MOFCOM Announcement No. 22 (2013)

MOFCOM Announcement No. 22 (2013) Announcement of Anti-Monopoly Review Decision to Approve the Concentration of Undertakings for the Acquisition of 100% of the Equity Interest in Gavilon Holdings, LLC by Marubeni Corporation with Restrictive Conditions The Ministry of Commerce of the People s Republic of China ( MOFCOM ) received the antimonopoly notification for the concentration of undertakings in respect of the acquisition of 100% of the equity interest in Gavilon Holdings, LLC ( Gavilon ) by Marubeni Corporation ( Marubeni ). After reviewing the case, MOFCOM has decided to approve this concentration with restrictive conditions and hereby makes the announcement as follows pursuant to Article 30 of the Anti- Monopoly Law of the People s Republic of China ( Anti-Monopoly Law ): I. Initiation and Review Process On 19 June 2012, MOFCOM received the anti-monopoly notification concerning the acquisition of 100% of the equity interest in Gavilon by Marubeni. Upon reviewing the notification, MOFCOM found that the notification documents and materials were incomplete and required the notifying parties to supplement those documents and materials. On 31 July, MOFCOM confirmed that the supplemented notification documents and materials satisfied the requirements set out in Article 23 of the Anti-monopoly Law, accepted the notification and thus started the initial review period. On 30 August, MOFCOM decided to conduct a extended review of the concentration. Based on the extended review, MOFCOM was of the view that the concentration may have the effect of eliminating or restricting competition in the import market for soybeans in China. On 28 November, as agreed by the notifying parties, MOFCOM decided to extend the review period further until 27 January 2013. During that period, the notifying parties submitted a remedies proposal with respect to the competition concerns raised by MOFCOM/ However, the remedies proposal did not effectively address the competition concerns raised by MOFCOM. On 25 January 2013, the notifying parties applied to withdraw the notification and re-submitted the notification on 31 January. MOFCOM accepted the notification on 5 February, and decided to conduct a extended review of the concentration on 5 March. In the course of its review, MOFCOM solicited opinions from relevant governmental authorities, industry associations and relevant enterprises, obtained further information on thedefinition of relevant markets, market structures, characteristics of the industry, future prospects and other related information, and verified the truthfulness, completeness and accuracy of the documents and materials submitted by the notifying parties. II. Competition Analysis MOFCOM examined this concentration and analysed in-depth its impact on competition in accordance with the Anti-Monopoly Law and its supporting regulations, and held that the concentration may have the effect of eliminating or restricting competition in the import market for soybeans in China. 1. Summary of the Transaction Marubeni is registered and established in Japan and its headquarters are located in Tokyo, Japan. Marubeni is listed on the Tokyo Stock Exchange, Nagoya Stock Exchange and Osaka Securities Exchange. Marubeni is a large-scale conglomerate trading company, engaged in the trading of food ingredients, food products, textile, raw materials, pulp and paper, chemicals, energy, metals 1

