China’s MOFCOM has proposed to streamline anti-monopoly reviews by classifying M&A transactions on the basis of market shares. The draft proposal would create three separate categories of transactions with different timelines for review based on whether the deal qualifies as a simple, normal or major case.
For a horizontal concentration to be classified as a simple case, the companies’ combined market share must be less than 10% or have a score on the Herfindahl-Hirschman Index (HHI) of less than 1,000. For a vertical or mixed concentration, the market share must be below 20 percent. To be classified as a normal case, a horizontal concentration must give rise to a combined market share of less than 20 percent or an HHI of less than 1,500. For a vertical or mixed concentration, the market share must be less than 30 percent.
Any case above these thresholds, or which may have a major adverse impact on market entry, the development of China’s economy and public interests, or which involves the purchase of a major public brand or of a company in a restricted industry, will count as a major case. Under the draft proposal, a simple case would be completed within the 30-day preliminary review period except in special circumstances that MOFCOM would have to explain to the parties. A normal case also should be completed within the 30 days in principle, but in special circumstances normal cases can move on to the next stage of review, which can last up to 90 days, although the proposal calls for the review to be done within the first 45 days of the second stage. In major cases MOFCOM should in principle complete its review in the second 90-day stage but could move on to the final 60-day extension period permitted.
The proposal requires MOFCOM to set out its reasons for accepting or rejecting a case for fast-track treatment. It also would create a public registry of all deal notifications. The proposal may change before being finalized as law firms and other interested parties submit comments on the draft.