Menu

Articles

MOFCOM Recognizes Control over Undertakings on the Basis of “the Possibility of Participation in or influence over the Operation Could not be Excluded” By Yi XUE 2011-11-21

The Ministry of Commerce of the People’s Republic of China (“MOFCOM”) has issued the Announcement of the Anti-monopoly Examination Decision on the Conditional Approval for Penelope Company Limited’s Acquisition of Savio Macchine Tessili S.p.A. (the “Announcement”) on 31 October 2011. This is the eighth conditional clearance decision since the introduction of the Anti-monopoly Law of the People’s Republic of China (the “AML”).

According to the Announcement, Penelope Company Limited (“Penelope”) submitted the notification for its acquisition of Savio Macchine Tessili S.p.A. (“Savio”) (the “Transaction”) on 14 July 2011. MOFCOM officially accepted the case on 5 September and finally rendered a conditional clearance decision on 31 October.

According to the Announcement, MOFCOM defined the relevant market of the Transaction as “the market for the electronic yarn clearers for automatic winders”. In 2010, there were only two competitors manufacturing electronic yarn clearers for automatic winders in the global market, namely, Uster Technologies Co., Ltd. (“Uster”, Penelope’s parent company, Alpha Private Equity Fund V is the largest shareholder of Uster.) and Loepfe Brothers Ltd. (“Loepfe”, the wholly-owned subsidiary of Savio), with a market share of 52.3% and 47.7% respectively. The market shares in China for electronic yarn clearers for automatic winders were similar as above. Furthermore, MOFCOM considered the entry barriers to the market for electronic yarn clearers for automatic winders are significant.

Upon the completion of the Transaction, Alpha Private Equity Fund V (“Alpha V”), the controlling shareholder of Penelope, will hold a 27.9% equity stake in Uster and 100% equity stake in Loepfe respectively. Under the above circumstances, the key issue which attracted MOFCOM’s attention was the possibility of Alpha V’s participation in or influence over the operation of Uster and Loepfe. In particular, MOFCOM examined the shareholding structure of Uster, voting mechanism and attendance records at shareholders meetings, board composition and board voting mechanism, and found that “the possibility of Alpha V’s participation in or influence over the operation of Uster could not be excluded”.

Based on the above, MOFCOM concluded that the Transaction has or is likely to have the effect of eliminating or restricting competition in the market for electronic yarn clearers for automatic winders. In order to resolve the above concern, MOFCOM required Alpha V to transfer its shareholding in Uster to an independent third party within six months.

 

More...