First, the background

On December 14, 2020, the State Administration for Market Regulation announced that, in accordance with the Anti-Monopoly Law, it had investigated three cases of concentration of undertakings that had not been declared in accordance with the law, including Alibaba Investment Co., Ltd.'s acquisition of the equity of Yintai Commercial (Group) Co., Ltd., the acquisition of the equity of Sunli Media Holdings Co., Ltd. by China Literature Group, and the acquisition of the equity of China Post Smart Delivery Technology Co., Ltd. by Shenzhen Fengchao Network Technology Co., Ltd. China Literature Group and Shenzhen Fengchao Network Technology Co., Ltd. were each fined RMB 500,000. This article intends to briefly analyze the differences between the three administrative punishment cases and the previous punishment cases for the readers.

II. A brief analysis of the highlights of the three administrative punishment cases

1. For the first time, penalties will be imposed on transactions involving VIE structures

In a reporter's answer to a reporter's question released on the same day, the SAMR said that this is the first time that administrative penalties have been imposed on enterprises involved in the control structure of the agreement. It can also be seen from the text of the administrative punishment document:

1. Alibaba's acquisition of Yintai Retail, where the buyer involved an agreement control structure;

2. In the acquisition of Sunli Media by China Literature Group, both the buyer and the target company involved the VIE structure;

3. Fengchao Network acquired China Post Smart Delivery, and the buyer involved the agreement control structure.

It can be seen from the above that transactions involving VIE structures cannot be exempted from reporting, which is a foregone conclusion.

2. It may also be the first time that an overseas listed company has been punished for privatization transactions

It is worth noting that Yintai Commercial may also be the first case of an overseas listed company to be investigated and punished by the Chinese anti-monopoly authorities for privatization transactions. Considering that in recent years, the number of privatizations of overseas listed companies has been large, but it is rare to report to the anti-monopoly authorities, it is necessary to re-examine the preconditions for the closing of privatization transactions.

3. Top penalty

It is worth noting that even under the current statutory penalty ceiling of 500,000 yuan, the vast majority of the transactions investigated in the past have only been subject to a mid-line penalty, about 250,000 yuan.

However, this transaction is subject to a top penalty. In response to a reporter's question, SAMR replied, "The above-mentioned enterprises have greater influence in the industry, have a large number of investment and M&A transactions, have a professional legal team, and should be familiar with the concentration of undertakings declaration system, but fail to take the initiative to declare, the impact is relatively bad, so they decided to impose top penalties within the scope of the law."

The cap represents a trend by law enforcement agencies to fail to report and tolerate this area.

4. Investigation leads may stem from reports

It is possible that some or all of the cases are reported in part. For example, in the first half of this year, a lawyer reported to the Anti-Monopoly Bureau that Fengchao Network's acquisition of China Post Smart Delivery had not been declared in accordance with the law, and relevant reports said that the combined market share of Fengchao and China Post Smart Delivery in 2019 was 69%. However, the Anti-Monopoly Bureau did not find that it constituted an exclusion of restriction of competition. This is most likely due to the definition of different relevant markets, or the adoption of different statistical standards, or other reasons.

In many cases where it is suspected that they should not be reported, and the Anti-Monopoly Bureau has limited enforcement power, hiring a lawyer to report and providing more complete reporting materials may be the main reason for being investigated and dealt with earlier.

III. Conclusion

From the penalties imposed on these three transactions, we can roughly draw the following conclusions and predictions:

1. Enterprises involved in VIE structure also need to declare

Some enterprises involved in VIE structure hope to wait for the official draft of the Anti-monopoly Guidelines in the Field of Platform Economy to be released before choosing to declare, or hope that the official draft will be revised or deleted in the future; But for now, that hope is slim. Enterprises involved in VIE structures should choose to declare if the transaction exceeds the threshold;

2. In the future, the merger model between the boss and the second boss of Internet enterprises may change

In the past, the merger of Internet head enterprises, such as the merger of the eldest and the second, became the best choice for investors. However, due to the involvement of antitrust reviews, transactions may be subject to change. This usually means a longer waiting period for approval; Conditional approval; In extreme cases, the approval is not granted and the parties have to pay the breakup fee. Therefore, choosing the eldest and the second eldest to merge may not be the best option, and investors should even consider avoiding the merger of the two leading companies as much as possible.

3. Privatization of overseas listed companies may also require declaration

Privatization transactions of overseas listed companies will also need to be reported if the turnover meets the standard.

The author is a partner at Gaopeng Law Firm. Contact: xichu27 (WeChat)

(This article is translated by software translator for reference only.)