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China – Mergers and Acquisitions

One of the most common ways for a business to gain access to the China market is through acquisition of, or merger with a local company. But Chinese laws that govern foreign acquisition are complex and you may need to bring in a third party to accomplish it. And there’s another consideration, the resulting entity operates differently than a standard business, do it’s important to understand the rules.

That’s why if you are considering a merger or acquisition in China, you need the legal team at IPO Pang. IPO Pang has plenty of experience negotiating and closing mergers and acquisitions, representing either buyers or sellers. Their team has a strong understanding of how to get the job done, the law and the customs must be followed if you want to pull of the transaction on time and on budget.

There are a number of things that can slow or even stop the deal. Poor due diligence, inadequate understanding of regulatory legal and political risks, or underestimating the timetable to complete the deal. IPO can help withs with every aspect of a merger and acquisition from start to finish. They often represent the foreign party on a hybrid structure fee so they share the risk and with skin in the game, they will make sure the deal gets done to your satisfaction.

Whether you want to buy or sell, the best investment you will make is teaming up with IPO Pang.

Read out to them via info@ipopang.com or visit www.ipopang.com, you can also call them.

Article By Peter C. Pang

 

Japan’s Law Firms Benefit as Companies Move From China to SE Asia

As an increasing number of Japanese companies move production out of China in order to protect their supply chains, hefty investments made by Japan’s Big 4 law firms into Southeast Asia are paying off.

All four of the firms—Mori, Hamada & Matsumoto; Nishimura & Asahi; Anderson Mori & Tomotsune; and Nagashima Ohno & Tsunematsu—have established offices in Southeast Asia and are well-positioned in the region, where their clients, assisted by the Japanese government, are now actively relocating factories from China. In July, the Japanese government announced subsidies of up to US$114 million for 30 companies that were transferring their factories from China to Southeast Asia.

The moves have accelerated as Japanese companies seek to avoid getting caught up in increased U.S.-China trade tensions, political turmoil in Hong Kong and country lockdowns prompted by the COVID-19 pandemic. But for the Japanese firms, moving into Southeast Asia is not new. Mori Hamada was one of the first Japanese firms to make its foray into the region, opening an office in Singapore back in 2012. Since then, it has established offices in Yangon, Ho Chi Minch City and Bangkok.*

In a sense, Southeast Asia was a fallback for the firms. Before 2012, they had assessed global markets for expansion opportunities but decided against Hong Kong because there was too much foreign firm competition there, all chasing after major Chinese state-owned enterprise M&As. They also concluded it would be too costly to set up offices in the U.S. and the U.K., where there was already a deep pool of well-entrenched competitors, lawyers say.

So all four firms followed their clients, which included major trading houses such as Mitsubishi Corp., Mitsui & Co., Sumitomo Corp., Itochu and Marubeni, into the greenfield that was Southeast Asia.

Now, their investments are reaping rewards. Over the past decade, Japanese companies have invested US$139 billion into Indonesia, Malaysia, Vietnam, Thailand and the Philippines. The pace of total investment over 10 years is double that of Japanese investment into China.

Nishimura & Asahi partner Masato Yamanaka, the Singapore office co-representative, said Japanese clients are investing in a much broader range of sectors in Southeast Asia. Traditional sectors included infrastructure projects and manufacturing, but technology and real estate have taken over in a big way. While the bulk of the firm’s work was traditionally dominated by banks and construction companies, it is increasingly adding tech companies to its list.

“We are also starting to see more funds, startups and financial services companies moving their operations to Singapore as a result of Hong Kong’s political challenges,” Yamanaka said.

But law firms and their clients are not just benefiting from their presence in Singapore. Indonesia, for example, Southeast Asia’s largest economy, has seen a surge in Japanese investment as companies look to protect supply chains and avoid repercussions of the U.S.-China conflict and Hong Kong political turmoil. In June, the Indonesian government announced that three Japanese companies, including Denso Corp. and Panasonic Corp., have relocated their plants from China to Indonesia.

