On August 13, 2013, China’s Ministry of Commerce (MOFCOM) announced on its website that it has conditionally approved the $4 billion acquisition of Swedish medical technology company Gambro AB by Baxter International.
Baxter is a US-based healthcare company, which develops, manufactures and markets products used in the treatment of patients suffering from hemophilia, immune disorders, infectious diseases, kidney disease, trauma, and other acute medical conditions.
Gambro is a Swedish medical technology company, which develops, manufactures and supplies products and treatments for hemodialysis (HD), continuous renal replacement therapy, liver dialysis, myeloma kidney therapy and other extracorporeal treatments for acute medical conditions.
According to the approval condition, Gambro must, sell its global continuous renal replacement therapy (CRRT) business and terminate an OEM production agreement with Japan’s Nipro Corporation regarding HD by March 31, 2013.
As the conditional approval was obtained in the middle stage of the extended Phase II, it indicated MOFCOM’s commitment and efforts to speed up the review process. In addition, for the first time, the conditional approval conducted an analysis of the post-merger coordination effects between the competitors arising from an OEM production agreement and required the termination of the said agreement.
On December 31, 2012: First submission was made.
On March 12, 2013: MOFCOM formally accepted the application, Phase I review started.
On April 10, 2013: MOFCOM decided to conduct further review in light of the competition concerns raised, and Phase II review started.
On July 9, 2013: With the consent of the notifying parties, MOFCOM extended the deadline of the review period to September 7, 2013, and the so called extended Phase II review started.
On August 13, 2013: The conditional approval was obtained.
We noticed that during the Phase I review, the parties voluntarily admitted that the proposed transaction would cause competition concerns and submit their proposal for remedies. Such kind of approach is generally welcomed by MOFCOM as this would accelerate the review process if the filing parties play an active role.
Relevant Markets and Competitive Assessment
After taking into consideration the price, methods of treatment and the patients’ types, MOFCOM determined the relevant markets are composed of CRRT Monitor, CRRT Dialyzer, and CRRT Blood Line respectively. MOFCOM also investigated the relevant market for HD, another treatment method for kidney dialysis.
MOFCOM found that the proposed transaction would give the merged entity high market share in the relevant market for CRRT Monitor, CRRT Dialyzer and CRRT Blood Line in the China and global market. In addition, after the transaction, the possibility of coordination and lessening of competition will increase in the Chinese HD market since Baxter and Nipro, the two major competitors in the HD market, have OEM agreement in place sharing competitive sensitive information such as costs and quantities.
In light of the competition concerns raised in the CRRT markets and the HD market, MOFCOM imposed conditions and requested Baxter to:
- Baxter must divest its global CRRT business, including all tangible and intangible assets necessary for the viability and competitiveness of the divested assets;
- Baxter must completely terminate its OEM production agreement with Nipro regarding HD within China territory by March 31, 2016;
- Baxter is required to commission a trustee to monitor the fulfillment of its obligation under the conditional approval.
We noticed that the divested CRRT business has excluded the following: research and development facilities, manufacturing assets and a marketing employee who is in charge of Baxter’s global CRRT business. In addition, the intellectual property rights to be divested also include free and irrevocable licenses on a patent originally designed for peritoneal dialysis solution but later also used for the production of solution and solution package. All these exemptions show that MOFCOM normally would not try to divest those assets that would affect the parties’ other businesses which are unrelated to the product in question.
MOFCOM decision vs EU decision
Although EU’s final decision has not been published yet, from the press release issued by EU Commission on July 22, 2013, we can see that it has also approved this transaction subject to conditions. Although the two authorities reached a similar conclusion regarding the divesture of Baxter’s CRRT business, EU Commission obtained an additional commitment from Baxter to set up a line for the production of fluids used in CRRT at a location of the purchaser’s choice in the European Economic Area or Switzerland.
For the HD market, the difference between the two authorities’ decisions is quite obvious. In the MOFCOM’s decision, MOFCOM reasoned that after the acquisition of Gambro Baxter and its competitor Nipro would hold a high market share in the HD market in China. The two parities also had an OEM agreement exchanging competitive sensitive information such as cost and quantities. Therefore, it is more likely for Baxter and Gambro to engage in coordinated anticompetitive practices. As a result, MOFCOM ordered the termination of the agreement within China territory. In contrary, EU Commission recognized that Baxter and Gambro are not particularly close competitors in HD and after the merger Baxter will continue to face significant competition in the HD market. Therefore, the EU Commission does not impose any condition to the parties on their HD business.