China Approves Microsoft, InBev Buys

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Includes: BUD, MSFT
by: Doug Young

China’s is steadily improving its review process for major M&A, with the country’s anti-monopoly regulator giving the nod to major acquisitions by software leader Microsoft (NASDAQ:MSFT) and brewing giant Anheuser-Busch InBev (NYSE:BUD) on the same day this week. The bigger of the 2 deals saw the Commerce Ministry approve Microsoft’s purchase of Nokia’s (NYSE:NOK) cellphone assets; while the latter saw InBev get approval for its purchase of Siping Ginsber, a mid-sized Chinese brewer.

Timing of the approval for these 2 major deals is probably coincidental, as the Microsoft deal is much larger than the InBev’s purchase, which probably got far less scrutiny. But the broader picture certainly looks good for major global M&A, as China signals that it won’t let politics become grounds for vetoing major global deals.

Let’s start with a look at the Microsoft deal, which was announced last September and saw the company agree to buy Nokia’s struggling cellphone business for $5.2 billion. The Commerce Ministry’s approval of the deal comes after regulators in all other major markets, including the US and Europe, already cleared the deal. (English article) China imposed a few minor conditions for its approval, including requiring that fees not be raised on Microsoft’s cellphones and wireless technology patents.

It’s worth noting that the deal was originally set to close at the end of last month, but that Microsoft and Nokia had to delay the date while they waited for regulatory clearance from unspecified Asian markets. Of course everyone knows they were talking about China, which is still learning how to review such cases and often takes a bit longer than western countries to approve such deals. In this case, the 6 month approval time is a bit long; but it’s also quite a bit shorter than the time required for some previous similar deals. And the actual approval seems like the most important point in this case.

China’s big concern with any deal involving mobile phones is always prices, as many of its domestic manufacturers often complain that foreign companies exert too much control on the market through their large patent portfolios. It would have been easy for the Commerce Ministry to impose more conditions on its approval to placate domestic manufacturers. So in that regard the regulator should be commended for doing a relatively fair job, even if it took a bit of time to reach its conclusion.

From Microsoft, let’s look quickly at the other deal involving InBev’s purchase of Siping Ginsber. (Chinese article) Truth be told, this particular deal hasn’t attracted too much attention, even though earlier reports said the western brewing giant was preparing to pay a relatively large $630 million for the Chinese company. Ginsber’s biggest asset is its draft beer-making operation, and the company is the nation’s largest in that category.

It’s not clear when exactly the deal was signed and an application was submitted to the regulator for approval, but it looks like that probably happened sometime in February. So relatively speaking, this approval took a relatively short period to approve of about 2 months.

A quick look at some market data will show why this deal was probably an easy one to review. InBev is currently China’s third largest brewer with about 13 percent of the market, behind leaders CR Snow (HKEx: 291) and Tsingtao (OTCPK:TSGTF) with 23 percent and 17 percent share, respectively. Three major brewers is certainly still a very competitive landscape for the market, and the regulator should be commended for approving the deal despite probable politically-motivated protectionist pressure from the other 2 big domestic brewers.

Bottom line: China’s approval of 2 major global M&A deals reflects its growing skill at reviewing such cases, and indicates political considerations won’t be a major factor in its approval process.