On 5 July the Ministry of Commerce (MOFCOM) announced the Implementation of the Divestiture of Assets or Businesses in the Concentration of Undertakings Temporary Provisions. The divestiture of assets or businesses is typically required as part of the restrictive conditional approvals given in investigations into the anti-monopoly behaviour of concentrations of undertakings. It requires the parties concerned to sell specified assets or businesses to unconnected entities, so that the anti-competitive effects of the parties’ behaviour can be mitigated, and competition can be protected. Since the implementation of the PRC Anti-monopoly Law, the anti-monopoly approvals in Panasonic’s acquisition of Sanyo, Pfizer’s acquisition of Wyeth and Japan’s Mitsubishi Rayon’s acquisition of Lucite all involved divestitures.
Two types of divestiture
The provisions clarify that, in a “voluntary divestiture”, the divesting party should, within the time limit set out in the approval, find a suitable buyer and sign the sale and purchase agreement and other related documents. If the divesting party cannot complete this process within the time limit, it must appoint a divestiture agent to deal with the divestiture matters. This will be a “commissioned divestiture”.
Time limit for divestiture
An analysis of the relevant articles in the provisions shows that the time period for a divestiture can be divided into two stages. First comes the agreement stage, when the divesting party or its divestiture agent finds a suitable buyer and signs the sale and purchase agreement and related documents. The approval issued by MOFCOM in relation to the parties’ concentration should set out time limits for signing agreements for both voluntary and commissioned divestitures. The second stage is the transfer stage. According to article 3(2) of the provisions, the divesting party should divest the business to the buyer and complete all related legal processes within three months of the date of execution of the sale and purchase agreement and related documents. Upon application, MOFCOM may exercise its discretion to extend the time limit for the business transfer.
It should be noted that the time taken by MOFCOM pursuant to the provisions in assessing the suitability of the supervisory agent, the divestiture agent, the buyer and the sale and purchase agreements, is not included in the time limit for divestiture.
Supervisory and divestiture agents
To ensure the successful completion of the asset or business divestiture, the divesting party should appoint a supervisory agent as required under the approval, and also appoint a divestiture agent in a commissioned divestiture. The supervisory agent’s role is to supervise all stages of the divestiture, whereas the divestiture agent is responsible for finding a suitable buyer and concluding the sale and purchase agreement and related documents.
The provisions set out strict requirements regarding the qualifications of a supervisory agent and a divestiture agent. It must be a natural person, legal person or other entity which has the necessary resources and ability to carry out the commissioned task. It must also be independent of the parties that participate in concentrations and of the buyer, so that no conflict of interest exists. The supervisory agent and the divestiture agent can be the same person.
Although the supervisory agent and the divestiture agent are commissioned and remunerated by the divesting party, they must be independent of the divesting party, and are responsible and report to MOFCOM. In addition, unless MOFCOM agrees otherwise, the divesting party must not issue any instructions to the supervisory agent or divestiture agent, nor can it dismiss the agent, or change the terms upon which it was appointed.
The provisions clarify the responsibilities and roles of the supervisory agent and the divestiture agent.
Buyer of the divested business
In relation to the buyer for the divested business, article 9 of the provisions imposes four required qualifications:
- the buyer must be independent of the parties that participate in concentrations, with no conflict of interest between the parties;
- the buyer must possess the necessary resources, ability and intention to maintain and develop the divested business;
- the purchase of the business will not eliminate or restrict competition; and
- if the purchase requires the approval of any other government departments, the buyer must satisfy the requirements of these departments to obtain such approvals.
Viability of the divested business
To ensure that the divested business is viable, independent and competitive, the provisions require that, before the completion of the divestiture, the parties that participate in concentrations must comply with the following six obligations:
- maintain the inter-dependency between the divested business and other businesses, and manage the divested business in a way which is most beneficial to its interests;
- not act in any way which may be detrimental to the divested business, including taking on the employees of the divested business, or obtaining the trade secrets of, and other confidential information about, the divested business;
- appoint a professional manager to run the divested business and to perform the above two obligations. The manager must work under the supervision of the supervisory agent, and its appointment and dismissal should also be subject to the approval of the supervisory agent;
- ensure the prospective buyer has access to all necessary information regarding the divested business in a fair and open manner, so that the buyer can assess the value, scope and business potential of the divested business;
- provide necessary support and assistance as required by the buyer, ensuring that the divested business can be transferred smoothly and business can continue; and
- transfer the business and complete all related legal procedures according to the time limits.
Application
According to article 13 of the provisions, rules may also apply to restrictive conditions other than divestiture, under article 11 of the Examination of Concentration of Undertakings Measures, which might be imposed on parties that participate in concentrations.
