China Flexes Anti-Monopoly Muscle in Hard Disks
New comments from China’s anti-monopoly regulator show it is preparing to play an increasingly active role on the global M&A stage, reflecting the nation’s growing importance as not only a major global manufacturer but increasingly also a consumer of many products. The comments from a top Commerce Ministry official, in this case regarding the pending acquisition of Hitachi’s (Tokyo: 6501) memory storage business by Western Digital (NYSE: WDC), look quite intelligent to me, showing that China is taking its new role quite seriously and that it could soon become a major gatekeeper for big global M&A deals, a job now mostly performed by the US and European Union. (English article; Chinese article) In this particular case, the head of the ministry’s anti-monopoly bureau, Shang Ming, made suitably cautious comments at a year end event in Beijing by saying his department is concerned the deal could harm competition in the global market for hard disc drives “to a certain extent”. With this kind of comment, Shang is indicating his department is likely to approve the deal, but only after Western Digital and Hitachi take steps to ensure the global market for disc drives remains competitive, most likely by selling off some assets to another rival. Such conditions are relatively common in global M&A, and are frequently imposed by the US and European regulators before they approve many major global deals. In fact, China has previously imposed such conditions on other major global M&A in its brief history of regulating such deals, though in the few such cases to date conditions have been relatively mild. These latest comments indicate that could change in the future as China looks to play a bigger role in global markets. All this looks good if the Commerce Ministry continues to develop itself as a fair judge dedicated to free trade. It showed movement in that direction last month, when it approved the purchase of leading hot pot chain Little Sheep by Yum Brands (NYSE: YUM), operator of the KFC chain, casting aside concerns by some that the deal might be vetoed for more nationalistic reasons. Global companies will undoubtedly be watching carefully for the final decision in this Western Digital deal; but final conditions that are reasonable and fair will give more credibility to China as it seeks to establish itself as a serious player in regulating the flow of major global M&A.
Bottom line: China’s careful approach to Western Digital’s pending purchase of Hitachi’s hard disc drive business reflects its growing maturity as an arbiter of major global M&A.
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