For Deal Makers, China Is a Drag; Major global mergers are being held up by several months because China’s antitrust authority has a relatively small staff and an unusually broad mandate

For Deal Makers, China Is a Drag

Major Mergers Are Being Held Up for Months

TOM FAIRLESS, BRENT KENDALL and CYNTHIA KOONS

March 31, 2014 4:47 p.m. ET

For deal makers, China has emerged as a great wall to vault.

Major global mergers are being held up by several months because China’s antitrust authority has a relatively small staff and an unusually broad mandate that includes weighing a deal’s impact on domestic economic development, antitrust experts say.

The delays, along with some of the remedies required to overcome the agency’s concerns, are prompting deal advisers to try to minimize Beijing’s impact or—where possible—bypass its review altogether, they say.

China has yet to give the green light to the $35 billion merger of advertising giantsPublicis Groupe SA PUB.FR +0.03% and Omnicom Group Inc., OMC +0.40% or toMicrosoft Corp.’s MSFT +1.71% €5.4 billion ($7.5 billion) acquisition of Nokia Corp.’sNOK1V.HE +0.37% handset business, months after both deals were approved by antitrust authorities in the U.S. and the European Union.

That is despite the fact that the Publicis-Omnicom merger, announced last July, was expected by analysts to face the most scrutiny in the Americas, where its share of the media-spending market will top 40%, according to French research group RECMA.

“We got 14 of the 15 jurisdictions’ agreement…we are waiting for the Chinese,” Maurice Levy, chairman and chief executive of Publicis, said at a conference in London last week.

Also last week, Nokia said that its deal with Microsoft, expected to close in March, had been pushed back to April. Authorities in China haven’t signed off on the plan, according to people familiar with the closing process, who said both companies are optimistic about the new timetable.

China “can be a bit of a wild-card in the international merger control system,” said Dave Anderson, an antitrust lawyer in Brussels.

Reviews get triggered if the parties meet defined revenue thresholds, including on sales in China. Some deal makers try to construct or rework agreements to avoid review, lawyers say. “I’m more working on restructuring deals to potentially avoid the [review] process,” said Janet Hui, a Beijing-based partner at a Chinese law firm.

However, it isn’t easy for multinational corporations to avoid scrutiny, they say, prompting lawyers around the globe to strategize on how to navigate China’s process more efficiently.

China introduced its antimonopoly law in 2008. The country’s rapid economic ascent has turned its antitrust authority into a powerful actor on the world stage.

Global companies pay close attention to its merger enforcement because they are eager to increase their market share in China and generally don’t want to make divestitures there. Also, China at times has asked for actions that aren’t required by antitrust authorities elsewhere.

“If you are the seller and receive two bids for about the same amount but one is subject to Chinese merger control and the other isn’t, you will seriously consider going with the bid that will enable a quicker closing,” said U.S.-based lawyer Deidre Johnson. “Some folks are losing deals because of it.”

China’s Ministry of Commerce, or Mofcom, which reviews mergers, has a smaller staff than major antitrust agencies around the world, a concern acknowledged by a Chinese official this month.

“In Mofcom, the number of actual case handlers is about 20, but the workload is almost identical to those enforcement agencies in the EU and in the U.S.,” Shang Ming, director general of the Ministry of Commerce’s Anti-Monopoly Bureau, told a packed room of lawyers at an antitrust conference in Washington.

The European Commission, the European Union’s central antitrust watchdog, has about 100 staff members who review mergers. In the U.S., the Federal Trade Commission has around 115 staffers involved in merger review. The Justice Department’s Antitrust Division, which shares enforcement authority with the FTC, also employs several hundred staffers who work on a wide range of antitrust matters, from mergers to criminal price-fixing.

“With the increasing number of cases year by year, our scarce resources become even scarcer,” Mr. Shang said through a translator. He said China urgently needed “to find a solution to distinguish cases that will not harm competition and expedite the review process.”

The ministry has introduced rules that aim to shorten the time it takes to review simple cases, such as those involving parties with low market shares after their merger.

The lack of resources is compounded by a focus on issues that go beyond the traditional remit of competition law, including whether deals might harm Chinese national economic development. For deals in sensitive sectors such as energy, food and technology, the Ministry of Commerce tends to consult extensively with other government ministries on conditions for the deal—conditions that may not be directly linked to antitrust concerns.

Glencore GLNCY -1.54% PLC’s acquisition of mining group Xstrata is an example. Beijing approved the Glencore deal in April 2013, more than a year after being notified of it and five months after the EU and U.S. had waved it through.

To secure Beijing’s blessing for the $62 billion acquisition, Glencore agreed to sign a long-term contract to supply copper concentrate to Chinese customers at specified prices—even though the companies’ combined shares of those markets were below levels that would normally raise issues for U.S. or EU regulators, according to a report published in October by Fei Deng, a partner with Edgeworth Economics, and Cunzhen Huang, a lawyer with Cleary Gottlieb Steen & Hamilton LLP.

In approving the deal, regulators also required that Glencore divest the giant Las Bambas copper mine in Peru. China, the world’s biggest copper consumer, imposed this condition even though Glencore doesn’t operate any copper-mining or processing facilities in China. Chinese regulators also have to approve of the buyer for Las Bambas. The company can scrap the sale, but it would then have to auction other assets that China has identified.

A spokesman for Glencore-Xstrata declined to comment.