China Antitrust Review on Blackstone Deal

$SOHO CHINA (00410.HK)$
On August 6, as this transaction encountered an antitrust investigation by the State Administration for Market Regulation, Blackstone's acquisition of soho china once again changed. The market is cautious about whether this transaction can be completed.
IPG China's chief economist Bai Wenxi, in an interview with the Business School reporter, said that Blackstone already holds many commercial properties in China, and the acquisition of SOHO China has indeed triggered the need for antitrust review. This event only represents Blackstone's acquisition of SOHO China entering the antitrust investigation stage of Chinese regulatory authorities. As for whether further information needs to be provided, further explanations need to be made, and whether this transaction will be approved or rejected, there is a great deal of uncertainty.
Bai Wenxi believes that, based on the current situation, the antitrust review is the ostensible reason, and the sale of SOHO China at a low price also involves capital outflows, but this issue is something that cannot be ignored for an institution whose actual controller is a private enterprise.
Bai Wenxi expects that if this transaction ultimately fails to be completed, it will be a significant bearish signal for SOHO China and its actual controllers, Pan Shiyi and his wife. This is also the main and direct reason for the recent sharp drop in SOHO China's stock price after rumors that this transaction was halted. In terms of the current economic atmosphere in China, there is still considerable uncertainty about how this event will develop.
Zhuge Zhaofang Data Research Center analyst Chen Xiao also holds a cautious attitude towards whether the acquisition will be successful. Chen Xiao believes that whether it can smoothly pass the filing review will play a key role in the success of this transaction. If it is found during the review that Blackstone is involved in monopoly activities during the acquisition process, the transaction may face a halt. On the one hand, due to strict scrutiny by relevant departments on "antitrust" issues; on the other hand, the capital markets are also experiencing turbulence, coupled with the fact that the progress of this transaction is not smooth. Overall, the success of Blackstone in acquiring SOHO still faces significant uncertainty.
Regarding the risks of this acquisition, Yan Yuejin, Director of the Think Tank Center of E-house Research Institute, believes that the fact that the acquisition is under review indicates the need for all types of real estate mergers and acquisitions to understand the policy orientation. Blindly negotiating business or trading often involves various risks. Additionally, there are many rumors about 'SOHO fleeing,' which objectively will make asset mergers and acquisitions more difficult.
In addition to market judgment, from a legal perspective, how does Blackstone's acquisition of SOHO being put under investigation affect the success of the transaction, and how will the direction of this transaction develop?
In response, Wei Yan, Associate Professor of Shanghai University Law School and Director of the International Exchange and Cooperation Center, stated in an interview with 'Business School' reporters that asset acquisitions and equity acquisitions both fall under the 'operators' concentration' of anti-monopoly law. According to the Anti-Monopoly Law and the State Council's regulations on the declaration standards for operators' concentration, when the concentration of operators meets the statutory declaration standard, the operators must declare to the State Council's anti-monopoly law enforcement agency in advance, and concentration cannot be implemented without declaration.
Currently in China, the declaration is based on revenue standards, that is, the operators involved in the concentration meet the statutory revenue standard in the global or domestic market: (1) The total revenue of all operators involved in the concentration in the previous fiscal year exceeds 10 billion RMB globally, with at least two operators having revenue exceeding 0.4 billion RMB in China; (2) The total revenue of all operators involved in the concentration in China exceeds 2 billion RMB in the previous fiscal year, with at least two operators having revenue exceeding 0.4 billion RMB in China.
According to financial reports, Blackstone Group had a revenue of $6.102 billion in the 2020 fiscal year; SOHO China had a revenue of 2.192 billion yuan in the 2020 fiscal year. Based on the aforementioned prerequisites, Blackstone's acquisition of SOHO meets the operator concentration declaration standard.
Wei Yan believes that in this case, the offering party voluntarily declared to comply with the Anti-Monopoly Law's mandatory pre-declaration obligation, and the State Administration for Market Regulation conducted an antitrust review according to law. Antitrust declaration is an indispensable procedure in merger and acquisition transactions.
According to the operator concentration review procedure, after the case is filed, the initial review period is 30 days, the further review period is 90 days, with the possibility of extensions up to 60 days. Therefore, the maximum review period can be up to 180 days.
Wei Yan believes that in this case within the commercial property sector, the antitrust review mainly focuses on the analysis of the impact of operators' market share, market concentration, concentrated transactions on market entry, consumer welfare, and national economic development. The assessment of competitive effects that may be brought about in relevant markets is the key factor in determining whether to approve or prohibit the concentration. The review results include unconditional approval of concentration, approval of concentration with additional restrictive conditions, and prohibition of concentration. Since the implementation of China's Anti-Monopoly Law, there have been only 3 cases of prohibited operators' concentration. There are currently no instances of concentrated cases in the real estate sector with additional restrictive conditions or prohibitions.
In addition, Wei Yan pointed out that according to laws and regulations such as the Foreign Investment Law, the National Security Law, the Measures for the Security Review of Foreign Investment, when foreign investors acquire domestic enterprises in China, they not only need to undergo antitrust review, but also need to undergo a foreign investment security review to examine foreign investments that may affect or potentially affect national security. Therefore, the success of this transaction depends not only on whether the transaction conditions agreed upon by both parties are met, but also on waiting for the review and evaluation results of the relevant regulatory institutions.