On 4 January, the Antimonopoly Bureau of the Chinese Ministry of Commerce (MOFCOM) published a decision made on 16 December in which Canon, a Japanese imaging and optical products manufacturer, was fined for implementing its acquisition of Toshiba Medical prior to receiving pre-merger clearance.
After Canon had obtained exclusive negotiation rights to purchase Toshiba Medical from Toshiba, the parties agreed to implement the transaction in two phases.
In a first phase, Toshiba Medical underwent a share restructuring to create three types of rights (20 voting shares, one non-voting share, and convertible stock options for 100 per cent of the target’s ordinary shares). Toshiba then entered into two parallel agreements, one with MS Holding (a special-purpose company set up by three individuals) and one with Canon. The decision does not explain whether MS Holding or its shareholders are affiliated with Canon. Pursuant to the agreement with MS Holding, Toshiba sold all of the voting shares in Toshiba Medical to MS Holding. At the same time, pursuant to the agreement with Canon, Toshiba sold the non-voting share as well as the convertible stock options to Canon. The first phase was implemented immediately. While the amounts are redacted in the published version of the decision, it appears that a substantial consideration was paid by Canon upon completion of this first phase.
In a second phase, whose implementation was subject to merger control approval, Canon was to exercise its rights to acquire 100 per cent of the voting shares in Toshiba Medical. At the same time, all other shares would be repurchased by Toshiba Medical and cancelled, making Canon the sole shareholder. Canon would pay a token JPY100 ($1) consideration at that time to exercise its rights under the option.
MOFCOM considered that the two phases were closely connected and formed an indivisible part of Canon’s acquisition of Toshiba Medical. MOFCOM concluded that with the closing of the first phase, parties had started implementing their transaction, in violation of the standstill obligation under Article 20 of the Antimonopoly Law. MOFCOM decided to impose a fine of RMB300,000 ($40,000) on Canon for this infringement. The decision explains that this amount was set having regard to the fact that Canon did seek approval and that the transaction had not been fully implemented by the time clearance was sought; but that the two-phase structure was clearly designed to allow Canon to pay consideration to Toshiba early so as to assist with its financial difficulties, in full knowledge that pre-merger approval was required, showing its intent to circumvent the standstill obligation under the law.
MOFCOM otherwise approved the transaction, as it found that it does not restrict or eliminate competition.