The Ministry of Commerce (MOFCOM) recently decided on two merger filings: Glencore/Xstrata and Marubeni/Gavilon. These cases show that in global transactions involving commodities which are strategically important to China:

  • MOFCOM can take significantly more time to review the merger filing than regulators in other jurisdictions
  • MOFCOM is willing to find market power and to intervene at relatively low market share levels
  • MOFCOM seems confident in taking a different approach than regulators in other jurisdictions, including imposing behavioural remedies without a stipulated termination date.

Glencore/Xstrata and Marubeni/Gavilon recorded the first and third longest review timelines among MOFCOM's cases to date (13 and 10 months, respectively). Both involved the withdrawal and re-filing of the respective notifications. This emphasises the need for merger parties to plan and prepare the filing procedure with the utmost care.

In both cases, the parties did not reach a significant combined market share. In Glencore/Xstrata, the parties' combined market shares in the relevant markets for zinc, lead and copper concentrates were lower than 18%. In Marubeni/Gavilon, Marubeni's market share in the imported soya bean market in China was approximately 18% and Gavilon's share is estimated to be less than 9%. Despite these low market shares, each transaction was subject to a long review process and remedies.

In both decisions, MOFCOM referred to China's dependence on the import of the relevant products. In Glencore/Xstrata, imported copper concentrate, zinc concentrate and lead concentrate accounted for 68.5%, 28.7% and 27.3% respectively of the total supply of the three products in China in 2011. In Marubeni/Gavilon, 80% of soya beans sold in China were imported in 2012 and MOFCOM even defined the imported soya bean market as a distinct product market. Although MOFCOM did not explicitly present China's reliance on imports as a concern, its decisions are nonetheless indicative that transactions involving strategically important industrial and agricultural raw materials, the import of which China relies heavily on, may be subject to stricter scrutiny by MOFCOM.

The conditions imposed by MOFCOM indicate its confidence in taking a different, if not stricter, approach to remedies as compared to those taken by other major regulators. Also, MOFCOM continues to demonstrate a willingness to accept various types of remedies.

The Marubeni/Gavilon deal was unconditionally cleared in every other jurisdiction. MOFCOM, however, imposed a complex hold-separate behavioural remedy for the third time, requiring the parties to establish two separate and independent soya bean trading subsidiaries to handle their respective soya bean exports to China. MOFCOM's decision remained silent as to how long the hold-separate provisions are to remain in place. The Glencore/Xstrata deal was cleared in Europe with behavioural remedies and the divestiture of a minority shareholding by Glencore. MOFCOM imposed both structural remedies (divestiture of Glencore's Peruvian Las Bambas copper mine) and behavioural remedies (guaranteed minimum amount of offer with a benchmark price for a period of eight years). In requiring the divestiture of the Las Bambas copper mine project, MOFCOM also for the second time adopted the 'crown jewels' approach, a mechanism that requires parties to dispose of an alternative set of assets if they fail to divest of the original asset package on time. If Glencore fails to find a suitable buyer for Las Bambas within the designated timeframe (i.e. 30 September 2014), MOFCOM will require it to sell an alternative copper mining asset in Latin America or South-East Asia without a reserve price.

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