and mineral resources and transportation machinery globally. In the import market for agricultural commodities in China, the imported volume by Marubeni ranked number one in both 2011 and 2012. Marubeni has 24 subsidiaries and branches in China, where it owns sophisticated distribution channels and complete logistics and warehousing facilities. Gavilon is registered and established in the U.S.A., and its headquarter iare located in the Omaha, Blass, U.S.A. Gavilon is a commodity management company, engaged in procurement, storage and processing, transportation and logistics, marketing and distribution and risk management service in respect of grain and ingredients, fertilizer, and energy products. Currently, Gavilon is the third largest company in the procurement, storage and distribution of grains in North America in terms of storage capacity. It operates more than 140 grain loading spots and large-scale grain warehousing facilities and owns a distribution network in the U.S.A. Gavilon also purchases grains from key production regions outside the U.S.A. including Brazil, Australia and Ukraine. Gavilon has established one branch in China. Marubeni and Gavilon entered into an equity interest purchase agreement (the Agreement ) on 29 May 2012, under which, Marubeni will acquire all of the equity interest in Gavilon through Gold Marble Investment Company (a wholly-owned subsidiary established by Marubeni for this transaction). Upon the completion of the transaction, Marubeni will indirectly hold 100% of the equity interest in Gavilon. 2. Relevant Markets Marubeni purchases soybeans, wheat, corn, animal fats and other agricultural commodities from farmers (approximately 20%) and other traders (approximately 80%) located in the major production regions such as the U.S.A., Canada, Brazil, Australia, India and Ukraine, etc., and sells them into Japan, China, South Korea, Taiwan, Indonesia, Vietnam, the U.S.A., Canada, Mexico, Central America, Caribbean and the European Economic Area, etc. Marubeni is engaged in the trading of soybeans, soybean products, corn, dry and coarse distiller's grains and other agricultural commodities in China. In 2012, Marubeni exported 10.6 million tons of agricultural commodities into China, of which there were 10.5 million tons of soybeans. Gavilon purchases soybeans, corn, animal fats and other agricultural commodities from farmers (approximately 85%) and other traders (approximately 15%) located in the U.S.A., Canada and Australia, and sells them into tnorth America, Asia, Europe, Latin America, Africa, Caribbean, Central East and Oceania. Gavilon is engaged in the trading of yellow corn, soybeans, soybean meals and feed, food ingredients and other agricultural commodities in China. In 2012, Gavilon exported 0.4 million tons of agricultural commodities into China. 3. Competition Analysis With respect to the commodities involved in this transaction, China is the largest importer country of soybeans in the world. Soybeans imported into China in 2012 accounted for 60% of the total trading volume globally and 80% of the total supply in China. Marubeni exports 99% of its soybeans into China. Gavilon has considerable capability in the procurement, storage and logistics of soybeans in North America. This concentration will add Gavilon s potential capability in the soybeans market in North America to Marubeni s comprehensive advantage in the export market of soybeans into China, improve Marubeni s capability to export soybeans to China, and potentially materially enhance Marubeni s power to control the import market of soybeans in China, with an effect of eliminating or restricting competition. (i) Import market of soybean in China 2

China imported 58.38 million tons of soybeans in 2012. As a major exporter, Marubeni exported 10.50 million tons of soybeans into China, ranking number one. The exported volume of soybean into China by other exporters, such as Archer Daniels Midland Company (ADM), Cargill, Incorporated, Alfred C.Toepfer International, Louise Dreyfus, and Bunge, are much smaller than that of Marubeni. Compared with its major competitors, Marubeni has advantages in the distribution capacity and customer resources in the Chinese soybean market. In 2012, Gavilon sold 5.1 million tons of soybeans globally. Meanwhile, Gavilon has considerable presence in the procurement, storage and logistics of soybeans in North America. It has 7% of the storage capacity of commercial grains in the U.S.A, and owns a number of procurement platforms in the main soybean production regions in the U.S.A. It also has export facility on the northwest coast in the U.S.A. Upon the completion of this concentration, Marubeni may take advantage of Gavilon s capability in the procurement, storage and logistics of soybeans in North America to expand its source for soybeans. In addition, Marubeni may, by virtue of its complete marketing network and rich customer resources in China, substantially increase its export of soybeans into China, so as to further strengthen its leading position in the import market of soybeans in China and to strengthen its power to control the import market of soybeans in China. Currently, China heavily reliant on the import of soybeans. The domestic soybean crushing market is highly fragmented. The production scale of the domestic soybean crushing businesses are small and their bargaining power is weak. This concentration may further undermine the bargaining power of the soybean crushing businesses in the downstream market. Based on above, upon the completion of this concentration, Marubeni will further enhance its power to control the import market of soybeans in China. The difficulty in entering into the market will be further increased. The effect of eliminating or restricting the competition in the relevant markets may arise. Ultimately, it will damage the interests of the downstream customers and final consumers. (ii) Import market of corns, soybean meals and dry and coarse distiller's grains in China In the import market of corns, soybean meals and dry and coarse distiller s grains in China, the combined market share of Marubeni and Gavilon is 6%, 4.5% and 8.4%, respectively. In addition, there are a number of strong competitors in those markets, acting as a competitive constraint on the merged entity. Based on the views reached after the anti-monopoly review, it is unlikely that this concentration of business operators will bring about the effect of eliminating or restricting the competition in the import market of corns, soybean meals and dry and coarse distiller s grains in China. III. Remedies negotiation During the course of its review, MOFCOM raised potential competition concerns that could result from this concentration of business operators in theimport market of soybeans in China with the notifying parties and conducted several rounds of negotiations with the notifying parties to discuss how to reduce such adverse effects to competition resulting form the concentration of business operators. Upon assessment, MOFCOM held that the remedy proposal submitted by Marubeni on 3

