As the global economic recovery quickens, M&A deals between foreign companies are on the rise, especially large scale cross-border M&A which can impact the Korean market.
Under Korean merger control law, even where M&As occur outside of Korea between foreign corporations, if the asset value of the notifying company exceeds KRW200 billion ($179 million) and that of the target KRW20 billion or vice versa and the sales turnover in Korea exceeds KRW20 billion, then a business combination notification must be filed with the Korea Fair Trade Commission (KFTC).
On October 19 2010 the KFTC closed its review of a business combination notification filed on December 28 2009 by BHP Billiton and Rio Tinto, the second- and third-largest producers of iron ore, respectively, to establish a production joint venture after the companies withdrew such notification. It is believed that the KFTC's finding that the Australian transaction would be anti-competitive played a significant role in discouraging the two companies from proceeding with the transaction.
With the worldwide iron ore supply market dominated by three major players, Vale (Brazil), Rio Tinto, and BHP Billiton, with a combined 73% market share, the combination of BHP Billiton and Rio Tinto would make the resulting entity the largest producer of iron ore, representing 37%. For Korea, heavily dependent on iron ore imports, the transaction would have a substantial adverse impact on its overall industry.
The KFTC, based upon wide opinion surveys and economic analysis, concluded that the combination would be anti-competitive with respect to iron ore lumps and fines in the worldwide seaborne market, and noted that a joint venture even for the limited purpose of production could have the same effect as a full-fledged merger, considering that joint production would remove the incentive to compete, and common control by the two parent companies would inevitably lead to the exchange of information between their sales departments.
While there are several cartel cases in which the KFTC previously exchanged information with foreign competition authorities, this case is the first where the KFTC applied its merger control regulations to an M&A outside of Korea. The KFTC also played a leading role in reviewing and implementing enforcement through comprehensive international coordination with Japan, the EU and other competition authorities extending well beyond the mere exchange of information, and focusing on harmonising the timing and degree of corrective measures.
Actual enforcement of any corrective measures is imperative for cross-border M&A transactions and, with this precedent, international cooperation will play an increasingly pivotal role in the future.
Chan Sik Ahn
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