framework of rules established by the WTO regime.