The Ministry of Commerce of the People’s Republic of China received the anti-monopoly declaration of concentration of undertakings on the acquisition of Gambro AB (hereinafter referred to as Gambro) by Baxter International Inc. (hereinafter referred to as Baxter). 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 Anti-monopoly Law), relevant matters are hereby announced as follows:
I. Case-filing and review procedures
On December 31, 2012, the Ministry of Commerce received the anti-monopoly declaration of concentration of undertakings on the acquisition of Gambro by Baxter. After examining the documents and materials for declaration, the Ministry of Commerce decided that they were insufficient, and required the declaring party to provide supplementary materials. On March 12, 2013, the Ministry of Commerce confirmed that the supplemented documents and materials complied with the requirements in Article 23 of the Anti-monopoly Law, and then filed a case on concentration of undertakings and began initial reviews. On April 10, the Ministry of Commerce decided to carry out further review on the concentration of undertakings. Upon further reviews, the Ministry of Commerce decided that the concentration might eliminate or restrict competition in the market of three commodities of continuous renal replacement therapy (hereinafter referred to as CRRT series commodities) including CRRT monitors, CRRT dialyzers and CRRT blood tubes and the market of hemodialyzers in the hemodialysis series commodities. On July 9, with the consent of the declaring party, the Ministry of Commerce decided to extend the further review to September 7.
In the course of the review, the Ministry of Commerce reviewed the authenticity, completeness and accuracy of the documents and materials submitted by the declaring party, solicited opinions from relevant government departments, trade associations and downstream enterprises, obtained understanding of relevant commodities, industry characteristics and marketing, as well as heard comments with respect to the impact of this acquisition on market competition.
II. Competition analysis
In accordance with the Anti-monopoly Law and relevant regulations, the Ministry of Commerce reviewed the matters involved in the concentration, conducted in-depth analysis of the impact of the concentration on market competition, and decided that the concentration might eliminate or restrict competition in the markets of CRRT series commodities and hemodialyzers.
The acquirer Baxter, which was incorporated in the U.S. in 1931, is a listed company in New York Stock Exchange that is mainly engaged in research and development, production and sales of products curing hemophilia, diseases concerning immune system disorder, infectious diseases, renal diseases, trauma as well as other chronic diseases and serious diseases. The acquiree Gambro, which was incorporated in Sweden in 1942, is a multinational medical technology company that is mainly engaged in research and development, production and sales of products for renal and liver dialysis, cure of myeloma kidney, water treatment system and products for extracorporeal therapy of other chronic and serious diseases. Through the acquisition, Baxter indirectly acquires all the shares of Gambro which will become a wholly-owned subsidiary of Baxter after the acquisition is completed.
(ii) Relevant markets
Baxter and Gambro overlaps in the horizontal business of CRRT series commodities and hemodialysis series commodities. CRRT series commodities are also known as bedside hemo-filters, which are used in hospital intensive care units for dying patients with acute kidney injuries. CRRT series commodities include CRRT monitors, CRRT dialyzers, CRRT blood tubes, CRRT ducts, and CRRT liquor. Hemodialysis equipment is mainly used for curing acute normal kidney injuries and chronic diseases. Hemodialysis series commodities include hemodialysis monitors, hemodialyzers, hemodialysis blood tubes, hemodialysis ducts and hemodialysis liquor. The Ministry of Commerce reviewed the factors in demand such as the prices, treatment emphasis and applicable objects of CRRT series commodities and hemodialysis series commodities, as well as factors in supplies such as the technical features, intellectual property rights required for supplies of commodities and the complexity of production switch, and acknowledged that CRRT series commodities and hemodialysis series commodities formed independent markets of commodities, respectively. The Ministry of Commerce focused on the review of markets of CRRT monitors, CRRT dialyzers, CRRT blood tubes, as well as hemodialyzers with respect to CRRT series commodities.
The Ministry of Commerce reviewed the factors of CRRT series commodities and hemodialysis series commodities in custom duties, transportation costs, imports and exports as well as current trading situations, and considered that it is necessary to analyze the impact of the acquisition on the market competition from the global perspective, and it also reviewed possible impacts of the acquisition on competitions in China’s domestic markets.
The Ministry of Commerce made evaluations on possible impacts on the markets of CRRT monitors, CRRT blood tubes, CRRT dialyzers and hemodialyzers from the market shares, market concentration, controlling power and market access of relevant markets.
1. The acquisition led to further increase in concentration of CRRT series commodities market. No matter in the world or in China, the market concentration of CRRT series commodities was very high before the acquisition. The market concentration indexes (HHI) for global markets of CRRT monitors, CRRT blood tubes and CRRT dialyzers before the acquisition were 3,612, 3,162 and 2,908, respectively, amounting to 4,410, 3,798 and 4,108 after the acquisition. The increase in the index (ΔHHI) reached 798, 636 and 1,200 respectively. In China, HHIs of CRRT monitors, CRRT blood tubes and CRRT dialyzers were 2,738, 3,702 and 4,506 before the acquisition and 3,942, 7,158 and 6,426 after the acquisition with ΔHHI reaching 1,204, 3,456 and 1,920.
