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National Instruments/Emerson: SAMR receives third-party complaint; implications uncertain

China’s State Administration for Market Regulation (SAMR) has received at least one complaint regarding US industrial conglomerate Emerson Electric (Emerson) [NYSE:EMR]'s acquisition of electronic test and measurement supplier National Instrument (NI) [NASDAQ:NATI], according to three sources familiar with the matter. 

The complaint came during the comment seeking process following SAMR’s acceptance on 26 July of Emerson's filing under the regulator’s simplified review procedure. The 10-day comment seeking process ran from 26 July until 4 August.

After the public consultation period ended, the antimonopoly regulator communicated with deal parties about a complaint lodged by third party, according to the first source.

The second source said the complaint was not considered to be 'major'. 

None of the three sources could elaborate on what exact concerns were raised by the complainers and SAMR's attitude towards the deal remains uncertain. 

Following the deal’s announcement on 12 April, Emerson and modular instrument market leader NI initially made a simplified filing with SAMR around mid-June and resisted SAMR’s attempts to get the deal parties to refile under its normal procedure. According to sources cited in a previous report, the regulator had raised questions about market information that the deal parties submitted and had asked for additional evidence.

The deal parties’ strategy of pushing hard for a simple case review is similar to the approach taken by parties to other high-profile deals that have arguably low competition issues but are in sectors deemed sensitive to China.

The first and the second sources agreed that the market share of the NI/Emerson deal wouldn't justify a normal procedure review.

Deals qualify for SAMR's simplified procedure if the involved parties' combined market share is below 15% in a horizontal deal, or each party's market share in each relevant market is below 25% in vertical or conglomerate deals, among others.

According to SAMR’s 26 July announcement, the NI/Emerson deal was defined as a conglomerate deal and had one relevant market. The same notice showed that SAMR accepted a relatively wide market definition – electronic testing and measurement systems. In 2022, NI had a share of 10%-15% on the global market and 0%-5% on the Chinese market.

At announcement, the deal was expected to be complete by 31 March 2024, with 12 April 2024 long-stop date which can be extended to 12 July and 12 October.

Whether or not SAMR will revoke the deal's simple case review and move it under a normal procedure, depends on whether it finds enough evidence of concern and also whether or not Emerson can defend its case.

SAMR’s clearance of the Evoqua Water Technologies/ Xylem [NYSE: XYL] deal on 22 May provides one recent example where a simple case review was not impacted by a third party complaint.

In early May, PaRR reported that SAMR received a complaint lodged publicly by a Chinese anti-trust scholar during the public comment period of Evoqua/Xylem, which started on 24 April, and ended Wednesday, 3 May. The professor challenged the market relationship disclosed by deal parties and suggested the disclosure was absent about deal parties’ upstream and downstream or complementary connections, according to the public letter the professor released. 

A source familiar with the matter at the time of this matter told this news service SAMR subsequently communicated with deal parties regarding the abovementioned complaint. It required the deal parties to submit additional material to evidence the deal parties' market relations. 

According to SAMR's approval notice, that deal was cleared without any conditions. It took 29 days from simple case acceptance to clearance. 

Simple case review timelines

According to PaRR analysis, in 2Q23, the median duration of simple reviews conducted by SAMR was 15 days (17 days for 1Q).

The Evoqua/Xylem's approval timeline indicates that following the challenge to the simplified review, SAMR required about two more weeks to engage with various stakeholders and conduct its evaluation based on the new materials collected.

In 2021 and 2022, another 3 deals faced complaints from the same professor. But, according to data collected by PaRR, these were all cleared by SAMR without obvious delay – taking 10, 11, and 22 days respectively from being announced as simple cases to clearance.

However, the review timelines can sometimes be longer. Vista Equity Partners Management’s acquisition of a stake in SmartBear Software, which SAMR cleared on 26 Feb 2021, endured an 87-day simple case review. The simple case comment seeking period saw a complaint from the same scholar.

Notably, in all of these cases, SAMR did not require deal parties to refile a normal procedure filing and the deals were all cleared under simplified procedure. 

Based on PaRR's data, SAMR can issue a clearance in around late August at the earliest. It should be noted though that Emerson and NI's are involved in the semiconductor and aviation sectors which are far more sensitive than the sectors the aforementioned companies do business in.

As the deal parties in In these sectors, Maxlinear’s [NASDAQ:MXL] proposed acquisition of Silicon Motion Technology Corp [NASDAQ:SIMO], Intel’s [NASDAQ:INTC] proposed acquisition of Tower Semiconductor [NASDAQ:TSEM] and Microsoft’s [NASDAQ:MSFT] takeover of Activision Blizzard [NASDAQ:ATVI] have shown that the 'simple case first' tactic does not always work, particularly in the sensitive technology and semiconductor sectors. 

Emerson and NI did not immediately respond to the request for comments. SAMR doesn't comment on ongoing deals.