And the work in Southeast Asia is not limited to Japanese law firms. Earlier this year, U.S.-based Morrison & Foerster, one of the largest international law firms in Japan, advised three entities within the Mitsubishi UFJ Financial Group—MUFG Bank, MUFG Innovation Partners and Krungsri Finnovate—on a US$706 million investment into Grab Holdings, Southeast Asia’s biggest ride-hailing company. Grab had separately received a US$3 billion investment from the Japanese conglomerate Softbank in 2019.

Law firms are also benefiting as Japanese industry makes moves into Vietnam, Myanmar and the Philippines. Last year, Sumitomo bought a 19 percent stake in the Light Rail Manila Corp., the operator of the Manila Light Rail Transit System Line 1—the only privately-operated rail system in the Philippines, for US$60 million. Morrison Foerster advised on the deal.

In 2019, Japan became the second-largest foreign investor in Vietnam, with over 4,300 projects totaling more than US$59 billion. Japanese investors see great opportunity in the country’s infrastructure sector, with pending projects worth over US$200 billion.

With such a positive outlook, lawyers predict more competitors will scurry into the region.

“I don’t think the traditional, smaller but long-standing Japanese firms will expand much internationally, but there is a new group of young lawyers that have trained in big local and international firms that are setting up their own firms,” said Nishimura & Asahi’s Yamanaka. “These lawyers will see and understand the opportunities outside of Japan; they have experience in advising startups. So we should see more of those [coming in].”

In June, Nishimura & Asahi became the first Japanese legal practice to establish a Formal Law Alliance (FLA) with a local Singapore firm. Nishimura & Asahi-Bayfront Law Alliance focuses on corporate M&A and arbitration matters. “The alliance is still new but we believe there will be an increase in ASEAN clients wanting to invest in real estate in Japan as a result of our alliance.”

Just weeks after Nishimura & Asahi’s formal law alliance announcement, Anderson Mori & Tomotsune announced it had formed an alliance with seven-lawyer DOP Law Corp.

However, Mori Hamada has not announced plans for a tie-up, despite it being among the first Japanese firms to break into the region. Nor has Nagashima Ohno.*

“It is not easy. We have spent years trying to look for the right partner,” said one Big 4 Japanese law firm partner who did not wish to be named. “Bigger firms don’t want to link up and smaller firms have not been the right fit.”

Chinese Investment in US Plummets Under Increased Scrutiny

New U.S. government data shows a massive drop in acquisitions of U.S. businesses by Chinese investors, particularly in critical technologies, evidence of the chilling effect of the Trump administration’s heightened scrutiny of Chinese investments.

The data, released by the Committee on Foreign Investment in the United States, provides evidence of the impact of strained U.S.-China relations on U.S. inbound Chinese investment. It also sheds light on the practical impact of recent reforms bolstering CFIUS’s powers.

In 2019, China was not the biggest source of transaction notices filed to CFIUS, a position it had held since 2011. Instead, that distinction fell to Japan, which filed 46 notices to CFIUS. This indicates that inbound Chinese investment to the U.S. for the year was lower than previous years, as CFIUS had fewer Chinese transactions to review, according to Darshak Dholakia, a partner at Dechert in Washington, D.C.

According to its annual report to Congress for 2019, published on July 31, CFIUS reviewed 25 Chinese transactions last year, a more than 50% drop from 55 the previous year and 60 in 2017. There was also a corresponding drop in Chinese investment in critical technologies, from eight acquisitions in 2018 to just three last year.

“Most of these publicly notified transactions that have received CFIUS scrutiny and CFIUS has either killed the deal through onerous mitigation measures or President Trump has recommended blocking the deal—those overwhelmingly have involved critical technologies,” Dholakia said.

In March, President Donald Trump blocked the acquisition of U.S. hotel management software company StayNTouch Inc. by Chinese company Beijing Shiji Information Technology Co. through a presidential order. Although there were no such orders issued in 2019, according to the CFIUS report, five of the six presidential orders issued over CFIUS’s 40-year history were issued in the last eight years. Moreover, five of the six orders related to Chinese investments.

