Fate of high-tech deals in 2020 to shed light on SAMR's thinking
31 December 2019, by Yonnex Li
China's approach to a couple of US-linked transactions in 2020 is set to answer some persistent questions on the country's merger control.
Two of the deals high on observers' watch list are US chipmaker Nvidia's acquisition of Israeli peer Mellanox and US network-equipment maker Cisco's plan to buy out optical component supplier Acacia Communications.
Although political factors have apparently exerted less influence on the State Administration for Market Regulation's review of transactions in 2019 compared to the previous year, questions remain whether American deals — specifically those involving technologically sensitive sectors — are completely free of geopolitical risks.
Putting political considerations aside, the development of those test cases will still shed light on whether and how tech deals are consistently subject to China's tighter-than-expected scrutiny purely out of competition concerns.
China is now the only remaining jurisdiction from which Nvidia must obtain antitrust approval in order for its Mellanox takeover to close. The chipmaker, which supplies to the country's Internet giants, has already won approval from the US, the EU and Mexico.
Should the company fail to receive China's blessing in early 2020 and have to push back again its closing timeline, it will be a lesson to deal makers that they should never expect a quick SAMR clearance if they operate in a sector significant to China's building of its Internet and 5G infrastructure. Coincidentally, Nvidia's acquisition plan came at a time when the US government announced controls over supplies to Chinese supercomputer makers. Both Nvidia and Mellanox are heavyweights in high-performance computing.
Additionally, should any remedy be imposed, it would once again demonstrate that SAMR is not afraid to chart its own course to resolve China-specific concerns when regulators elsewhere aren't bothered by the same transaction.
Nvidia initially expected the Mellanox acquisition, announced in March, to close by year-end.
As for Cisco's proposed takeover of Acacia, concerns over a delay in China's review have stoked market rumors of possible gun-jumping. While Cisco has rebuffed claims of getting around merger rules, how long SAMR will take to complete its assessment of the deal — which involves both Huawei's major competitor and supplier — will be another clue to its approach to sensitive US-linked cases.
Cisco and Acacia expect an initial termination date of July 8, 2020, but have agreed to extend it through Jan. 8, 2021, in case of a delay in receiving Chinese regulatory approval.
Unlike in some parts of 2018 when some merger attorneys observed a blanket slowdown in China's handling of their US-related cases, many of them didn't observe similar irregularities in 2019.
As for 2020, how the protracted Sino-US trade disputes will impact China's merger control will remain dependent on the specific trade actions and the sectors involved, it is believed. Those actions might alter the global competition landscape and become factors that the regulator should legitimately take into account in conducting its analysis.
In general, attorneys don't expect bilateral relations to significantly improve even after the countries have agreed to the first phase of a broader trade pact. Uncertainties remain as to how the other phases of the agreement will play out, they noted.
"Speaking from a long-term perspective, the Sino-US relationship is fundamentally different from that in previous decades," one of them commented.
As of Dec. 29, SAMR cleared 428 transactions without conditions in 2019. It has improved disclosure since June by announcing unconditionally approved deals on a weekly basis, instead of issuing a quarterly list.
During the year, the Chinese agency imposed remedies on five transactions, namely US chip-equipment maker KLA-Tencor's acquisition of smaller peer Orbotech; Finnish cargo-handling machinery maker Cargotec's purchase of certain businesses of TTS Group; US optical-parts maker II-VI's buyout of American peer Finisar; a joint venture between Netherlands-based Royal DSM and China's Garden Bio-Chem High-Tech; as well as aluminum-products maker Novelis' acquisition of smaller rival Aleris.
It took SAMR between seven and 17 months to complete its review of these complex transactions.
By comparison, Chinese investigators concluded 461 cases in 2018.
SAMR investigators were also active in enforcing against gun-jumping in 2019, issuing 17 penalty decisions since January. The majority of the decisions involve Chinese companies, although one of them concerned a local subsidiary of industrial-gas giant Praxair, which has now merged with German rival Linde.