monopoly Review of the Concentration of Undertakings on Conditional Approval of Proposed Acquisition of Equity in St. Jude Medical by Abbott
MOFCOM Announcement No. 88 of 2016 on Decisions from Anti-monopoly Review of the Concentration of Undertakings on Conditional Approval of Proposed Acquisition of Equity in St. Jude Medical by Abbott
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The Ministry of Commerce of the Peopleâs Republic of China (hereinafter referred to as the âMinistry of Commerceâ) received the anti-monopoly declaration of the concentration of undertakings on the case of the acquisition of equity in St. Jude Medical Inc. (hereinafter referred to as âSt. Jude Medicalâ) by Abbott (hereinafter referred to as the âCaseâ). Upon review, the Ministry of Commerce decided to approve the concentration of undertakings with additional restrictive conditions. In accordance with Article 30 of the Anti-monopoly Law of the People's Republic of China (hereinafter referred to as the âAnti-monopoly Lawâ), relevant matters are hereby announced as follows:

I. Case-filing and review procedures

On July 4th, 2016, the Ministry of Commerce received the anti-monopoly declaration for the concentration of undertakings concerning the Case. Upon review, the Ministry of Commerce considered that the documents for declaration were incomplete, and required the declarer to conduct supplementation. On September 6th, after further supplementation, the Ministry of Commerce confirmed that the documents and materials complied with Article 23 of the Anti-monopoly Law, and therefore the anti-monopoly declaration for the concentration of undertakings was admitted to be filed, and the preliminary investigation was launched. On October 6th, the Ministry of Commerce decided to further review this concentration of undertakings. Upon review, the Ministry of Commerce considered that the concentration might have the effects of eliminating and restricting competition in the market of small vascular closure devices in China. The Case is currently under review. The deadline is January 4th, 2017.

In the course of the review, the Ministry of Commerce solicited opinions from relevant government departments, trade associations and industry experts, and reviewed the authenticity, completeness and accuracy of the documents and materials submitted by the declarer.

II. General information of the Case

Abbott, the acquirer, which was founded in 1900, is a global healthcare company based in Illinois, America. It is mainly engaged in drugs, nourishment, medical devices and diagnostic services.

St. Jude Medical, the acquiree, which was founded in 1976, is a global medical device company based in Minnesota, America. It is mainly engaged in cardiovascular medical devices and other business.

On April 27th, 2016, Abbott and St. Jude Medical concluded the Merger Agreement, specifying that Abbott will purchase all the equity in St. Jude Medical. Upon the transaction, St. Jude Medical will become a wholly-owned subsidiary of Abbott.

III. Relevant markets

(1) Relevant commodity markets.

After reviewing all the products that Abbott and St. Jude Medical are selling in the Chinese market, the Ministry of Commerce found that Abbott and St. Jude Medical laterally overlap only in small vascular closure devices.

Vascular closure means that in the minimally invasive diagnosis and intervention of cardiovascular surgery, the blood vessel puncture point will produce a cavity, and this cavity must be closed after surgery to prevent blood loss. In general, vascular closure can be achieved in four ways: artificial compression, closed assist devices, surgical sutures and vascular closure devices. A vascular closure device is a disposable medical device for closing the lumen of the blood vessel. By injecting the occlusion of the lumen (such as a collagen anchor) into the blood vessel, it temporarily blocks the vascular cavity with the umbrella design in its front; at the same time, by using the elastic retraction of the arterial wall, the lumen of the blood vessel is reduced, the umbrella occluder in the front end is left in the sub-layer of the vascular wall, and a seal tightly fits the puncture point in the vascular cavity; a little pressure at this point on the outside can achieve the effect of closing the blood vessels. The use of vascular closure devices significantly reduces the length of postoperative bed and hospital stay, improves patient comfort, significantly reduces the incidence of vascular complications and venous thrombosis, and is significantly different from other vascular closure methods. The vascular closure device is bound by a closed diameter 8F (1F=1/3 mm) vascular cavity, and divided into the large cavity vascular closure device and small vascular closure device. The small vascular closure device is defined as a vascular closure device less than or equal to 8F, and neither can be substituted for the other. There is only lateral overlap in the bilateral concentration of the small vascular closure device market. Therefore, the case defined the small vascular closure device as the relevant product market.

(2) Relevant geographic market

The small vascular closure device is a medical equipment product related to human health and life safety. According to the Regulations on the Supervision and Administration of Medical Devices, the China Food and Drug Administration adopts the registration administration of undertakings, and undertakings are required to obtain production or operation licenses in accordance with the law. Therefore, the relevant geographic market of the small vascular closure device is China.

IV. Competitive analysis

The Ministry of Commerce reviewed the concentration of undertakings in terms of the relevant market concentration rate, market share and market control forces of the undertakings participating in concentration, the level of difficulty in market entry and other factors based on those required in Article 27 of the Anti-monopoly Law, deeply analyzed the impacts of the concentration of undertakings on market competition and thereby came to believe that the concentration of undertakings might have adverse effects of eliminating and restricting competition in the Chinese market of small vascular closure devices.