According to a Rhodium Group report published in May, Chinese investment in the U.S. in 2019 fell to $5 billion, its lowest level in more than a decade. In addition to growing CFIUS scrutiny, the report also cited China’s restrictions on outbound investment and worsening U.S.-China relations as significant headwinds for Chinese investors.

CFIUS reviews foreign investment for national security risks. According to Cooley, examples of transactions that CFIUS typically scrutinizes include those involving U.S. businesses that have contracts with the U.S. government, as well as transactions that would result in foreign control over critical infrastructure.

Comprising nine government agencies, including the Department of Justice and the Department of the Treasury, CFIUS has the power to recommend the president block or unwind transactions as well as modify transactions by imposing mitigation measures.

In recent years, CFIUS has seen its review powers bolstered, most notably in 2018 with the passage of the Foreign Investment Risk Review Modernization Act. Some of the main changes include a greater focus on foreign investment in U.S. critical technologies, as well as the introduction of mandatory filing requirements for certain transactions, including those involving critical technologies.

“This discussion about how to properly frame CFIUS’s jurisdiction has been caught up in a larger discussion about cybersecurity, IP theft, resilience of American critical infrastructure, and sufficiency of its national industrial base,” said Jeremy Zucker, co-chair of Dechert’s international trade and government regulation practice based in Washington. D.C.

Chinese investors should pay close attention to CFIUS’s tightened filing requirements as a result of FIRRMA, Zucker said. He pointed out that CFIUS has seen its budget significantly expanded, which has led to the establishment of a new office dedicated to reviewing transactions that are not voluntarily submitted to CFIUS for review.

“There is more monitoring of the investment universe than ever, so a decision not to file is a riskier decision than it used to be. If the goal is to be able to close the deal with confidence that the U.S. government won’t interfere, then it’s certainly wiser to seek that clearance on a preclose basis than to close and then hide and hope that the government won’t come looking for you later,” Zucker said.

In recent years, CFIUS has unwound Chinese acquisitions of U.S. businesses several years following their completion. In March, Chinese company Kunlun was forced to divest from its acquisition of gay dating app Grindr in 2016 following a CFIUS review. Earlier this month, Trump issued an executive order banning TikTok from the U.S. market following a CFIUS review of the Chinese video-sharing platform’s acquisition of U.S. social media app Musical.ly in 2017.

Zucker believes Chinese investment in the U.S. is still possible, as long as Chinese investors are proactive in addressing known concerns of the U.S. government. These include whether the Chinese investor is an operating entity in the same industry as the investment target; the commercial merits of the investment; and the ultimate ownership of the investor itself.

“The most important thing for Chinese investors to do [moving forward] is to try put themselves in the shoes of U.S. government officials reviewing their investments,” Zucker said. “We’re representing Chinese investors in front of CFIUS right now, and we certainly are not under the impression that those investments are doomed.”

China introduces new Hong Kong security law

China introduced a controversial national security law Thursday that could place restraints on the pro-democracy movement in Hong Kong.

The law prohibits acts of “sedition, foreign interference, terrorism and secession.” China cited national security concerns for implementing the measure, but many warn the law will be interpreted broadly and cover protests.

China’s legislature begins its annual National People’s Congress meeting on Friday, where it could pass the law without deliberation from the legislature in Hong Kong.

Under the institution of “one country, two systems,” such a measure would need to pass the Hong Kong legislature. The legislature attempted to pass national security legislation earlier this year, but failed after being met with opposition from protesters.

The summer of 2019 marked a significant resistance to the Chinese government from pro-democracy protestors. The movement has since subsided in the form of public protest as the COVID-19 outbreak has spread throughout the world, including in Hong Kong.

Pro-democracy leaders are speaking out against the proposal and its procedure. “This is the end of Hong Kong. This is the end of ‘One Country, Two Systems.’ … Beijing has completely breached its promise to the Hong People. A promise enshrined … in the basic law,” declared lawmaker Dennis Kwok.