2. The acquisition gave the acquirer the dominant position in the market of CRRT series commodities. Before the acquisition, Baxter and Gambro were main competitors in the market of CRRT series commodities. In 2012, in the range of the world, the total market share of the two in the market of CRRT monitors was 64% (Baxter: 7%; Gambro: 57%); their total market share in the market of CRRT blood tubes was 59% (Baxter: 6%; Gambro: 53%); their total market share in the market of CRRT dialyzers was 62% (Baxter: 12%; Gambro: 50%); in China, their total market share in the market of CRRT monitors was 57% (Baxter: 14%; Gambro: 43%); their total market share in the market of CRRT blood tubes was 84% (Baxter: 36%; Gambro: 48%); and their total market share in the market of CRRT dialyzers was 79% (Baxter: 15%; Gambro: 64%). The market share of other competitors was small, having limited impacts on the market. The acquisition eliminated the main competitor in the market of CRRT series commodities, offering Baxter strong market controlling power and causing adverse impacts on market competition.
3. The acquisition increased the possibility that enterprises of hemodialyzers in China coordinated with each other and limited competition. In 2012, in the market of hemodialyzers in China, the market share of Nipro Medical Corporation (hereinafter referred to as Nipro) was 26%, that of Gambro was 19% and that of Baxter was 3%. Before the acquisition, the hemodialyzers products of Baxter were produced by Nipro under an OEM agreement. After the acquisition, Baxter owns the existing production capacity and sales network of Gambro, becoming one of the two main competitors in the market of hemodialyzers in China together with Nipro. Their total market share amounted to 48%. The OEM agreement between Baxter and Nipro included competitive information on such aspects as production costs and quantities. The existence of OEM relation will facilitate the mutual coordination and limitation on market competition.
The Ministry of Commerce, upon review, believes that there are certain obstacles in access to markets of CRRT series commodities and hemodialysis series commodities. First, access to the market of CRRT series commodities or the market of hemodialysis series commodities takes a long time and high cost, including large input in production, research and development and construction of sales networks. Secondly, relevant patents and intellectual property rights are the important conditions for the access to and survival in the market. In addition, all the countries impose strict limitations on market access, and relevant commodities are required to reach certain technical and quality standards before they can obtain corresponding qualifications. Engaging in relevant business in China requires the approval from China Food and Drug Administration.
III. Negotiation on the additional restrictive conditions
During the initial review, the declaring party presented to the Ministry of Commerce that there might be competition issues in the concentration, and submitted corresponding solutions. In the phase of further review, the Ministry of Commerce pointed out to the declaring party the competition-eliminating or restricting effect generated from the concentration, and required the declaring party to amend and improve the solutions submitted according to the competition issues pointed out by the Ministry of Commerce. After several rounds of negotiations, both parties of the concentration submitted the final solution to the Ministry of Commerce on June 20, 2013. The Ministry of Commerce, upon evaluation, considered that the final solution could mitigate the adverse impact of the concentration on competition.
IV. Review decision
It is considered upon the review that the acquisition of Gambro by Baxter has competition-eliminating or restricting effects over the market of CRRT series commodities and the market of hemodialyzers among hemodialysis series commodities. The Ministry of Commerce decides to approve the concentration with additional restrictive conditions. Baxter and Gambro shall fulfill the following obligations:
(i) Baxter shall divest its global CRRT business including tangible and intangible assets required to guarantee the survival and competitive power of the divested business.
(ii) Baxter shall terminate the OEM agreement with Nipro within the territory of China before March 31, 2016 (contracts with customers or other obligations of supplies under relevant laws and regulations that already exist at the time when this decision is released shall be excluded).
(iii) Supervision over the restrictive conditions shall be subject to this Announcement, besides, the Commitment on Remedy for Contemplated Acquisition of Gambro AB by Baxter International Inc. (see attachment) shall be also legally binding on Baxter. Baxter shall, in accordance with requirements of the Interim Provisions on the Divestiture of Assets or Business in the Concentration of Undertakings, entrust a supervision trustee to supervise the fulfillment of the obligations hereunder.
Baxter shall, within fifteen (15) days after the end of each quarter since the date of this Announcement, submit a written report on fulfillment of business divesture obligation to the Ministry of Commerce; and submit a written report on the fulfillment of gradual termination of the OEM agreement with Nipro to the Ministry of Commerce within forty-five (45) days after the end of each calendar year since the date of this Announcement.
In order to fulfill the obligations above, both parties of the acquisition shall, after the supervision trustee is determined, submit as soon as possible detail plans for the fulfillment of the obligations above to the Ministry of Commerce for approval and then implement the same.
This Announcement shall come into effect as of the date of issuance.
Ministry of Commerce of the People’s Republic of
August 8, 2013
Translated by Hou Zuowei