China’s SAMR Tests Its ‘Call In’ Power in Synopsys/Ansys
June 5, 2024
On May 16, 2024, US corporation Synopsys, Inc. (“Synopsys”) disclosed in an SEC filing that it had received a notice on May 14 from China’s State Administration for Market Regulation (“SAMR”) advising it that the SAMR took the view that Synopsys is required to seek the approval of the SAMR for its contemplated $35 billion acquisition of US corporation Ansys, Inc. (“Ansys”). In the notice, the SAMR acknowledged that the transaction fell below China’s revenue-based merger notification thresholds, which would render a filing mandatory where they are exceeded, but explained that it took the position that Synopsys must notify the transaction to the SAMR for approval regardless.1
This important development is the first published instance of the SAMR exercising its discretionary power to call in a foreign-to-foreign merger. In our Client Alert of January 31, 2024 (available here), O’Melveny noted the express reference to this power in the recently revised Provisions of the State Council on the Thresholds for the Prior Notification of Concentration of Undertakings (国务院关于经营者集中申报标准的规定) (the “Provisions”). It was telling that the Provisions, which served to raise the revenue-based notification thresholds, contained this reference, clearly signaling that the legislative intent behind raising the thresholds (thus restricting the number of notifiable transactions) was to afford the SAMR the resources it would need to call in transactions that facially raise competition concerns (in the SAMR’s view) regardless of whether the turnover thresholds are exceeded. The inclusion of the reference to this power to call in transactions in the Provisions harkens back to a revision to the Chinese Anti-Monopoly Law (“AML”) made in June of 2022. This revision, made to Article 26 AML, was in the following terms:
“Where a concentration of undertakings falls below the notification thresholds stipulated by the State Council, but there is evidence that the concentration has or is likely to have the effect of eliminating or restricting competition, the [SAMR] may request the undertakings to file a notification.
If the undertakings fail to file a notification…, the [SAMR] shall conduct an investigation in accordance with the law” (emphasis added).
As can be seen from the emphasized wording in Article 26 AML, for SAMR’s call in power to be engaged, there needs to be “evidence” that the proposed transaction “has or is likely to have the effect of eliminating or restricting competition.” It can be assumed the threshold requirement of “evidence” is not a particularly high one and might be compared with the “reasonable suspicion” that triggers similar powers in other jurisdictions. In any event, it is certainly important that the SAMR reportedly met with a number of Chinese domestic competitors, downstream customers, and industry associations, who reportedly urged it to intervene, raising alleged horizontal concerns regarding electronic-design automation (“EDA”), where Synopsys and Ansys are important players.2 Chinese customers reportedly also complained to the regulator that the transaction may give rise to bundling and interoperability issues (perennial concerns in the SAMR’s reviews of high-tech transactions involving complementary products) and concerns arising out of the application of the US export control restrictions on advanced semiconductor products.3 This latter point is frequently raised by Chinese stakeholders in the SAMR’s reviews of acquisitions by US semiconductor companies where the argument is that the acquisition will, in some way, adversely impact the security of supply of important technological inputs.
The takeaway for parties to technology transactions—in particular those that have been at the forefront of the tech trade tensions between the US and China—is that hoping to close without having to navigate the intricacies of the SAMR’s regulatory review just got a little bit harder. Particularly given the importance that the SAMR attaches to the views of Chinese customers and other stakeholders when determining whether a deal merits closer inspection, and now whether there is sufficient “evidence” to call in a transaction, or whether a remedy might be required to address a competition concern.
1 Synopsys 8K (May 16, 2024), available here; ANSYS 8K (May 16, 2024), available here.
2 “Synopsys, Ansys deal prompts SAMR's early engagement with third parties,” MLex (March 26, 2024), available here.
3 “Synopsys, Ansys deal sparks concerns in China over bundling, trade controls,” MLex (April 29, 2024), available here.
This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Philip Monaghan, an O’Melveny partner licensed to practice law in Hong Kong, England and Wales, and Ireland; Lining Shan, an O’Melveny senior legal consultant in the firm’s Beijing office; and Vivian Wang, an O’Melveny associate licensed to practice law in China, New York, and the District of Columbia, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.
© 2024 O’Melveny & Myers LLP. All Rights Reserved. Portions of this communication may contain attorney advertising. Prior results do not guarantee a similar outcome. Please direct all inquiries regarding New York’s Rules of Professional Conduct to O’Melveny & Myers LLP, 1301 Avenue of the Americas, Suite 1700, New York, NY, 10019, T: +1 212 326 2000.