This briefing examines two recent remedy decisions, issued by China’s Ministry of Commerce, the agency responsible for merger review, in August 2013, in which the agency conditionally cleared Baxter’s acquisition of Gambro and MediaTek’s takeover of MStar. These two remedy decisions bring the total number of MOFCOM interventions this year to four.

Baxter’s Acquisition of Gambro


This transaction concerned the acquisition of Gambro AB (Gambro), a Swedish medical technology company, by Baxter International Inc. (Baxter), a US-based multinational healthcare company. Following the transaction, Gambro became a wholly-owned subsidiary of Baxter.

MOFCOM received the notification on 31 December 2012 and accepted it on 12 March 2013. Following Phase I of its review, the agency was of the view that the transaction might have an anti-competitive effect on the markets for continuous renal replacement therapy (CRRT) products and hemodialysis products, and opened a Phase II review.. On 9 July, MOFCOM extended its Phase II review for 60 days. It cleared the transaction with conditions on 8 August, prior to the statutory deadline for the conclusion of extended Phase II.

Competition Concerns

MOFCOM determined that the two parties held horizontal overlaps in the markets for CRRT products and hemodialysis products. Both products are used in the treatment of kidney diseases and trauma. Having reviewed demand-side substitutability factors including pricing, treatment focus and applications and supply-side substitutability factors such as the technical characters, intellectual property rights and cost of switching the production of the two kinds of products, MOFCOM held that CRRT products and hemodialysis products each constitute a distinct product market. Specifically, MOFCOM focused its examination on the CRRT monitor, CRRT bloodline, CRRT dialyzer, and hemodialysis dialyzer markets. Having reviewed factors such as tariffs and transportation cost, MOFCOM defined the geographic market as global, but emphasized that it would consider the effect of the transaction on the China domestic market, as well.MOFCOM was of the view that the relevant markets were already highly concentrated, prior to the transaction. Based on its findings that the parties held a high combined market share (higher than 50% in each market, reaching a high of 84% in one market) in each of the markets and the markets would become even more concentrated post transaction. MOFCOM concluded that the transaction would further increase the concentration of the relevant markets and would enable Baxter to obtain a dominant position in each of the CRRT monitor, CRRT bloodlines and CRRT dialyzer markets.

MOFCOM also noted that the transaction would increase the probability of coordination in China among hemodialysis dialyzer manufacturers. Prior to the transaction, the major players in the China hemodialysis dialyzer market included: Nipro Corporation (Nipro) (26%), Gambro (19%) and Baxter (3%). Notably, Nipro is the OEM for Baxter’s hemodialysis dialyzers. Given that the transaction would reduce the main players from 3 to 2 and the combined market share of the merged entity and Nipro would reach 48% following completion of the transaction, and considering the the existence of the OEM agreement between Baxter and Nipro which could facilitate the exchange of competitively sensitive information, MOFCOM concluded that a high risk of coordination existed.

Additionally, MOFCOM found that there are high entry barriers in the market due to a costly and time-consuming entry process, ownership of relevant patents and other intellectual property as well as the regulatory approvals required by different countries.


To address the above competition concerns, MOFCOM imposed the following remedies: (1) Baxter must divest its global CRRT business, and (2) Baxter must terminate its OEM agreement with Nipro, by 31 March 2016.


It is interesting to note that MOFCOM, in the divestment of Baxter’s global CRRT business, for the first time specifically required the seller to divest all the “tangible and intangible assets necessary for ensuring the viability and competitiveness of the divested business”. This shows the increasing sophistication of MOFCOM in imposing divestment remedies as divestment is supposed to create a competitor in the market which may effectively compete with the merged entity, to achieve that, it is of critical importance for the buyer to have the necessary assets for the viability of the future business.Also for the first time, MOFCOM published the remedies proposal submitted by Baxter. By disclosing the commitments made by the acquirer to the public, MOFCOM will be in a better position to monitor the implementation of the remedies.Notably, this case is also subject to conditional clearance in the European Union. Similarly to MOFCOM, the European Commission also ordered Baxter to divest its global CRRT business as a condition of its clearance on 22 July 2013, 17 days prior to MOFCOM’s decision. 

MediaTek’s Acquisition of MStar


This transaction involved two Taiwanese companies. Both the acquirer MediaTek Inc. (MediaTek) and the target MStar Semiconductor Inc. (MStar) are fabless semiconductor manufacturers active in the technology sector. Both are engaged in designing liquid crystal display (LCD) and wireless communications-related chips.

The parties notified MOFCOM of the transaction on 6 July 2012, and it was accepted by MOFCOM on 4 September 2012. The agency entered into Phase II review on 29 September 2012 and extended the review on 28 December 2012. During the review process, the remedy plans submitted by the parties were found by MOFCOM to not effectively address its competition concerns regarding the transaction, and the parties therefore withdrew the notification on 22 February 2013. MOFCOM accepted the parties’ re-filing on 12 March 2013, entered into the second Phase II review on 9 April 2013 and then extended Phase II on 8 July 2013. MOFCOM reached its decision on 26 August 2013, concluding the nearly-14-month review, the longest merger review conducted by MOFCOM to date.

Competition Concerns

Taking into consideration the parties’ scope of operations and the features of the products in question, MOFCOM defined the relevant product markets as the markets for LCD television main control chips, and the design and sale of mobile phone baseband chips. MOFCOM found that the deal was unlikely to have any anti-competitive effect in the latter market, and therefore focused on the market for LCD television main control chips. Additionally, on the basis of a variety of factors including tariffs and transportation costs, MOFCOM again defined the relevant geographic market as global but also considered conditions in the Chinese market.

