Geely, meaning 'lucky' in Chinese, is an ambitious automaker based in Zhejiang. This company has recently completed a headline-grabbing transaction in Europe: its US$1.8bn acquisition of Swedish premium brand Volvo. Through the acquisition, Geely will not only obtain a critical edge in its home market, but also make a major inroad into the European and North American markets. 

The successful completion of the biggest overseas acquisition by a Chinese automaker to date, however, was not based on luck. Working alongside the company's sizeable strategy and execution team was a strong squad of legal advisors, including leading international firm Freshfields Bruckhaus Deringer and PRC top-tier law firm Haiwen.

Apart from advising on complex issues relating to corporate, IP, tax, finance and employment law, the legal advisors also handled merger control filings and anti-trust-related issues across more than 10 jurisdictions, including the European Union, US, China, Russia and Australia.

The multitude of large-scale overseas investment and acquisitions by Chinese companies, such as the Geely-Volvo deal, has given rise to the importance of global anti-trust compliance and merger control filings in their process of expansion. "In the Geely-Volvo deal, the target company has substantial sales around the world, so the transaction triggered merger filing thresholds in over 10 jurisdictions," says Michael Han, a partner with Freshfields in Beijing who co-headed the firm's team working on the anti-trust aspect of the transaction.

Han and the team worked closely with Geely coordinating all the merger filings required, including a filing with MOFCOM, either by dealing directly with the competition authorities or through local counsel. "It's a quite challenging process, in the sense that we had to complete all the filings and obtain approvals within about two months, and the client was not so familiar with anti-trust regimes in other countries," he says.

Although Han noted that many PRC companies currently lack understanding on anti-trust issues and their implications outside China, inevitable exposure will occur to more anti-trust risks and scrutiny, as their push into overseas markets continues. International firms, therefore, will be expected to put in more effort and maintain good communication to safeguard clients' interest.

"With Chinese companies increasingly acquiring controlling stakes in foreign companies, the number of similar transactions in which multi-jurisdictional merger filings are required will grow," says Han. "In addition, they also need to consider making merger filings for certain transactions that take place in China and Asia but can potentially meet notification thresholds in other jurisdictions."

A recent transaction between Air China and Cathay Pacific, in which a Shanghai-based cargo joint venture was set up, is a good example. Under the deal, Cathay acquired 49% of the interests in Air China Cargo (the JV) and conversely, Air China reduced its stake in the JV from 100% to 51%. Although both companies and the joint venture are all located outside the EU, sales revenues off the different party's corporate groups in the EU exceeded certain thresholds.

Notification to the European Commission became necessary: Cathay notified the transaction to the Commission in May 2010. In July the EU anti-trust regulator approved the proposed JV, stating that the transaction would not reduce competition between Asia and Europe as combined market share is "limited" and the routes operated are largely complementary

As larger Chinese companies now fall regularly under anti-trust scrutiny by foreign regulators like those located in the EU and US, merger control and anti-trust compliance are indispensable. This is part of compliance procedures these companies need to go through to complete their transactions or conduct business - both at home and abroad.

Why not take part in ALB's annual conference on "Antitrust Law in Asia Pacific", which will be held in Singapore on 5 October 2010, to gain insights into the lastest regulations and best practics in competition law in the region. Click here for full details.

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