It used to be that Washington DC and Brussels were the two capitals dealmakers had to lobby to get their deals approved by regulators. But in recent years, Beijing has become increasingly important, and it is throwing its weight around to prove it.
Today, China finally said it would approve the merger between commodities trader Glencore and mining firm Xstrata. The two announced their deal more than a year ago, but had to repeatedly delay the closing as they waited for word from Beijing. China’s main concern was the merged company’s grip on the copper market: Together, they control about 7% of the global copper supply, which would likely grow under already planned future deals. Among the conditions China had for greenlighting the deal was the sale of Xstrata’s $5 billion copper mining project in Peru.
It’s unusual for China to require an asset sale to give a deal the go-ahead, but it has done so when the deal involves a market that is important to the country, like copper. Normally Chinese regulators just delay a deal for months, making the companies sweat in the interim. Google’s $12.5 billion deal to acquire Motorola Mobility was held up because of Chinese regulators. It was finally approved about nine months after the deal was announced.
Besides the delays, the other problem for dealmakers and their clients is that there is no road map for how China will react. Although the Ministry of Commerce is the official antitrust regulator, the officials there don’t always seem to be in charge, according to sources who have dealt with them. Instead, it’s often politicians and the Communist Party of China who call the shots behind the scenes based on what they consider the national interest, instead of what is anti-competitive.
Some legal experts were surprised, for example, when Beijing regulators weighed in on Panasonic’s acquisition of a majority stake in Sanyo, a deal involving two Japanese companies. China was concerned about the two companies’ dominance in the battery market. Beijing regulators in 2009 required the sale of certain battery businesses to get approval for the deal, including some assets that were not in China. Chinese authorities concluded that the battery market was a global one, and therefore, Beijing needed to step in.
As China becomes a bigger player in the global corporate world, legal experts expect that Beijing regulators will become more sophisticated, and even more influential. Other capitals are taking advantage of the global nature of many large companies by requiring approval from their regulators for deals. Antitrust lawyers say they now have to file paperwork with authorities in Brazil, India, Russia and other countries where they didn’t have to get approval in the past. That means getting global deals done could take even longer.