You might not have caught the news from early in the week about a possible acquisition of a Chinese brewery by beer colossus InBev-AB. I didn’t see much coverage of the deal, and to be honest, it is a fairly run-of-the-mill M&A transaction that probably means little to folks outside of the beer/beverage market. Moreover, the story seems to be in the rumor stage at the moment.
However, I did get a tiny itch deep in my brain when I read about this that led me back to China’s 2008 review of the InBev-Anheuser Busch merger. Remember that? It was just after the Anti-monopoly Law came into effect, and the decision was overshadowed not long thereafter by the Coca-Cola-Huiyuan rejection.
Why did I go back to the decision by the Ministry of Commerce? Because it was a conditional approval, with MOFCOM essentially saying to InBev that although the AB deal was acceptable, Beijing would be keeping an eye on the company in the future to make sure that it did not make additional moves that would have anti-competitive implications to China’s beer market.
So how about this week’s rumor and the target company, Nanchang Asia Brewery Co Ltd.? Any AML issues?
Two things. First, we’ve got the actual conditions as set forth by MOFCOM back in 2008. Here’s a summary by Morrison and Foerster:
The decision also observes that the transaction will give the parties a large combined market share. In order to “reduce the possible adverse effects on future competition in the Chinese beer market,” therefore, MOFCOM required InBev-AB to obtain its consent before implementing any of the following transactions:
- increasing AB’s existing 27% equity share in Tsingtao Brewery;
- increasing InBev’s existing 28.56% equity share in Zhujiang Brewery; and
- purchasing any stake in China Resources Snow Breweries and Beijing Yanjing Brewery, two of China’s largest domestic brewers.
So one possibility is that InBev’s acquisition of Nanchang does not require prior approval since it was not cited by MOFCOM back in 2008 as a sensitive deal. Are you comfortable with that advice?
No? Me neither.
The second view here is more cautious. Just because Nanchang wasn’t mentioned, it doesn’t mean that the deal does not have AML ramifications. We can’t expect the 2008 MOFCOM decision to cover all future possibilities, after all.
So if the rumors are true, is InBev going to seek prior approval from MOFCOM? As a formal matter, I have no idea, but given the 2008 decision, my guess is that someone at InBev (or their outside China counsel) will be making informal inquiries to MOFCOM on the subject. Anything less would be irresponsible.
And if MOFCOM does look at this deal, what then? Whether or not this transaction is problematic from an AML standpoint is a question I cannot answer. If Nanchang is a relatively smaller, regional brewery, then ultimately the deal would probably not raise regulatory eyebrows. If it is a big player, even on a regional level, then MOFCOM might get interested.