Authored by Dr. Zhan Hao and Dr. Song Ying

Following the antitrust watchdog in Germany, Japan, Taiwan and the United States, the Ministry of Commerce of the People’s Republic of China (MOFCOM) conditionally cleared Merck KGaA’s (Merck) acquisition of AZ Electronic Materials S.A. (AZ Electronics) on April 30, 2014. It means that Merck has won the last pass it needed to wrap up the takeover.

As the world’s oldest chemical and pharmaceutical company, Merck was founded in Darmstadt in 1668. The company was privately owned until going public in 1995. The Merck family, however, still controls a majority (roughly 70%) of the company’s shares.

 AZ Electronic is a specialty chemicals company which got listed on the London Stock Exchange in October, 2010. The Company produces and sells specialty chemical materials used in the manufacture of integrated circuits and flat panel displays.

According to MOFCOM’s clearance notice, the relevant product market for this concentration is defined as two markets, the crystal liquid market and the photoresist market, given that Merck and AZ Electronics mainly produce the crystal liquid and photoresist respectively. The two chemical products are complementary to each other in manufacturing flat panel displays. The relevant geographic market is the global market.

MOFCOM undertook a thorough assessment on various factors including market share, market power and market entry. The authority also consulted the economic analysis provided by an independent third party consulting firm and the industry surveys. Drawing upon the foregoing information, MOFCOM reached a conclusion that Merck’s acquisition of AZ Electronics is likely to enable Merck to tie the sales of crystal liquid with photoresist, or conduct cross-subsidy between two products, to the detrimental of market competition.

After rounds of negotiations, Merck’s commitment offered on April 25, 2014 was considered sufficient to remove MOFCOM’s competition concerns and the agency finally gave the green light to the proposal transaction by imposing several conditions on Merck as below:

 (1) Merck shall not conduct tying sales of any form to directly or indirectly force Chinese clients to purchase Merck’s crystal liquid and AZ Electronics’ photoresist at the same time, including not conducting cross-subsidy of any form between Merck’s crystal liquid and AZ Electronics’ photoresists.

 (2) Merck’s licensing of crystal liquid patents shall be based on non-exclusive and non-sublicense principles. The licensing terms should also comply with commercially reasonable and non-discriminatory principles.

 (3) Merck shall report the fulfillment of the above-mentioned obligations to MOFCOM every half year. Anytime Merck plans to conclude any licensing agreement related to crystal liquid patents in China, it shall notify MOFCOM in advance.

 (4) The period for the said obligations is three years, from the announcement date of the decision until April 30, 2017.


Although MOFCOM’s clearance notice looks relatively short compared to other notices issued in this year, several observations in this case are worthy of attentions by companies.

Short review time

According to the notice, concentration parties filed the notification on January 15, 2014. MOFCOM accepted the notification on January 29, 2014, and cleared the case on April 30, 2014. Impressively, it only took around 3 months for MOFCOM to review the case, which is the shortest in recent two years and even below the average review time from 2009 to 2013 (see Figure 1). Whether it signals a new enforcement trend or just happens by accident remains to be observed later.

Figure 1 Length of Merger Review Process of Blocked or Conditionally Approved Cases

Ø  Involvement of third party consulting firms by MOFCOM

This is already the second time that MOFCOM itself engaged an independent third party consulting firm to provide economic analysis for the proposed transaction under review. The thermo fisher/ Life Technologies deal marks the first case where MOFCOM retained Edgeworth Economics. It has to be recognized that MOFCOM has started to attach increasing importance to the role of economic analysis in concentration review process.

Neither horizontal overlap nor vertical overlap

Most deals imposed conditions by MOFCOM involve horizontal and/or vertical overlaps between the products or services of the filing parties. Indeed, transactions involving horizontal or vertical overlaps oftentimes have more likelihood to incur MOFCOM’s concerns. Nevertheless, it does not necessarily mean that those cases without horizontal and vertical overlaps are safe. In Merck/AZ Electronics deal, despite that Merck and AZ Electronics play neither in the same market nor in upstream-downstream markets, MOFCOM maintained that the deal is likely to harm competition in the relevant market post-concentration, because the two filing parties are operating in neighboring markets, and Merck is able to and has the incentive to undertake tying practice or cross-subsidization.