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China’s antitrust watchdog is “holding back on the green light it needs for mergers involving U.S. companies,” the Wall Street Journal reported today. China’s State Administration for Market Regulation (SAMR) requires companies seeking merger approval to “provide products sold in China to other countries—an attempt to circumvent US export controls aimed at China,” the report said.
“Chinese regulators have slowed their recent merger reviews of several acquisitions by U.S. companies, including Intel Corp’s $5.2 billion takeover of Israel-based Tower Semiconductor Ltd. and chipmaker MaxLine Inc’s $3.8 billion acquisition of silicon. Taiwan’s Motion Technology, people close to the process said. As they say, the WSJ wrote.
Microsoft’s $68.7 billion acquisition of Activision Blizzard is “subject to Beijing’s lengthy merger review” because China last year “rejected the companies’ requests for a simplified and expedited process,” according to a WSJ report. The Microsoft/Activision deal also faces antitrust scrutiny in the UK and EU.
“We respect the thorough process that Chinese regulators are taking to review our deal,” Activision told the WSJ.
Broadcom’s $61 billion deal to buy VMware, which was announced in May 2022, is still awaiting Chinese review. “Both companies extended the deadline to May 26 to complete the deal in February, with further extensions possible,” the WSJ wrote. The companies now hope to complete the merger by the end of October, they said.
China hasn’t always had a strong merger-review system, but it has consolidated all antitrust cases under the SAMR and built up its staff, the WSJ noted. “While Chinese regulators have not rejected transactions outright, they have begun delaying and denying approvals until their demands — often focused on Chinese companies taking advantage of their foreign competitors — are met.”
Review the “stealth” option of integration with the company block
China’s demand for certain products “could put US companies in an impossible position as Washington passes legislation that restricts US companies from selling to China and expanding certain types of products there,” the WSJ report said.
Companies that operate internationally and want to complete a merger need approval from authorities in several countries. “For multinationals, it doesn’t take much for a merger to trigger a Chinese antitrust review. For example, if two companies in the deal have more than $117 million in annual revenue from China, the merger would need Beijing to sign off,” the WSJ noted.
The WSJ also reported that Chinese officials are “using relatively subtle and low-cost merger reviews to put pressure on foreign companies and, by extension, their governments.” The strategy is an option to prevent foreign companies from selling in China, although China has banned sales in some cases.
Reuters As reported in mid-February, China “placed Lockheed Martin and a unit of Raytheon Technologies on the ‘untrusted entity list’ for arms sales to Taiwan, and banned China-related products and exports.” Lockheed Martin and Raytheon’s bans were called “symbolic measures” by the White House, as both companies do not sell defense products to China.
The U.S. has added a number of Chinese companies to the Entity List, which severely restricts U.S. products and components, citing concerns about China-focused companies’ ties to the Chinese government and the Chinese Communist Party. The targets include Chinese supercomputer companies, Huawei, ZTE, drone maker DJI, chip maker SMIC, memory chip maker YMTC and others.
Another new U.S. law requires chipmakers to agree not to build capacity in China for ten years if they receive $39 billion in federal funding. Internet service providers that receive universal service subsidies are barred from using Huawei and ZTE telecom gear in federally funded broadband projects. And of course there’s an ongoing debate in Washington about banning TikTok, which isn’t already authorized, on government devices.
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