On November 18, 2008, the PRC Ministry of Commerce (MOFCOM) issued an announcement (Announcement No. 95), declaring its approval of the acquisition of Anheuser-Busch Companies Inc. (AB) by InBev N.V./S.A. (InBev) (the InBev/AB Transaction), subject to several restrictive conditions. In connection with the announcement, MOFCOM posted a Q&A session with the media on its website. The General Director of the Antimonopoly Bureau (AMB) under MOFCOM, Mr. Shang Ming, discussed some of the key issues concerning antitrust review of M&A transactions under China’s Antimonopoly Law (AML), using the InBev/AB Transaction as an example. Set forth below is a summary of Mr. Shang Ming’s comments.  

Basic Information on Antitrust Filings  

The ruling on the InBev/AB Transaction is the first publicly announced ruling on a transaction requiring AMB’s review post implementation of the AML. However, according to Mr. Shang Ming, it is not the first transaction AMB has considered. As of November 19, 2008, AMB had officially accepted 13 antitrust filings, eight of which, including the InBev/AB Transaction, were approved. The InBev/AB Transaction was publicly announced because it fit within the AML’s requirements for public announcement. Specifically, under the AML, MOFCOM must promptly announce to the public a decision to prohibit a transaction or a decision to attach restrictive conditions to a transaction. If AMB approves a transaction without attaching any restrictive conditions, AMB, on behalf of MOFCOM, will simply notify the parties to the transaction. Because AMB attached restrictions to the InBev/AB Transaction,1 it was publicly announced.

Documentation Requirements  

The AML explicitly provides that the filing party must submit the following to AMB: the filing report, an explanation of the impact of the transaction on competition in the relevant market, the concentration agreement, and the audited financial reports of the parties to the transaction for the previous fiscal year. Additionally, the AML provides an open-ended clause authorizing AMB to require “other documents and information” at its sole discretion.  

Mr. Shang Ming explained that, because in practice a proposed transaction may involve different industries and different parties, it is impossible to provide one standardized and unified requirement on filing materials. Consequently, AMB will require specific filing materials on a case-by-case basis, taking into account the characteristics of the proposed transaction.  

Notably, to enhance the transparency of antitrust reviews, the AMB is drafting implementation rules to further clarify specific documentation requirements. Prior to the issuance of the new rules, the filing parties may refer to the Guidelines on Antitrust Filing For Mergers with and Acquisitions of Domestic Enterprises by Foreign Investors (Filing Guidelines) issued on March 8, 2007, which includes more detailed documentation requirements.  

Furthermore, Mr. Shang Ming advised filing parties to take advantage of the informal pre-filing consultation mechanism during the filing process in order to discuss specific documentation requirements. In such informal pre-filing consultation, the filing parties may submit a written request to the AMB for clarification on certain requirements. Upon receipt of the written request, the AMB will study the relevant issues and reply to the filing parties at the earliest convenience.  

Also, Mr. Shang Ming indicated that AMB has sole discretion on deciding whether the filing materials are “duly submitted.” According to the AML, the timeline of the antitrust review shall commence on the date that all filing materials are duly submitted. In the InBev/AB Transaction, InBev submitted its initial filing report to AMB on September 10, 2008. AMB requested that InBev submit supplementary materials on October 17, 2008 and October 23, 2008, and officially accepted the filing on October 27, 2008. Unfortunately, Mr. Shang Ming did not explain the standards for deciding whether the filing materials are “duly submitted.”  

Antitrust Review Process  

The AML does not require MOFCOM to notify the filing parties that their filing has been accepted, nor does it require public announcement of the acceptance of an antitrust filing. However, according to Mr. Shang Ming, in practice, AMB notifies the filing parties about the official acceptance of the filing in a “proper” way, which may include via oral notification.  

All filings are subject to an initial 30-day review period from the date of official acceptance of the filing and an additional 90-day further review (extendable by a further 60 days in certain circumstances) from the end of the initial review period if not cleared within the first 30 days. The InBev/AB Transaction was approved within the initial 30-day review period from the date of official acceptance of the filing on October 27, 2008.

AMB may hold hearings to seek the opinions of interested parties in a high-profile transaction. In the InBev/AB Transaction, AMB held a series of hearings and collected opinions and suggestions from other government agencies, local governments, trade associations, major domestic beer manufactures, and domestic beer venders. However, Mr. Shang Ming did not explicitly state how such hearings were held or under what timetables.  

Mr. Shang Ming also described the factors to be considered in the antitrust review, such as the market shares of the parties to the transaction in the relevant market; the ability of the parties to the transaction to control the market; the degree of market concentration in the relevant market; and the effect of the proposed transaction on consumers, other related parties, market access, technological progress, and the development of the national economy. As for the InBev/AB Transaction, AMB reviewed the concentration from all abovementioned aspects, and particularly focused on the review of market shares of the parties to the transaction, and the degree of market concentration in the geographical market and products market. AMB decided to include restrictive conditions on the InBev/AB Transaction in order to reduce any potential adverse effects of the transaction on China’s brewing industry in the future.  

