[Wall Street Journal] U.S. and China Pursue Merger Of M&A Regulatory Mindset

News of virtually any corporate merger plan is announced with a disclaimer in the words, “pending regulatory approval.”

Those words refer to how the in the U.S., the Federal Trade Commission and the Justice Department review thousands of M&A deals per year, and sometimes fluster dealmaker plans. They also signal that the EU Competition Commission might claim jurisdiction.

But increasingly, the regulator to watch in global M&A deals resides in Beijing, whether or not there is an obvious Chinese component to the proposed transaction.

That fact was acknowledged this week when top Washington regulators traveled to Beijing to finalize their own deal to share information on M&A oversight policy, the way U.S. regulators already do with counterparts based in Brussels.

No, the U.S. and Chinese regulators aren’t merging their activities. And indeed, they don’t propose to change each others’ rules: Many of China’s corporate structures wouldn’t likely pass muster with trust-busters in the U.S.

The arrangement signed on July 27 is more modest: a memorandum of understanding between the FTC, the Justice Department’s antitrust division and three counterpart Chinese agencies, namely the Commerce Department, the National Development Reform Commission and the State Administration for Industry and Commerce.

“What this really does is establish a framework for cooperation going forward,” FTC Chairman Jon Leibowitz said in an interview with The Wall Street Journal this week. “The area it’s going to apply more often and sooner is in the merger context.”

While the scope of their arrangement is limited, it underscores China’s growing clout as the fast-growing pup among global M&A watchdogs.

Armed with an anti-monopoly law put in place almost three years ago, China’s Commerce Ministry has already weighed into deals that it decides impinge on its business environment. China’s ability to weigh in reflects how big the footprint of foreign business is in the No. 2 global economy, a fact that means Beijing has pressure points to enforce its rulings with multinational corporations – licensing, for instance – that give teeth to its decisions on mergers.

For dealmakers, that means China’s Commerce Ministry can be as much of a spoiler as the FTC and the EU commission.

Beijing has ruled more than once that corporate structures need to change before it will sanction certain M&A deals, offering so-called conditional approvals to Panasonic’s purchase of a majority stake in Sanyo in 2009 and the acquisition in 2010 of Alcon by Novartis, among other deals.

In other cases, Beijing has permitted to deals to sail through as proposed.

The most notable merger China blocked was a bid by Coca-Cola Co. to buy one of China’s largest juice makers, rejected in 2009 on the grounds that the “concentration” would allow Coca-Cola too squeeze smaller Chinese companies out of the juice market.

But one of the difficult-to-quantify impacts of Beijing’s policy is the shadow its antimonopoly rules cast over global M&A proposals that appear to touch on China and which arguably reduce the appetite of bidders. Analysts say that seemed to be the case last year when BHP Plc’s moves against Potash Corp. of Saskatchewan caught the eyeballs of Beijing, although the deal was actually withdrawn only when Canadian regulators indicated their opposition.

In the telephone interview, the FTC’s Mr. Leibowitz said he isn’t sure how much regulatory thinking may converge in Beijing and Washington.

The FTC has 10 other MOUs with its counterparts around the world and some of them have helped foster tight relations. For instance, the U.S. and EU agencies are known to share information during big global M&A reviews.

“The more we engage, the more we regularize with our sister agencies, the more likely we’ll see similar outcomes,” he said. Mr. Leibowitz stopped short of promising the new U.S.-China initiative will immediately lead to cooperation in deal reviews, but said such cooperation “is envisaged in the MOU” and one hope with regularized meetings and other contacts planned is that “we could be sharing at least methodology on cases.”

One emerging trend in global M&A is likely to be cash-rich Chinese companies moving more aggressively into the U.S., which makes some in Washington nervous. “Certainly that number is expected to grow,” said the FTC chairman declining to comment on the atmosphere for such activity in Washington but instead noting that a goal he has is to reach “similar outcomes” with regulators in China.

Asked whether the new links might open new channels for one set of government regulators to lobby the other about the merits of its domestic companies’ pursuits, such as U.S. companies pressing into China and Chinese companies seeking U.S. footholds, the FTC chairman took his time answering the question. “It is not our role to be cheerleaders for particular deals but we do think that if antitrust law is properly applied that is a good outcome for American companies, multinational companies and Chinese companies,” Mr. Leibowitz said.

– James T. Areddy. Follow him on Twitter @jamestareddy


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