China Approves Warren Buffett’s Heinz Buy
After repeatedly criticizing China’s anti-monopoly regulator for its slowness in approving global M&A, I finally have to congratulate the Chinese Commerce Ministry for improving its record with the relatively fast approval of a major deal. In this case, the ministry has given its official approval just over 3 months after Warren Buffett’s Berkshire Hathaway announced it would partner with private equity firm 3G Capital to buy US ketchup giant H.J. Heinz (NYSE: HNZ) for $28 billion. Heinz announced that the Chinese green light is just the latest in a necessary string of approvals for the deal to close. (company announcement) It said the deal has already been approved by antitrust regulators in the US, Brazil, India, South Korea, Japan, Israel, Mexico, South Africa and Ukraine, and has also received other necessary regulatory approvals in Russia, New Zealand and Ireland. It is still awaiting anti-trust clearance in the critical EU market, as well as in Russia.
So, let’s examine this matter a bit more closely to see why I’m at once commending China but also still think it needs to keep working to cut its bureaucracy in approving this kind of major global M&A. While China only took a little over 3 months to approve this deal, which was first announced in mid-February, it was still one of the last major players to give its approval, behind only the EU and Russia. What’s more, this deal has little or no antitrust implications, which should have made such approval quite easy. Both Berkshire Hathaway and 3G Capital are pure investment firms, with little or no direct involvement in the food sectors where Heinz makes most of its money.
Of course it’s possible that one or both of these buyers already owns some food-making assets in their portfolios, and might be considering combining those with Heinz before eventually selling off the new company at a premium. That potential is certainly reason for requiring anti-trust clearance, since Heinz is one of the world’s biggest ketchup makers; but it’s also quite easy to determine if there is any reason for concern, since both Berkshire and 3G Capital undoubtedly disclosed all their related investments to the various regulators when they applied for approval of the deal.
This relatively speedy approval by China’s Commerce Ministry contrasts sharply with several other major deal where the approval process dragged on for months or even a year for no apparent reason. Such delays can cause big business disruptions for the merger partners, since the companies awaiting approval must stay in a “holding pattern” during that time that prevents them from making most major business decisions.
Most recently, China was taking its time in approving a deal that would see Taiwanese chipmakers MediaTek (Taipei: 2454) and MStar merge (Taipei: 3697). That deal was first announced in the middle of last year and the pair hoped to complete it by January. But they had to delay their plans after the Chinese regulator failed to give its approval as of late March. I haven’t seen any announcements since then of the deal’s approval, and suspect it’s still being considered.
The Commerce Ministry also forced US food giant Dole (NYSE: DOLE) to restructure the sale of its Asia operations to a Japanese buyer due to delays in getting approval from China; and in February British consumer products giant Unilever (London: ULVR) announced that similar delays were holding up the planned sale of its Skippy brand of peanut butter. (previous post) Before that, lengthy review processes also held up Google’s (Nasdaq: GOOG) purchase of Motorola Mobility, and Nokia Siemens Networks’ purchase of Motorola’s networking equipment business.
This relatively speedy approval of the Heinz deal looks like a good sign, meaning the regulator is trying to streamline its review process for this kind of relatively straightforward deal that doesn’t have any obvious anti-trust implications. But the real test will come with the next major merger between 2 players from the same industry. When that happens I suspect the Chinese Commerce Ministry will again be among the last of the major global regulators to approve the deal, again causing headaches for the businesses involved.
Bottom line: China’s relatively quick approval of a major global M&A deal indicates the regulator is streamlining its bureaucracy for such transactions.
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