17 April 2013 can reduce the adverse effects on competition resulting from this concentration of business operators. IV. Review Decision Upon assessment, MOFCOM considered that the acquisition of 100% of equity interest in Gavilon by Marubeni may have the effect of eliminating or restricting the competition in the import market of soybeans in China. Based on the commitments made by Marubeni to MOFCOM, MOFCOM decided to approve this concentration with restrictive conditions. Both parties to the transaction shall perform the following obligations: 1. Upon the completion of this concentration, the businesses of export and sale of soybean into China of Marubeni and Gavilon should be maintained as separate and independent, including but not limited to the following: (i) (ii) (iii) (iv) Within six months after this decision becomes effective, Marubeni shall establish two independent legal entities and two independent operation teams responsible for the export and sale of soybean into China. Marubeni will export and sell soybeans into China through its soybean subsidiary. Gavilon will export and sell soybeans into China through its soybean subsidiary. Marubeni shall formulate the implementation plan with respect to the establishment of the above two independent entities, which shall be carried out reporting to the supervision trustee and upon the approval of MOFCOM. This shall be supervised as set out in this decision. Marubeni s soybean company and Gavilon s soybean company shall remain separate and independent, as regards the following matters,including but not limited to, the appointment and dismissal of personnel, procurement, marketing, sale, pricing, etc. In order to ensure such independence, Marubeni and Gavilon shall formulate firewall measures in advance, which shall be carried out after reporting to the supervision trustee and upon the approval of MOFCOM. This shall be supervised as set out in this decision. Upon completion of this concentration, Marubeni s soybean company shall not purchase soybeans from Gavilon s American Asset (the asset located in the U.S.A. which is solely controlled by Gavilon and engaged in the products procurement and export), except as conducted under fair market conditions. Upon the completion of the concentration, if Marubeni s procurement and export assets located in the U.S.A. are transferred and incorporated into Gavilon s assets, Marubeni s obligation to procure soybeans based on the principles of fairness and reasonableness will be extended to such assets. In order to ensure the enforcement of the principles of fairness and reasonableness, Marubeni and Gavilon shall formulate firewall measures (including the possibility of setting up a Chinese wall between Marubeni s soybean company and Gavilon s American Asset) in advance, which shall carried out after reporting to the supervision trustee and upon the approval of MOFCOM. This shall be supervised as set out in this decision. Marubeni s soybean company and Gavilon s soybean company shall not exchange competitive information between each other. The competitive information refers to any information that may lead Marubeni s soybean company and Gavilon s soybean company to coordinate their respective business behaviors, which 4

includes but not limited to the sale price of soybean in China, information relating to the commercial terms for the procurement and sale, cost information, existing or potential customers, negotiation with customers and customers lists, marketing and strategic plans, etc. In order to ensure the achievement of above goal, Marubeni and Gavilon shall formulate firewall measures in advance, especially by setting up a Chinese wall between Marubeni s soybean company and Gavilon s American Asset to make sure that they would not exchange competitive information. Such measures shall be carried out after reporting to the supervision trustee and upon the approval of MOFCOM, and shall be supervised as set out in this decision. 2. In accordance with the Interim Regulations on Implementing the Divestiture of Assets or Businesses in Concentration of Business Operators, Marubeni shall appoint an independent supervision trustee to supervise the performance by Marubeni of the above obligations. Within 24 months after the implementation of this decision, Marubeni shall provide reports to MOFCOM and the supervision trustee regarding its compliance with the obligations as set out in Item 1 above every six months. Upon the expiration of those 24 months, Marubeni may submit to MOFCOM an application for discharging the obligations as set out in Item 1 above. Such application shall set out the implementation status of the restrictive conditions under this decision and the reasons for discharging the above obligations along with relevant evidence. MOFCOM will make the decision on whether or not the obligations should be discharged by taking into consideration Marubeni s application and the conditions of competition in the relevant market. In order to perform the above obligations, Marubeni shall submit a detailed operation plan to MOFCOM within ten days after the determination of the supervision trustee, which shall be implemented upon the approval of MOFCOM MOFCOM has the right to examine, either by itself or through the supervision trustee, the performance by Marubeni of the above obligations. If Marubeni fails to duly perform the above obligations, MOFCOM will deal with it pursuant to the relevant provisions of Anti-Monopoly Law. This announcement shall take effect on the date of its promulgation. The Ministry of Commerce of the People s Republic of China 22 April 2013 5