Legal risks in M&A of overseas manufacturing enterprises

By Zhang Jida and Owen Yang, DaHui Lawyers

Earlier this month, China National Chemical Corp (ChemChina) announced that it made an offer of US$43 billion to acquire 100% equity of Swiss agrochemical giant Syngenta International. Once completed, this is expected to be the biggest overseas acquisition deal by a Chinese company to date. In recent years, an increasing number of Chinese manufacturing enterprises have ventured abroad for merger and acquisitions (M&A) of overseas manufacturing enterprises. Using the ChemChina acquisition deal as an example, this article is a brief analysis of common legal risks during different stages of the deal that Chinese enterprises may face when investing in overseas manufacturing enterprises.

Zhang Jida and Owen Yang are Partner at DaHui Lawyers
Zhang Jida and Owen Yang are Partner at DaHui Lawyers

Merging and acquiring overseas manufacturing enterprises usually involves stages such as deal structuring, due diligence on assets and intellectual property, negotiation, execution, announcements, foreign investment review, anti-monopoly review, financing, closing, and integration. Each stage may present different legal risks.

Deal structuring

Merging and acquiring listed companies is usually strictly formulated according to M&A rules issued by relevant stock exchanges. In the ChemChina acquisition deal, for example, given that Syngenta is listed in Switzerland and New York, ChemChina made an offer to all of its shareholders in accordance with Swiss and New York M&A rules.

When merging and acquiring private companies (especially partial shares of a private company), one should usually consider the complicated interests and corporate governance arrangements between the target company’s current and new shareholders, and should execute complete and full legal agreements in advance in order to avoid future disputes among shareholders.

Intellectual property

One of the main purposes of M&A of overseas manufacturing enterprises is to acquire advanced technology, research and development capabilities. The legal ownership of intellectual property of large overseas manufacturing enterprises is usually complex, consisting of: (1) existing patents/technologies; (2) patents/technologies that are in the process of research, development or application; (3) patents/technologies that are licensed by existing shareholders or affiliated parties; and (4) patents/technologies that are licensed by third parties.

A priority in an M&A negotiation is to secure the ownership transfer and authorized use of key technologies that are crucial to the future development of the business. In this regard, it is not uncommon for third party competitors to create legal obstacles for ownership transfer and authorized use of relevant technologies, often leading to the failure of potential M&A deals.

Foreign investment review

Large overseas manufacturing enterprises usually operate across borders. Departments of design, purchase, research and development, manufacture, sales and service are usually located in different countries and regions. Acquisition of such enterprises needs to be approved by review authorities for foreign investment in countries where the business is located.

In recent years, Chinese enterprises, especially state-owned enterprises, have faced increasing challenges in obtaining approval from foreign investment review committees of Western countries such as the US, Australia and Canada. For example, it is stated in the US Foreign Investment and National Security Act that the Committee on Foreign Investment in the United States (CFIUS) should conduct strict scrutiny on foreign investments from foreign companies or persons that are controlled by foreign governments. Unsurprisingly, China has been on the top of that list for review by CFIUS in the past few years.

The latest example of CFIUS scrutiny is the Philips deal. Royal Philips Electronics of the Netherlands was forced in January to give up a plan to sell its lighting business to a Chinese investor consortium because part of its business is in the US and it expects that the CFIUS would not approve such a deal, as it had expressed its concerns regarding national security. Since Syngenta also owns some business in the US, it remains to be seen whether this ChemChina M&A deal will obtain CFIUS approval.

Anti-monopoly review

Anti-monopoly review has also gradually become one of the key factors for whether M&A projects will be successful among leading industry enterprises. Competition elimination and monopoly caused by M&A of enterprises with businesses that are overlapping are usually the main concerns of anti-monopoly regulatory authorities. In some cases, relevant enterprises must spin-off related businesses to alleviate the concerns of regulatory authorities.

In 2015, Syngenta clearly rejected an acquisition offer made by US agrochemical giant Monsanto, on the grounds that it would be difficult for the merger of two such companies to be approved by the regulatory authorities. Given the monopolistic effect that the merger would have on the agrochemical industry. ChemChina, the largest off-patent pesticides manufacturer in the world since its acquisition of Israeli ADAMA Agricultural Solutions, has some overlapping pesticides business with Syngenta. Therefore, the transaction still needs approval from related anti-monopoly regulatory authorities.

Corporate governance

After the M&A, Chinese investors have to not only strictly obey the laws of target investment countries and the articles of association of the target company, but also maintain stability of the target company’s governance in light of promises made prior to the transaction and the necessity of further business development. Complicated legal issues are usually involved when considering how to effectively ensure the rights and interests of Chinese investors while, at the same time, balancing the interests of other stakeholders.


After more than 30 years of opening up, China’s economy is ranked among the world’s best again. Advantages for overseas manufacturing investments by Chinese investors, such as support by state policy, huge market space and financing support have been widely admitted. However, with continued expansion of overseas investments, potential legal risks are certain to grow substantially. We recommend that relevant investors retain experienced professionals, and consider carefully relevant legal risks and political/commercial competition factors behind the deals, thus positively and preemptively managing the above-mentioned risks and ensuring the success of M&A projects.


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