Q&A: merger notification and clearance in Hong Kong

Notification and clearance timetable

What are the deadlines for filing? Are there sanctions for not filing and are they applied in practice?

There are no deadlines for filing as the merger control regime is generally voluntary. As a result, there are no specified sanctions for not filing except where prior formal consent from the Communications Authority is required for a change to the carrier licensee. In those circumstances, failure to obtain consent may result in disciplinary action under the Code on Takeovers and Mergers and Share Buy-backs. Sanctions include the issuance of a public apology, public censure and requirements imposed on the company involved, licensed representatives and registered institutions not to act or implement the merger or acquisition.

Which parties are responsible for filing and are filing fees required?

Merging parties can submit a voluntary notification to the competition authority seeking ‘informal advice’ on a confidential basis (the Informal Advice Route). The informal advice is not binding on the competition authority, but it provides a preliminary view as to whether the proposed merger is likely to raise competition concerns.

Parties to a merger may also apply to the competition authority for a formal decision as to whether the proposed merger is excluded from the application of the Merger Rule on the basis that the economic efficiencies of the merger outweigh the adverse effects caused by any lessening of competition, or the statutory exemptions apply (the Decision Route). The statutory exemptions cover statutory bodies to which the Merger Rule does not apply pursuant to section 3 of the Competition Ordinance or specified persons; and persons engaged in specified activities to which the Merger Rule does not apply as determined by the Chief Executive in Council by means of a regulation made pursuant to section 5 of the Competition Ordinance.

A fee of HK$500,000 will be charged for an application to the competition authority for a formal decision. In the case of the Communications Authority (CA), the amount of the fee will be equal to the costs and expenses incurred by the CA (but capped at HK$500,000).

What are the waiting periods and does implementation of the transaction have to be suspended prior to clearance?

There is no suspensory obligation.

In terms of timetable for clearance, no indicative timetable is provided by the competition authority in relation to the Informal Advice Route or the Decision Route. The competition authority has stated that it will endeavour to process applications in an efficient and timely manner, but that timing will ultimately depend on the complexities of the case and the resources available to the competition authority. In practice, from submission of all required information, ‘no issues’ cases have been approved within one month and complex cases have taken up to six months to be approved.

In addition, the competition authority may commence an investigation of a merger within 30 days of the day on which it first became aware, or ought to have become aware, that a merger has taken place. If the competition authority reasonably believes that a merger contravenes the Merger Rule, it must apply to the Competition Tribunal for an order within six months (this can be extended if the Competition Tribunal considers it reasonable) of the day on which the merger was completed or the competition authority became aware of the merger (whichever is the later).

What are the possible sanctions involved in closing or integrating the activities of the merging businesses before clearance and are they applied in practice?

There is generally no requirement to seek approval before closing such that there are no specified sanctions for closing before clearance.

However, where the implementation of a proposed transaction would result in a requirement that the offeror make a mandatory general offer (MGO) pursuant to the Code on Takeovers and Mergers and Share Buy-backs (the Takeovers Code), it is a requirement that the offeror obtain prior formal consent from the Communications Authority for a change to the carrier licensee. Failure to do so may result in disciplinary action under the Takeovers Code.

Sanctions include issuance of a public apology, public censure, and requirements imposed on the company involved, licensed representatives and registered institutions not to act or implement the merger or acquisition.

In addition, the competition authority may commence an investigation of an anticipated or completed merger and can seek various orders from the Competition Tribunal, including orders to unwind the transaction or orders to divest certain assets. In certain circumstances, the competition authority can also apply to the Competition Tribunal for interim measures for the purpose of ‘preventing pre-emptive action’, which may prejudice the hearing of the application by the Competition Tribunal. Interim measures would include measures akin to hold-separate orders or standstill obligations.

Are sanctions applied in cases involving closing before clearance in foreign-to-foreign mergers?

There is generally no requirement to seek approval before closing, and there are no specified sanctions for not filing, except where prior formal consent from the Communications Authority is required for a change to the carrier licensee or implement the merger or acquisition.

What solutions might be acceptable to permit closing before clearance in a foreign-to-foreign merger?

Not applicable. The Hong Kong merger control regime is voluntary and non-suspensory.

Are there any special merger control rules applicable to public takeover bids?

Yes. Where a party is required to make an MGO under the Takeovers Code that would result in a change in relation to a carrier licensee, the Takeovers Code requires that the MGO offeror obtains prior formal consent from the Communications Authority in relation to the change to the carrier licensee before it triggers an obligation to make an MGO. Failure to do so may result in disciplinary action under the Takeovers Code.

Sanctions include the issuance of a public apology, public censure, and requirements imposed on the company involved, licensed representatives and registered institutions not to act or implement the merger or acquisition.

What is the level of detail required in the preparation of a filing, and are there sanctions for supplying wrong or missing information?

A prescribed form (Form M) sets out the information required for an application for a decision to exclude a merger or proposed merger from the application of the Merger Rule. Information to be provided includes the parties’ general corporate information, business activities and ownership structure, description of the transaction, proposed market definition, market shares, detailed competition analysis and grounds for exclusion. The application should also include supporting documents such as a declaration of completeness and accuracy, copies of transaction documents and internal documents.

There is no prescribed form for a voluntary notification for informal advice, but a guideline jointly issued by the Competition Commission and the Communications Authority setting out how they intend to interpret and give effect to the Merger Rule indicates that applicants should provide some evidence that either the heads of agreement, term sheet or sale and purchase agreement are in place and that, when submitting the voluntary notification, reference may be made to the type of information listed in Form M.

What are the typical steps and different phases of the investigation?

The competition authority may conduct an investigation into any conduct that, upon reasonable suspicion, may constitute a contravention of the Merger Rule.

In terms of timetable for clearance, no indicative timetable is provided by the competition authority in relation to the Informal Advice Route or the Decision Route. The competition authority has stated that it will endeavour to process applications in an efficient and timely manner, but that timing will ultimately depend on the complexities of the case and the resources available to the competition authority. In practice, from submission of all required information, ‘no issues’ cases have been approved within one month and complex cases have taken up to six months to be approved.

In addition, the competition authority may commence an investigation of a merger within 30 days of the day on which the competition authority first became aware, or ought to have become aware, that a merger has taken place. If the competition authority reasonably believes that a merger contravenes the Merger Rule, it must apply to the Competition Tribunal for an order within six months (this can be extended if the Competition Tribunal considers it reasonable) of the day on which the merger was completed or the competition authority became aware of the merger (whichever is the later).

Generally, the competition authority will have the power to obtain relevant documents and information and to require any person by written notice to attend an interview before the competition authority during an investigation. The competition authority may also conduct market inquiries that could include consulting with interested third parties. If, following its investigation, the competition authority considers that there is no reasonable cause to believe that the merger or anticipated merger contravenes the Merger Rule, the competition authority will take no further action. In the alternative, the competition authority can apply to the Competition Tribunal for an order. 

What is the statutory timetable for clearance? Can it be speeded up?

No indicative timetable is provided by the competition authority in relation to the Informal Advice Route or the Decision Route. The competition authority has stated that it will endeavour to process applications in an efficient and timely manner, but that timing will ultimately depend on the complexities of the case and the resources available to the competition authority. In practice, from submission of all required information, ‘no issues’ cases have been approved within one month and complex cases have taken up to six months to be approved.