Simmons & Simmons Opens Office in Shenzhen, China

Simmons & Simmons has opened an office in southeastern Chinese city Shenzhen.

The new office is Simmons’ third in the country, alongside its operations in Beijing and Shanghai.

The new office will focus on telecommunications, media and technology (TMT)—areas in which the firm already advises Shenzhen clients.

TMT partner Jingyuan Shi is moving from the firm’s Beijing office to lead the outpost. She will be the office’s sole partner but will work closely with the firm’s international TMT teams led by London-based partner Alexander Brown.

“Shenzhen is rapidly growing as a force in the technology industry and plays a pivotal role as a global innovation powerhouse,” Shi said in a statement.

Paul Li, who is the head of Asia for the firm, noted that China is currently the world’s second most important TMT market after the U.S. “This move enables us to build on our existing presence in the country,” he said. ”We are committed to continuing investment in this market, working under The Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA).”

Shenzhen officially became a city in 1979 and in 1980 was established as China’s first special economic zone, which has made it more attractive to foreign and domestic firms. The city, sometimes called China’s new Silicon Valley, is now home to some of the best-known Chinese technology companies, including Huawei Technologies Co. Ltd., ZTE Corp. and Tencent Holdings Ltd. Shenzhen is officially one of the world’s fastest-growing cities.

Other global law firms, especially those with a strong intellectual practice, have opened offices in Shenzhen. Chicago-based IP shop Brinks Gilson & Lione was the first, opening its Shenzhen office at the very end of 2017. Fish & Richardson and the hybrid virtual law firm Rimon Law each launched an office there earlier this year.

Earlier this month, Simmons also expanded its presence in France with the hire of two lawyers for its Paris office.

London-based law firm Herbert Smith Freehills in China tie-up

London practice is sixth international group to be licensed in Shanghai initiative

London-based law firm Herbert Smith Freehills will affiliate its Chinese business with a local company in a new test for integrating foreign legal services with domestic law practice in China. The tie-up comes after nearly a decade of experimentation by foreign groups seeking to boost their presence in China by partnering local companies. Several affiliations, such as that of China’s King & Wood and Australia’s Mallesons, or global firm Dentons and China’s Dacheng, have formed some of the world’s largest practices but have yielded mixed results. Chinese regulation does not allow full integration of foreign and domestic legal teams. Foreigners are barred from practising Chinese law, as are Chinese nationals who work for foreign law firms.  Instead, some foreign companies, such as King & Wood Mallesons, have established so-called Swiss verein structures, where firms combine under a single brand but maintain separate finances. Others, such as HSF and Ashurst, have received formal licences to set up joint operations under a pilot programme in Shanghai. HSF will become the sixth global law firm to gain approval from Shanghai’s Bureau of Justice to integrate with a Chinese practice, allowing it and its Chinese partner, Kewei, to rebrand the China business as Herbert Smith Freehills Kewei.

The two firms will be able to work closely on individual deals and share the fees from such projects. HSF said the integration with Kewei would focus on cross-border mergers and acquisitions, banking and finance and financial services regulation. Kewei, which has 20 partners and lawyers, was launched in 1995 in Shanghai. HSF, which posted profits of £306m for the year ending in April, has more than 300 lawyers in the region. “When clients come to see us, we [HSF and Kewei] are now under one umbrella and we are both responsible for them,” said May Tai, HSF’s Greater China managing partner, noting that both firms’ reputations will now be formally linked. Such joint operations are still in a pilot phase and do not have full recognition as legal entities. HSF follows firms such as Baker McKenzie, Linklaters and Hogan Lovells to link up with Chinese practices under the Shanghai initiative. King & Wood and Mallesons in 2011 became the first test in which a Chinese firm merged with a large western one. In 2015, Dentons merged with Dacheng, one of China’s biggest practices, to form what was then the largest global law firm by attorney headcount.