(1) The transaction may lead to the enhanced market control of Abbott in the relevant market.

In 2015, in the Chinese market of small vascular closure devices, Abbott and St. Jude Medical had a market share of 71.3% and 23.9% respectively, amounting to more than 95%, while other competitors had a market share of less than 5% in total; the HHI before and after the transaction was 5,678 and 9,086 respectively, and the â³HHI was 3,408. The relevant market was highly concentrated before the transaction. As such, this transaction will further improve market concentration, and Abbott's market control will be further enhanced, while the competitors will have too little market force to form workable competition constraints.

(2) The transaction will eliminate the competition between two close leading competitors in the relevant market.

According to the review, in the Chinese market of small vascular closure devices, Abbott and St. Jude Medical are the closest competitors. As they have similar product performance, client base and marketing channels, they compete fiercely and restrict each other. This transaction will eliminate the competition between these two close leading competitors in the relevant market.

(3) In the short term, it is difficult to have effective competitors as access to the relevant market is very hard.

The Ministry of Commerce noted that as the technical content of small vascular closure devices is high, and the acquisition of market access permission from relevant regulatory authorities takes a long time, it will be difficult to have new competitive participants in the Chinese market in the short term, causing a situation in which it is impossible to form workable competition constraints over Abbott, and eliminating the competition problem generated by such concentration.

(4) This transaction will damage the interests of consumers.

After the completion of this transaction, as Abbott will have stronger market control, it will have cause to raise the price of related commodities or slow down the price decline by sacrificing service quality, and have the ability to act as above, resulting in damage to the interests of consumers.

In conclusion, the concentration of undertakings in question may eliminate and restrict competition in the Chinese market of small vascular closure devices, which will ultimately damage the interests of Chinese consumers.

V. Discussion with additional restrictive conditions

In the course of review, the Ministry of Commerce notified Abbott in good time of the review opinion that the Case might eliminate and restrict competition, and held several rounds of negotiation with Abbott with respect to matters concerning how additional restrictive conditions may reduce the detrimental effects of this concentration of undertakings on market competition. With respect to the restrictive conditions plan submitted by Abbott, the Ministry of Commerce mainly made evaluations in terms of the scope, validity, existence, competitiveness and marketability of the business to be divested, and the qualification of the purchaser of the business, in accordance with the Provisions on Additional Restrictive Conditions for the Concentration of Undertakings (Trial for Implementation).

Upon evaluation, the Ministry of Commerce believes that the final proposal on restriction conditions submitted by Abbott to the Ministry of Commerce on December 12th, 2016, and the Purchase Agreement concerning the business to be divested signed among Abbott, St. Jude Medical and the Terumo Corporation (hereinafter referred to as âTerumoâ) on December 6th, 2016, can reduce the adverse effects of the concentration of undertakings on market competition.

VI. Decisions

Given that the concentration of undertakings will have the adverse effect of eliminating and restricting competition in the Chinese market of small vascular closure devices, according to the final proposal on restrictive conditions submitted by Abbott to the Ministry of Commerce, the Ministry of Commerce has decided to approve the concentration with the additional restrictive conditions, and requires Abbott and St. Jude Medical to perform the following obligations:

(1) To divest the small vascular closure device business of St. Jude Medical.

(2) To sell the business to be divested and provide services during the transitional period to Terumo in strict accordance with the Purchase Agreement.

(3) To complete the divesture within 20 days of the date on which Abbott completes the acquisition of St. Jude Medical. To strictly fulfill Article 20 of the Provisions on Additional Restrictive Conditions for the Concentration of Undertakings (Trial for Implementation) from the date of this announcement to the date of the completion of the divesture to ensure the existence, competitiveness and marketability of the business to be divested.

(4) Abbott shall, within ten days of the date of the completion of divesture, submit a written report on the divesture to the Ministry of Commerce, and a written report on services during the transitional period to the same every half a year thereafter.

The aforesaid obligations of Abbott and St. Jude Medical will be dissolved as of the expiry date of the transitional period.

Besides the supervision and execution of such restrictive conditions subject to announcement, the final proposal on restrictive conditions submitted by Abbott to the Ministry of Commerce on December 12th, 2016, and the Purchase Agreement signed among Abbott, St. Jude Medical and Terumo on December 6th, 2016 shall be binding upon Abbott and St. Jude Medical.

The Ministry of Commerce has the power to supervise Abbott and St. Jude Medical on its own or through a supervision trustee concerning the fulfillment of the above obligations. Where Abbott and St. Jude Medical fail to fulfill the above obligations, the Ministry of Commerce will handle the matter according to the Anti-monopoly Law.

This Decision shall come into force as of the date of the announcement.

Ministry of Commerce

December 30th, 2016