On 13 August 2012, the Ministry of Commerce (“MOFCOM”) granted conditional anti-monopoly approval clearance for Wal-Mart Stores, Inc's acquisition through GEC 2 Pte. Ltd., its wholly owned subsidiary, of a 33.6% interest in Niuhai Holdings Company Limited (“Niuhai Holdings”), which will raise Wal-Mart's total holding in Niuhai Holdings to 51.3% from 17.7%. The initial anti-monopoly filing for the transaction was made on 16 December 2011, and MOFCOM deemed the application complete on 16 February 2012. The review was extended on 16 March 2012. The approval was received approximately six months after the submission was deemed complete.
The transaction is of interest because Niuhai through its subsidiary, Niuhai Information Technology (Shanghai) Co., Ltd. (“Niuhai Shanghai”) controls one of China's leading online sales platform, Yihaodian, which is owned by Shanghai Yishidou E-commerce Co Ltd., which operates both a direct online retail sales business and acts as an online intermediary between third party vendors and purchasers pursuant to a value-added telecommunication service licence. The value-added telecommunication sector is restricted for foreign investors whose equity interest in a company holding such licence cannot exceed 50%.
In imposing conditions of the transaction, MOFCOM found that the acquisition would have an anti-competitive impact on the retail B2C market in China due to Wal-Mart's extensive distribution, logistics and service network established through its physical stores. The market for this review was defined as the retail B2C market in China, which excludes physical retail shops, creating a smaller market in which to assess impact.
Approval with Conditions
In order to address this concern, Wal-Mart has agreed to a number of conditions to the transaction. These conditions include:
This is one of the first explicit mentions of the VIE structure by MOFCOM and may suggest that MOFCOM is preparing to more closely regulate those structures. While this is another unfavourable mention of the VIE structure by PRC regulators, the decision interestingly did not state that such structures are illegal.