Firms are fighting for a share of China’s cross-border legal work, which has grown rapidly over the past decade as Chinese companies invest more overseas. But integration has had a mixed record as global groups, often drawing on more than a century of history, mix with Chinese practices with just a few decades of experience, according to several lawyers with experience in such tie-ups. People close to the partnerships said that integration in overlapping jurisdictions often led to clashes, with firms continuing to compete internally despite attempts to integrate practice. “In some cases, the foreign firm ends up attracting lots of business for the Chinese firm but not the other way around,” said one Beijing-based lawyer familiar with the partnerships.

Trump signs order banning Huawei in US

US President Donald Trump signed an executive order Wednesday that effectively prohibits US companies from using any telecoms equipment manufactured by China’s Huawei.

The executive order, which has been under consideration for a year, cites the International Emergency Economics Power Act, a law enacted in 1977 that gives the president broad power to control trade in response to a national emergency.

The order does not mention any countries or companies by name. It instead creates a review process that allows the US commerce secretary to review any transactions involving companies that are viewed as posing a security threat to the country, which would include Huawei.

Chinese Foreign Ministry spokesman Geng Shuang said during a daily briefing in Beijing on Wednesday that “for some time, the US has been abusing its national power to tarnish the image of and crack down on specific Chinese companies.” Nevertheless, the United States has been actively pushing other countries not to use Huawei’s equipment in next-generation 5G networks that it calls “untrustworthy.”

HONG KONG HK

KMW expands in HK with partner duo from Mayer Brown

King & Wood Mallesons has hired two partners in Hong Kong: Ashley Wong joins the firm as its local aviation head from Mayer Brown, while Wang Yu joins as a partner from Morrison & Foerster, where he was of counsel.

Wong, has over 15 years of experience in aviation matters, advising airlines, leasing companies, maintenance and repair organisations and other market players on aircraft portfolio acquisitions and disposals, pre-delivery payments financing, sale and lease-back arrangements, acquisitions and disposals of new and used aircraft and engines, dry leasing and wet leasing of aircraft, long-term airframe and engine maintenance arrangements and other commercial arrangements.

Wang has more than 10 years of experience advising on securities offerings, private equity and other corporate transactions. He represents corporate clients, investment banks and private equity funds on transactional matters including capital markets, private equity and financial derivative products.  Wong and Wang join KWM a couple of months after the firm hired Ling Huang as a partner in its Beijing office.

LeadersInLaw Shanghai

Fieldfisher launch four-partner office in Shanghai

Fieldfisher has launched a four-partner office in Shanghai and has plans to double its partner count there by June.

LeadersInLaw Shanghai

The firm’s China managing partner, Zhaofeng Zhou, said: “Shanghai is a truly global city and was the natural location for our next office. Growth is an important part of our plan in China and we expect a further four partners to join the Shanghai office by June.”

Zhou joined JS Partners as managing partner in July last year from Bird & Bird’s Beijing office.

Fieldfisher managing partner Michael Chissick added: “We’ve been working closely to ensure continued growth of the firm in China – and the opening of a Shanghai office is a natural next step.”

Fieldfisher corporate partner and competition law specialist Liang Xing will lead the office. Xing is joining the firm from Chinese firm MyLink, where he was a partner.

He is joined by patent litigation partner Rocky Wu, who previously worked for Chinese firm JT&N.

Two of the firm’s Beijing partners – tax partner Baoen Bai and corporate partner Ming Zhang – will transfer to Shanghai.

Two additional partners are set to join the new office in March, with another two arriving in June.

Three years ago, Fieldfisher secured a presence in Shanghai through a Swiss verein combination with three-partner firm Ryser & Associates. However, that tie-up has since ended.

Under the verein structure, Fieldfisher operates as a licensed Chinese law firm, with access to all aspects of Chinese legal practice. The setup was pioneered in 2012 by legacy King & Wood when it merged with Australian firm Mallesons Stephen Jaques. Last year, the same structure was used by Dentons when it merged with Beijing-based Dacheng.

Separately, it has emerged that Fieldfisher is in early discussions to hire partners in Olswang’s Munich office.

Source: Legal Week