On 31st October 2011, MOFCOM posted the No.73 Notice in its website, announcing to clear proposed concentration between Penelope Co., Ltd and (referred to as “Penelope” hereinafter) and Savio Macchine Tessili S.p.A. (referred to as “Savio” hereinafter) with certain conditions. Without doubt, the reasoning and analytical instruments utilized by MOFCOM would shed some light on of what attitude and approach hold by MOFCOM when facing anti-monopoly review of concentration.

According to MOFCOM’s notice, the proposed acquiring party (Penelope) is established as a tool specifically for the sake of this concentration transaction. Alpha Private Equity Fund V (referred to as “Alpha V” hereinafter) is Penelope’s wholly-owned controlling shareholder (the “parent”), which is a private equity fund and invests in non-ferrous metal recycling, production and sales of home textile and textile machinery. Meanwhile, being the largest shareholder, Alpha V holds 27.9% equity shares of Uster technologies Co., Ltd (referred to as “Uster” hereinafter)

Proposed acquired party in the said concentration (Savio) is a manufacturer of textile machinery, engaging in the production of electronic yarn clearers for winders, twisters and rotor-spinning frames. Beside, Phenanthrene Brothers Co., Ltd (referred to as “Phenanthrene Brothers” hereinafter).is a wholly owned subsidiary of Savio.

Through preliminary investigation, MOFCOM found that Uster and Phenanthrene Brothers are the only two manufacturers of electronic yarn clearers for automatic winders worldwide with the predominant market shares 52.3% and 47.7% respectively. Furthermore, it is established by MOFCOM that the market for electronic yarn clearers for automatic winders constitutes an independent relevant market. For a further step of MOFCOM’s reasoning, there is the possibility existed that Alpha V coordinates the business operation of Uster and Phenanthrene Brothers post this concentration, thereby to eliminate or restrict competition of the market for electronic yarn clearers for automatic winders. And vice versa, Uster and Phenanthrene Brothers also are possible to conduct anticompetitive practices to eliminate or restrict competition in above-mentioned market, through the intermediary Alpha V.

In the early October, MOFCOM and the concentration parties had several rounds of communication upon the measures to remove MOFCOM’s competition concerns. The final consensus agreed by them is clearance by MOFCOM with several conditions illustrated as following:

First, Alpha V shall transfer its equity in Uster to one or more independent third parties within 6 months;

Second, Alpha V must report to MOFCOM the identity of transferee, transaction volumes and trading date so as to ensure the transfer would not produce effects of new elimination or restriction of competition;

Third, Alpha V shall not participate or influence the business operation of Uster prior to the transfer and

Fourth, Alpha V shall appoint an independent supervising trustee to supervise the equity transferee.