On 8 December 2014, the Chinese Ministry of Commerce Administrative Bureau (“MOFCOM”) announced that it had fined state owned Tsinghua Unigroup (“Tsinghua”) a total of 300,000 RMB after it was adjudged to have completed its acquisition of RDA Microelectronics (“RDA”) without first obtaining the required mandatory merger clearance. On the day of the announcement, MOFCOM published the full text of it decision on its website – the first time that a decision relating to failure to file has ever been published by MOFCOM.
The decision of MOFCOM to impose a fine on Tsinghua (a state owned enterprise), despite finding that the transaction would not have an adverse effect on competition, shows that MOFCOM will strictly enforce the terms of the AML against all business operators.
In August 2014, MOFCOM announced that, in accordance with the Anti Monopoly Law (“AML”) and Preliminary Regulations on the Investigation & Treatment of Failure to Report Concentration of Undertakings (the “Preliminary Regulations”), it was launching an investigation into the alleged failure of Tsinghua to declare it’s acquisition of RDA.
As part of its investigation it found that on 11 November 2013, Tsinghua signed a purchase agreement with RDA to acquire the whole share capital of RDA for the price of $907 million. Further to this agreement, the deal was completed on 18 July 2014.
The AML requires transactions that meet certain financial thresholds to receive clearance from MOFCOM. These thresholds for notification were triggered due to the size of the parties’ respective turnovers and, therefore, Tsinghua’s purchase of RDA should have received up-front clearance from MOFCOM prior to the acquisition being completed. Tsinghua’s failure to submit an application for merger clearance to MOFCOM was a direct breach of Article 21 of the AML.
MOFCOM carried out a detailed assessment of the affect on market competition of Tsinghua’s acquisition of RDA. The results of its assessment showed that the transaction would not have the effect of eliminating or restricting competition and therefore MOFCOM decided that it was not appropriate to require the acquisition to be unwound completely and instead decided to fine Tsinghua in accordance with Articles 48 and 49 of the AML and Article 13 of the Preliminary Regulations.
This is the first time that MOFCOM has published its full decision in a case relating to failure to file. The publication of the decision is helpful as it will inform companies of the dangers of completing transactions without seeking the necessary approvals and will also deter future violations.
Despite the fact that MOFCOM decided not to require the unwinding of the transaction, the fact that it chose to impose a fine in this case, despite finding that the transaction would not have an adverse effect on competition, shows that MOFCOM will apply the terms of the AML strictly to all transactions. If MOFCOM is willing to take such an approach in relation to a state owned enterprise, foreign companies with business in China should be careful not to underestimate the Chinese regulator and should treat merger filing obligations in China as seriously as they would in other jurisdictions.