MOFCOM circulates draft revised rules on merger control notification and review
On 8 September 2017, the Ministry of Commerce (MOFCOM) issued the Notice to Solicit Public Comments on the "Measures on the Review of Concentrations of Business Operators (Revised Draft for Comments)" (商务部关于《经营者集中审查办法（修订草案征求意见稿）》公开征求意见的通知).
Measures on the Review of Concentrations of Business Operators 2009.
The major changes in the draft include:
Meaning of control. A concentration only occurs where a transaction gives an undertaking a right to control, or an ability to exert decisive influence over, another undertaking. The draft largely follows existing rules by listing the factors for determining whether a concentration gives one undertaking control over another. In addition, the draft makes new law by providing that control may involve an ability to influence business and management decisions on the budget, business plan and appointment and dismissal of senior management of an undertaking.
Interrelated transactions. Where an undertaking obtains control over another undertaking through a series of transactions that are legally or factually conditioned on each other, the transactions will be deemed to be a single concentration.
Calculation of turnover. A transaction must be declared where the relevant undertakings meet certain annual combined turnover thresholds. The draft clarifies that in calculating turnover, an undertaking is required to tally only the turnover of those other undertakings the undertaking controls at the time of the declaration. In addition, the turnover of a jointly-controlled undertaking must be allocated equally among the undertakings participating in the concentration.
Treatment of concentrations below turnover thresholds. The draft permits MOFCOM to investigate a concentration where the turnover thresholds are not met and notification is not required, provided the investigation follows the rules applicable to instances where a concentration meets the thresholds but the undertakings fail to file.
"Much of the draft copies existing rules or practice, but some of the new rules are important. This is particularly the case for the guidance on "control". Here, MOFCOM proposes to closely follow EU competition law by using veto rights over budgets, business plans and senior management appointments as a key benchmark. If adopted, this rule will reduce the number of cases filed with MOFCOM, given that at present some transactions below that benchmark are filed with the regulator."
GC for companies engaged in or contemplating transactions that involve concentrations of undertakings will want to closely study the draft, particularly those provisions that change the current rules governing the notification and review of concentrations, before the draft takes effect. If a proposed transaction presents a significant risk under the draft, counsel may wish to discuss the situation with specialist advisors and MOFCOM to gain an increased level of comfort.