China's Ministry of Commerce (MOFCOM) has granted conditional antitrust clearance of Belgium-based InBev SA's proposed takeover of the Chinese operations of Anheuser-Busch Co.

The takeover, which is occurring as part of a global merger between InBev and Anheuser, triggered the mandatory antitrust review provisions in China's Anti-Monopoly Law (AML).  MOFCOM's expedited review of the transaction, and its conditional approval terms, raise some useful lessons for other companies who may have to submit to China's antitrust review process in the future.

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InBev announced its proposed global takeover of Anheuser in June this year.  The merger will create the world's largest brewer, combining global beer brands such as InBev's Stella Artois and Anheuser's Budweiser.

Both InBev and Anheuser are part of corporate groups that have significant sales revenues and operations in China.  The Stella Artois and Budweiser brands are growing in popularity in China, and both parties also hold significant stakes in popular domestic China brewers.  Specifically, InBev holds a 28.56 percent share in Zhujiang Beer Ltd, and Anheuser holdsa 27 percent share in Tsingtao Beer Ltd. 

Accordingly, the transaction triggered the application of the merger control provisions in Chapter IV of the AML.   These provisions require proposed mergers and acquisitions to be notified to MOFCOM, and pre-approval to be obtained from MOFCOM, if certain global and/or China turnover thresholds are met (our Client Alert "Update on China's Anti-Monopoly Law - Final Merger Filing Thresholds Introduced").

MOFCOM's review of a notified transaction aims to determine whether it will relevantly restrict competition in China, in which case it may block or place conditions on the transaction.  The AML also provides for the authorities to consider national security and related concerns in determining whether to allow transactions to proceed.

Once a transaction is notified, MOFCOM conducts an initial assessment that can last up to 30 days, and may then extend the review period for up to a further 150 days if it determines that the transaction requires more detailed scrutiny.

It is reported that notification of the InBev/Anheuser deal to MOFCOM was completed on 27 October 2008.  As MOFCOM's clearance decision was published on 18 November 2008, it appears that the formal review period lasted just 22 days.  This demonstrates one of the major improvements to China's merger control regime since the introduction of the AML on 1 August 2008.  Prior to this date, antitrust merger review in China occurred under the Regulations on the Acquisition of Domestic Enterprises by Foreign Investors (M&A Regulations), and a mandatory 30 working day review period applied to notified transactions even where it was clear that MOFCOM had no substantive concerns.

However, it should also be noted that MOFCOM raised several requests for further information with InBev and Anheuser after the parties' first submitted details of the transaction.  This allowed MOFCOM additional time to consider the impact of the transaction before the notification was deemed complete.

Although Article 23 of the AML sets out a basic outline of the information that must be included in merger notifications (which list is effectively supplemented by notification guidelines MOFCOM published in the context of the M&A Regulations), the law provides that MOFCOM can request such further documents and information as it deems necessary to conduct its review.  This provides MOFCOM with wide scope to issue 'supplemental information requests' to transaction parties, and to consider that notifications are incomplete until this information is provided.

MOFCOM's review process and decision

Under Article 27 of the AML, MOFCOM is required to consider a multitude of factors when assessing the potential impact of a notified transaction on competition in China.  These factors include the parties' market shares in China, the extent of concentration in the relevant China market, and the likely effect of the transaction on consumers, market access, technological progress and the development of China's economy.

It is understood that MOFCOM held several seminars, symposiums and public hearings about the InBev/Anheuser deal, to collect opinions and suggestions from interested parties regarding the above matters.  Views were obtained from relevant industry associations, local governments and competitors.

After completion of this information-gathering process, MOFCOM determined that the merger would not reduce competition in China's beer market. 

As market researchers have estimated that the parties have a joint market share in China of just 13%, this is not a surprising outcome.  The merger control regime that had existed under the M&A Regulations required mandatory notification of relevant transactions that would result in an entity having a 25% or greater market share in China, and our experience is that MOFCOM has rarely expressed strong concerns about mergers relating to non-sensitive and relatively 'open' industry sectors that result in the merged entity having a market share of less than 15%. 

Additionally, it is likely that MOFCOM considered that China's beer market, which overtook the U.S. as the world's biggest beer market in 2001, is likely to continue to grow in size in coming years and does not have unduly high barriers to new market entry or growth of other existing market participants.

However, MOFCOM has placed some conditions on their clearance decision, including a condition that the merged entity not increase itsexisting stakes in Chinese brewers, or link up with two other leading Chinese breweries (Huarun Snow Beer Ltd. and Beijing Yanjing Beer Ltd.), without prior MOFCOM approval. 

MOFCOM has stated that these restrictions are intended to reduce the potential for negative impacts on competition in mainland China's beer market that may result from further increases in the merged entity's 'considerably large' market share.

The merged entity is also required to notify MOFCOM if there are relevant changes to its controlling interest or largest shareholder.

Anheuser has conducted an aggressive growth campaign in China in recent years, largely focussed on its Budweiser brand, and as a result the proposed merger is likely to have been subjected to significant scrutiny in China.  MOFCOM's clearance decision will be welcomed by many foreign businesses and international commentators, particularly given the concerns that have been expressed about the potential for the AML to be used as a tool for industrial policy in China and to foster the growth of domestic brands at the expense of foreign-invested or foreign-owned companies. 

China's clearance of the deal follows similar decisions by regulators in the UK and US, where the combined market shares of InBev and Anheuser are reported to be significantly higher.  Indeed, the Department of Justice has required InBev to divest its Labatt brand to reduce its market position in the U.S as a condition of its clearance decision.

Lessons for companies notifying deals to MOFCOM

China's new merger control regime has the potential to apply to a very broad range of both international and China-focussed M&A deals, and many domestic and foreign companies in China are closely monitoring how the new regime is applied.  MOFCOM's latest clearance decision, which is perhaps the most high profile acquisition approved since the AML took effect, provides some useful lessons for companies that may have to notify proposed transactions under the regime.

Firstly, it is clear that MOFCOM consulted widely with interested parties such as competitors of the transaction parties, customers and relevant industry associations.  Such broad industry consultation by MOFCOM is becoming a more frequent occurrence as it expands its resources and expertise in the area of merger control.  Accordingly, it will be prudent for parties submitting merger notifications in China to conduct advance discussions with relevant customers and industry associations, to brief them on positive aspects of a deal that is to be notified.  This will increase the prospect of regulatory consultation with these parties proceeding promptly and smoothly.  To the extent practical, it is also useful to try and obtain statements from such stakeholders supporting the deal, to include in merger notifications.

Additionally, parties notifying transactions to MOFCOM should consider whether they may improve their prospects for a beneficial review outcome by offering MOFCOM assurances of a kind similar to the conditions MOFCOM has imposed on the InBev/Anheuser merger.  In particular, it may be useful for parties acquiring moderate or greater stakes in Chinese markets to offer commitments to consult with MOFCOM before seeking to implement further transactions that may impact on the relevant market (whether or not they may trigger notification requirements under the AML).

Finally, notifying parties should aim to ensure the information they provide to MOFCOM about a proposed transaction is sufficiently comprehensive to maximise the prospect of expedited clearance.  In particular, frequent communications with MOFCOM (both before and after information is first formally submitted about a deal) should allow the parties to identify issues in respect of which MOFCOM may be likely to require further information.  Early identification of these issues, and prompt information-gathering, can reduce the risk of supplemental information requests delaying the review process.

For further information, please contact:

Hannah Ha (
Gerry O'Brien (

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