The Ministry of Commerce of the People's Republic of China (the "MOFCOM") has received the application from Henkel Hong Kong Holding Limited (the "Henkel (HK)") and Tiande Chemical Holdings Limited (the "Tiande Chemical") in connection with the cancellation of the additional restrictive conditions stipulated in the Announcement No.6 of 2012. The MOFCOM has conducted an examination on such application and relevant matters are hereby announced as follows:
I. Background and examination procedures
On February 9, 2012, the MOFCOM released the Announcement No.6 of 2012, granting conditional approval of the concentrations between undertakings of the joint venture between Henkel (HK) and Tiande Chemical, and requiring both parties to fulfill the following obligations: firstly, Tiande Chemical shall adhere to the principles of impartiality, fairness and non-discrimination when supplying ethyl cyanacetate to all downstream clients, in particular, the products shall not be distributed at an unreasonably high price, the supplying conditions for Weifang Degao shall not be more preferential than those for others and it shall not communicate with Henkel (HK) and Weifang Degao in relation to competition information. Secondly, both parties shall notify the MOFCOM with regard to the status of fulfilling the above commitment in a timely manner on an annual basis as of the day when the examination decision takes effect or upon the requirement by the MOFCOM. Thirdly, both parties shall entrust independent supervision trustee to make supervision over the performance of both parties in fulfilling the above obligations in accordance with relevant provisions of the MOFCOM. In July 2017, Henkel (HK) and Tiande Chemical filed an application for cancelling the additional restrictive conditions stipulated in the Announcement No.6 of 2012.
After receiving the application, the MOFCOM has communicated with both parties and the supervision trustee for several times and required the parties to the transaction to submit relevant evidence materials as supplement. According to the Anti-Monopoly Law and the Provisions on Imposing Restrictive Conditions on the Concentration of Undertakings (for Trial Implementation), the MOFCOM laid emphasis on examining the implementation of the Announcement No.6 of 2012 and comprehensively evaluated the reasons for and effects of cancelling the restrictive conditions.
II. Implementation of the Announcement
According to the report on the performance of obligations by both parties and the working report of the supervision trustee, during the implementation of the Announcement, Tiande Chemical has set up an internal review group and both parties have formulated and carried out relevant internal control systems, to prevent the communication of competitive information; both parties have regularly submitted written reports to inform the MOFCOM of the status of fulfilling their obligations; and upon the approval of the MOFCOM, both parties have entrusted the independent supervision trustee to make supervision over their performance in fulfilling their obligations. After supervision and examination, the MOFCOM did not find any of the following information: the ethyl cyanacetate products were distributed at an unreasonably high price by Tiande Chemical; the supplying conditions given by Tiande Chemical to Weifang Degao were more preferential than those for others; or Tiande Chemical has communicated with Henkel (HK) and Weifang Degao in relation to competition information. The MOFCOM also has not received any whistle-blowing on either party's violation of the Announcement No.6 of 2012. Therefore, upon relevant evaluations, the MOFCOM believed that Henkel (HK) and Tiande Chemical have fulfilled all their obligations as required in the Announcement No.6 of 2012 during the implementation of such announcement.
III. Competition analysis
The MOFCOM has, in accordance with the law, conducted evaluations to identify that whether there are any significant changes in both parties and evaluations on the effect of the cancellation of restrictive conditions on market competition.
The closing of the transaction of Henkel (HK)'s transfer of 45% of its equities in the joint venture (Degao Holding Limited, the "Degao Holding") to Tiande Chemical was completed on September 28, 2017. Before the closing, Degao Holding was under the common control of Henkel (HK) and Tiande Chemical; after the closing, Degao Holding, which was solely controlled by Tiande Chemical then, turned into a wholly-owned subsidiary of Tiande Chemical. Significant changes have taken place in the equity structure between the parties in this case, thus it is impossible to continue to implement the additional restrictive conditions stipulated in the Announcement No.6 of 2012.
At present, Tiande Chemical is still one of the two largest suppliers in the ethyl cyanoacetate market, but its market share continues to decline and market control capacity is weakened. Since the formation of the joint venture, competition in the cyanoacrylate monomer market was increasingly fierce, and the original market competitors continue to expand production capacity, while new competitors enter the market, which makes the product price fall sharply. After solely controlling Degao Holding, Tiande Chemical will continue to participate in the competition of cyanoacrylate monomer market. It is difficult to eliminate and restrict the relevant market competition by cancelling restrictive conditions.
IV. Examination decision
According to Article 27 of the Anti-Monopoly Law and Articles 25, 26, 27 and 28 of the Provisions on Imposing Restrictive Conditions on the Concentration of Undertakings (for Trial Implementation), the MOFCOM decided to cancel the additional restrictive conditions stipulated in the Announcement No.6 of 2012.
The Announcement shall come into force as of the date of promulgation.
Ministry of Commerce
February 1, 2018