It already seems like a long time ago: Aug. 15, 2011, when Google (GOOG) surprised the world with its $12.5 billion deal to buy Motorola Mobility and to acquire the patents and hardware expertise it needs to confront the mounting threat posed by the runaway success of Apple (AAPL). Seven months later, the deal still hasn’t closed. While Google has already won approval from regulators in the U.S., Europe, and South Korea, one significant endorsement still eludes it—that of its occasional adversary, the Chinese government.
There’s little visibility into the confidential review process in Beijing, but reasons for the holdup probably have more to do with bureaucratic sluggishness than outright opposition to the deal. Under the 2008 Chinese Anti-Monopoly Law, the Ministry of Commerce is required to review mergers both inside and outside China that meet certain economic thresholds, if the deals might result in anticompetitive effects within the country. Since the law was passed, the agency has approved 11 transactions, including some that did not even involve a Chinese company, such as Samsung’s (SSNHY) acquisition of Seagate last year. It also blocked one deal—Coke’s (KO) proposed acquisition of beverage maker Huiyuan. The “decisions suggested that [the ministry] is becoming more aggressive in asserting its jurisdiction over offshore transactions which raise ‘local concerns’ in China, be it from an antitrust angle or other perspectives,” says Heather Tsai, an attorney in Hong Kong with the law firm Simpson Thacher & Bartlett.
Tsai says the ministry’s review process has four phases. After an initial review period of 30 days (phase 1), the agency can decide to extend the review for a more detailed investigation (phase 2). Motorola Mobility recently divulged in a regulatory filing that the Google deal had entered this second phase. The ministry could decide to extend the investigation for another 60 days if it requires further time, and it is not required to justify the delay. That would push the consummation of the Google-Motorola marriage into late summer. Tsai says that most of the ministry’s reviews enter this more lengthy stage in part because the agency is understaffed and in part because it takes time for regulators to gather information from other governmental agencies that may have relevant opinions. The result is “that Chinese merger control now often is the gating factor on global M&A transactions,” she says. For example, Chinese approval of Samsung-Seagate took seven months—two months longer than approval by the European Union.
China is still likely to approve Google-Motorola, because the government often follows the lead of more experienced antitrust regulators in the West, although it has in the past required changes in a deal. In General Motors’ (GM) 2009 acquisition of auto parts maker Delphi, the Chinese imposed conditions aimed at protecting local competitors, including requiring Delphi to offer parts to domestic automakers at market prices. So while the U.S. and EU have unconditionally approved the Google-Motorola deal, the Chinese government could still require Google to offer up, say, a new version of Android software to local phone manufacturers at the same time it gives it to its own Motorola division.
The delay must be frustrating to Larry Page, Google’s chief executive. It’s clearer than ever that in the age of connected mobile devices, elegant and innovative hardware matters just as much as simple software and having a wide variety of apps. And while the Chinese government ponders Google’s largest acquisition ever, Apple is extending its lead.