By Liu Cheng, Simon Holmes and Michael Reiss King & Wood Mallesons

001Chholmes_sinese State-owned enterprises (SOEs) acquiring businesses or entering into joint ventures with other parties may unexpectedly trigger an EU merger filing. This was clarified by the European Commission’s decision clearing the UK joint venture between China General Nuclear Power Corporation (CGN) and Électricité de France (EDF), which was published on 26 April 2016. [1]

The important message for Chinese SOEs is as follows: in deciding whether the Commission has jurisdiction to review a transaction and in its competitive assessment, the Commission is likely to take into account not only the Chinese SOE directly involved in the transaction, but also the turnover and activities of other Chinese SOEs.

This makes it easier for transactions involving Chinese SOEs to trigger the EU merger control regime. It also means that the information they will need to provide to the Commission is likely to be significant, resulting in longer pre-notification discussions (or, if not done, a greater risk of transactions being referred to a longer phase 2 investigation).

Transactions requiring an EU filing must be cleared by the Commission before they can be implemented. The Commission has fined companies in the past for failing to notify – even where there were ultimately no competition concerns. Fines can be up to 10% of a notifying party’s global group turnover.

There are two steps in the EU merger control process where the Commission’s inclusion of other SOEs – not party to the transaction – can be crucial: jurisdiction and substantive assessment.

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