M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

Thursday, April 17, 2014

China's odd approach to merger regulation

You may have already seen this story involving the Glencore/Xstrata merger

The merger of Glencore and Xstrata created the world’s fourth-largest mining company and largest commodities trader when it was finalized last year. But as a condition of the deal, the firms had to secure the blessing of regulators in the major markets in which they operate, including China.

So far, so good.  A large merger like this is likely to have antitrust implications in China, so no surprise that the 20-odd people in MOFCOM assigned to pre-merger review and approval would give this transaction a look before it closes.  The odd part?  What happened next.  According to multiple sources, the transaction was approved conditioned on the divesture of the Las Bambas copper mine in Peru.  The purchaser was China Minmetals:

Sunday's acquisition is the largest Chinese purchase of an overseas mining asset since state-owned Aluminum Corp. of China, or Chinalco, took a 12% stake in Anglo-Australian mining company Rio Tinto PLC for $14 billion in 2008, according to Dealogic.

Like that purchase, this latest deal gives China greater control of the raw materials its industries crave. The country Like that purchase, this latest deal gives greater control of the raw materials its industries crave. The country accounts for roughly 40% of global copper demand. Las Bambas is expected to produce 460,000 metric tons of copper concentrate annually over the next 10 years, according to projections by Glencore.

Sure, the price for the asset was high. So, shareholders of Glencore/Xstrata don't really have much to complain about, but what is disconcerting is that China's pre-merger approval process would be used not just to address antitrust problems brought on by the deal, but to also advance other national priorities - like securing access to raw materials.  To the extent China finds antitrust review to be a convenient tool for this kind of thing, it reduces confidence in the regulatory process -- hey, stop laughing in the back row, I'm trying to make a point -- and without that confidence, it's hard to imagine developing a robust regulatory structure when it is serving multiple masters.



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