MOFCOM concluded that the transaction would exclude and restrict competition in the LCD television main control chip market. Specifically, it found that the concentration would give rise to a dominant position by MediaTek. In the global market, the two parties collectively held 61.1% of the market (MediaTek 17.5%, MStar 43.6%). What is more, in the Chinese market, their combined market share was 80% (MediaTek 15%, MStar 65%), which led to a pre-merger HHI of 4,533, a post-merger HHI of 6,500, as well as a delta of 1,967, indicating a significant alteration of the structure of the market.

In addition to market share information, the agency made it clear that it had considered the possible anti-competitive effects on, the dynamic nature of and trends in the high-technology industry when evaluating this deal: 

  • On one hand, MOFCOM determined that the transaction would eliminate one major competitor and thereby limit consumer choice. The parties were the top 2 suppliers of LCD television main control chips with highly similar products and a high level of customer overlap, which meant that they could exert competitive constraints against one another as to innovation, service quality and pricing in the relevant market. Also, the agency highlighted the fact that a downstream television manufacturer typically chooses at least two chip companies as its suppliers and that the six main television makers in mainland China had all chosen MediaTek and MStar as their suppliers. Furthermore, MOFCOM noticed high entry barriers in the market founded on intellectual property rights, design skills, a high initial investment requirement, and a time-consuming entry process.
  • On the other hand, the agency recognized the fact that the transaction was occurring in the dynamic high-technology industry. It acknowledged that the competitive structure within the market changes rapidly and that the deal could provide opportunities for other existing small market participants to grow, as some of the existing customers of the parties may switch to other suppliers.

    Nevertheless, MOFCOM concluded that while the nature of and trends in the dynamic high-technology industry might counterbalance the adverse impacts of the deal on competition, the transaction would still be capable of eliminating and restricting competition in the short term particularly in the form of raising the price of main control chips, reducing the investment in research and development, delaying the launch of new products, and lowering the level of customer service, etc.


Given the above competition analysis, MOFCOM announced the following conditions, among which, notably, MOFCOM imposed a “hold-separate” remedy for the fourth time: 

  1. MStar Semiconductor, Inc. (Taiwan) (MStar Taiwan) must remain an independent legal entity operating the LCD television main control chip business and must continue to compete with MediaTek;
  2. MediaTek must only exercise limited rights as a shareholder of MStar Taiwan in the course of its independence;
  3. MStar Taiwan and MediaTek must not co-operate absent MOFCOM’s approval;
  4. If MediaTek or MStar Taiwan is to acquire any other competitor in the LCD television main control chip market, the company must submit a notification to MOFCOM, and must not close the deal without approval from MOFCOM; and
  5. MediaTek and MStar Taiwan must report to MOFCOM every three months over the next three years starting from 27 August 2013 as to how they are performing their obligations. They may apply to MOFCOM for this condition to be lifted after three years.

Most notably, the decision specifically required the parties to submit a detailed implementation plan in connection with the above obligations for MOFCOM’s review and approval. Absent MOFCOM’s approval, the parties shall not close the transaction. Although it has ordered similar “hold separate” remedies in the Seagate / Samsung HDD, Western Digital / Hitachi GST as well as the Marubeni / Gavilon cases, this is the first time that MOFCOM has specifically required the notifying parties to have a satisfactory implementation plan in place before closing.


As stated above, the MediaTek case review, at 14 months, is the longest review conducted by MOFCOM, so far. As in the Glencore/Xstrata and Marubeni/Gavilon cases, which received conditional clearances earlier this year, the parties in this case had to withdraw their filing and re-file. Although it may be too early to predict whether “withdrawal and re-filing” will become a standard practice for difficult cases, at least this pattern can be something which notifying parties need to consider from the outset when planning their deal timetable, and the timing of remedies negotiations, if they anticipate any substantive competition issues arising out of their transactions in China.

The MediaTek case also indicates that MOFCOM has accumulated experience and sophistication in imposing remedies. The agency appears to continue to be very confident in imposing behavioural remedies, especially complex and difficult to monitor “hold-separate” remedies. Perhaps in light of the difficulty in implementing this kind of remedy, the hold-separate remedy in this case is much more specific than those in the previous cases. For example, MOFCOM made it very clear in this case what limited shareholder's rights MediaTek (such as rights to dividends, access to financial information for the purpose of preparing the consolidated accounts, etc.) will be able to enjoy. In addition, the new requirement on the submission and approval of an implementation plan before closing suggests that it has gained experience in imposing and monitoring hold-separates. 

Another signal of the agency’s growing sophistication is its recognition of the dynamic features inherent in the technology market as a pro-competitive factor and the balanced evaluation in reviewing this case. However, MOFCOM nevertheless concluded that such factors cannot “within the short term” offset the anti-competitive effects of this transaction. The decision allows the parties to apply to MOFCOM for the conditions to be lifted after three years, at which point MOFCOM will be able to take another look at the market.


Considering the observations below, companies should take into account seriously and budget more time for China’s merger review when planning for their deals. First, the fact that MOFCOM issued two conditional opinions within one month is unusual. In the first 8 months of 2013, the agency has already issued 4 conditional clearances (while in the entire year of 2012, it issued 6). This indicates that MOFCOM continues to intervene and may become more interventionist in the future. Also, the two cases have shown that the deal review timetable in China can be very long, which may even be extended by withdrawals and re-filings, especially for cases with significant competition issues. In a positive development, the agency continues to become more sophisticated and confident in reviewing difficult transactions.