Antitrust Review Decisions  

According to the AML, AMB may issue three types of written decisions: decisions to approve the transaction, decisions to prohibit the transaction, or decisions to attach restrictive conditions to an approved transaction. AMB decided to attach restrictive conditions to the InBev/AB Transaction. According to Mr. Shang Ming, AMB may adopt any of the following three types of restrictive conditions, which he calls “remedies,” on a case-by-case basis for approved transactions requiring restrictive conditions.  

  1.  Structural remedy, which means AMB might require the parties to the transaction to peel some assets;  
  1.  Behavioral remedy, which means AMB might forbid the parties to the transaction to engage in certain business which may restrict or eliminate competition in the relevant market; or  
  1. Mixed remedy, which means AMB might simultaneously adopt the above two types of remedies.  

The above interpretations made by Mr. Shang Ming is helpful in providing market players with certain guidance on the evaluation of the antitrust review of transactions. However, additional clarity will be extremely helpful as it remains difficult to fully understand the procedures and standards AMB will use in evaluating future transactions due to uncertainties surrounding the AML in its current early stages.

MOFCOM Approved InBev/AB Transaction with Restrictive Conditions  

On November 18, 2008, the PRC Ministry of Commerce (MOFCOM) issued an announcement (Announcement No. 95) declaring that it has approved the acquisition of Anheuser-Busch Companies Inc. (AB) by InBev N.V./S.A. (InBev) (the InBev/AB Transaction), subject to several restrictive conditions.  

According to Announcement No. 95, the following items should not be implemented without MOFCOM’s prior approval: (1) an increase in AB’s current 27% shareholding in Tsingtao Brewery; (2) a change in InBev’s controlling shareholders or shareholders of the controlling shareholders; (3) an increase in InBev’s current 28.56% shareholding in Zhujiang Brewery; and (4) an acquisition of shares in CR Snow Brewery or Yanjing Brewery. MOFCOM has included the above restrictive conditions in order to reduce any adverse effects of the InBev/AB Transaction on China’s brewing industry, since it believes that the combination of InBev and AB will create a stronger and more competitive leader in the industry.  

The InBev/AB Transaction is the first transaction that passed MOFCOM’s antitrust review after the implementation of China’s Antimonopoly Law (AML), and may provide market players with certain guidance on the evaluation of other ongoing transactions, particularly the proposed acquisition of China Huiyuan Juice Group Limited by Coca-Cola Company. However, the announcement fails to provide more detailed information on several issues concerning market players, and complete evaluations of other ongoing transactions may still be difficult to conduct due to uncertainties surrounding the AML in its current early stages.  

It is an international practice to approve an M&A transaction with restrictive conditions, and this option has only recently become available to MOFCOM under the AML. The AML outlines factors that MOFCOM would consider in antitrust reviews, such as the market shares of the parties to the transaction in the relevant market; the ability of the parties to the transaction to control the market; the degree of market concentration in the relevant market; and the effect of the proposed transaction on consumers, other related parties, market access, technological progress, and the development of the national economy. As for the InBev/AB Transaction, the first two factors might be of greatest concern when the officials of MOFCOM review the filing materials.  

The InBev/AB Transaction indicates that MOFCOM has sole discretion on deciding whether the filing materials are “duly submitted.” According to the AML, the timeline of the antitrust review commences on the date that all filing materials are duly submitted. Due to the lack of detailed rules for the documentation requirement, whether the filing materials are “duly submitted” is subject to MOFCOM’s sole discretion. Announcement No. 95 indicates that InBev submitted its filing report to MOFCOM on September 10, 2008. MOFCOM requested InBev to submit supplementary materials on October 17, 2008 and October 23, 2008, and officially accepted the filing on October 27, 2008. Announcement No. 95 does not explain the standards for deciding whether the filing materials are “duly submitted.”  

Furthermore, it is not clear how MOFCOM will hold hearings. Normally, MOFCOM conducts the review based on the filing materials available. However, MOFCOM may hold hearings to seek the opinions of interested parties in a high-profile transaction. According to Announcement No. 95, MOFCOM held a series of hearings on the InBev/AB Transaction without, however, explicitly stating how such hearings were held or their timetable.  

Also, MOFCOM does not provide a detailed explanation of its decision. Announcement No. 95 neither provides much analysis of the InBev/AB Transaction, nor does it explain the reasoning behind the decision, which may not provide market players with much-needed guidance.  

Currently, some provisions of the AML are rather vague or general in nature and require the PRC authorities’ further interpretation. The promulgation of certain implementation rules and regulations are expected. Therefore, it is especially important to closely monitor the development of the AML and the implementation rules that follow. It may be wise for market players to keep close relations and coordinate with the relevant authorities, and to especially take advantage of the informal consultation mechanism during the filing process.