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2009-03-19 | All chapters

China Joins U.S. and EU Antitrust Regulators as Deal Gatekeeper
Wing-Gar Cheng, Bloomberg, 19th March 2009

March 19 (Bloomberg) -- China’s rejection of Coca-Cola Co.’s $2.3 billion bid for China Huiyuan Juice Group Ltd. may bode ill for Pfizer Inc. and Merck & Co. as the country takes on deal- blocking power like the U.S. and European Union have.

The Ministry of Commerce in Beijing yesterday stopped the biggest takeover of a Chinese company by an overseas rival, saying it would stifle competition in the drinks market.

China, the world’s fastest-growing major economy, reviews all deals involving companies reporting combined annual global sales exceeding 10 billion yuan ($1.5 billion) with more than 400 million yuan derived from Chinese operations. That would cover acquisitions such as Pfizer’s $68 billion bid for Wyeth and Merck’s $41.1 billion purchase of Schering-Plough Corp.

"In the old days, it was just Europe and the U.S. where once you go through, the deal was done,” said Joerg Wuttke, president of the European Union Chamber of Commerce in China. "Today, you really have to go through the Ministry of Commerce.”

While regulators in other jurisdictions also review global deals, China’s ruling on the drug company mergers will be closely watched. It’s already the third-largest market for over-the- counter medicines after the U.S. and Japan, according to Euromonitor International.

China’s antitrust push has already left its mark on one global deal. The ministry approved the $52 billion creation of Anheuser-Busch InBev NV, the world’s largest beermaker, on condition that it refrain from buying two Chinese brewers.

‘Exercising Authority’

The AB InBev case shows Chinese regulators "will exercise authority on mergers that will have an effect on China,” said Christopher Corr, a partner at U.S. law firm White & Case LLP in Beijing.

"It is an early sign China will be counted among the big three competition regulatory centers in the world, and that’s a huge and fundamental change,” he said.

Atlanta-based Coca-Cola, which controls more than half of China’s soda market, provided a tentative amendment to its proposed bid for Huiyuan that didn’t effectively reduce the anti- competitive threat, the ministry said yesterday.

Coca-Cola said in a statement that it respected the decision and won’t proceed with the takeover, making it the first deal rejected under the 7-month-old anti-monopoly act.

Pfizer’s lawyers Cadwalader, Wickersham & Taft LLP declined to comment, as did Fried, Frank, Harris, Shriver & Jacobson LLP, adviser to Merck. Spokesmen for Merck, based in Whitehouse Station, New Jersey, and New York-based Pfizer didn’t immediately respond to requests for comment before office hours.

Unclear Definitions

China’s lack of a track record in antitrust decisions, vague guidelines and unclear definitions of terms such as "national security” in the clearance process are delaying the completion of planned transactions, lawyers said.

"Absolutely, it added a lot of unpredictability to the deal," said Greg Miao, a Beijing-based partner at Skadden, Arps, Slate, Meagher & Flom LLP, which handled AB InBev’s application. "Filing clearance in China is much more than just an anti-monopoly law issue, it has a lot to do with foreign investment policy and practice in China."

Miao and Skadden also acted for Coca-Cola, and declined to comment on that case. Yao Jian, a spokesman for the commerce ministry didn’t answer calls seeking comment. The ministry has approved 24 of the 40 merger applications it has received, according to its statement yesterday.

Government Control

"The best way to look at merger control and anti-monopoly law is that it is another system through which the government can exercise control,"said Alex Potter, the Beijing-based head of antitrust, competition and trade at U.K. law firm Freshfields Bruckhaus Deringer LLC, in an interview before the ministry’s decision.

Wuttke of the European Chamber said he hoped that the reasoning of the Coca-Cola decision is publicized soon as "this would help to counter the obvious suspicion that China wants to protect a famous brand."

"In the long term, what we really want to see is what substance and standards are they using,"Peter Wang, partner-in- charge at Jones Day in Beijing, said. "By and large, having such a law and having it seriously enforced is good for economic development in China and everywhere too."

Source: http://www.bloomberg.com/apps/news?pid=20601080&sid=akocOdixGj3s&refer=asia