Are Politics Delaying Chinese Antitrust Approval Of Dell-EMC Deal?

Dell's proposed $60 billion-plus acquisition of EMC should already have been approved by Chinese antitrust regulators, according to a time frame published by the U.S. Chamber of Commerce.

According to a source close to the process, Dell applied to Chinese authorities for antitrust approval in late February. The multistage approval process is supposed to be completed over a maximum of 180 days, according to U.S. Chamber of Commerce published information.

China's anti-monopoly law is the last remaining antitrust approval the Dell-EMC merger faces, and statistically that approval should have been granted by Chinese government agencies sometime before the end of March.

[Related: Michael Dell On Dell-EMC's Storage Overlap, Future Acquisitions And The Blockbuster Deal's Channel Impact ]

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However, it's rare that any application stretches that far. In fact, international law firm DLA Piper's "Practical Guide To Merger Control In China," published in 2011, found that most applications, 65 percent, were approved within 30 days. Another 30 percent of cases were pushed into Phase 2, which takes up another 90 days. According to Piper, only about 5 percent of all mergers seeking approval in the first three years of the anti-monopoly law were stretched to the six-month mark.

Glenn O'Donnell, an analyst at Forrester Research, said it wouldn't be surprising if Chinese approval of the deal was complicated by geopolitical factors.

"I do have a nagging feeling that Chinese approval could be complicated by other geopolitical actions, most notably the tensions building ... in the South China Sea," he said, referring to ongoing disputes between China, Taiwan, Vietnam and other countries over the region.

The source told CRN that the approval process, now two-thirds through its second phase, hasn't hit any snags. The only reason the process would require a third phase would be "if there are issues of substance that need to be negotiated," the source said. "There have been a few questions, but those have been answered relatively easily."

Still, the source did agree that Chinese politics can be a wildcard in antitrust negotiations.

"You just never know when you're dealing with the Chinese," the source said. "It could be geopolitical, it could be totally unrelated to information technology." But there doesn't seem to be anything posing a risk to the deal at this point, the source added.

The proposed acquisition won U.S. and European antitrust approval in February.

EMC shareholders are expected to vote on the acquisition soon.

Dell and EMC's optimistic outlook for Chinese regulatory approval hasn't gone unnoticed and, at the recent EMC World conference, the executives leading the integration of the two tech giants were asked by analysts about the possibility that the process could stretch well beyond expectations.

"You can't know until it's complete," Dell Chief Integration Officer Rory Read said at EMC World. "The early stages are on track and moving according to expectations. You can't predict the outcome, but if other regulatory approvals are an example of what to expect, it should go very smoothly. The first two phases have gone awesome for us. We don't anticipate any major issues there at all."

"Every transaction is different, so it's not really possible to compare what one M&A transaction has had to deal with versus another," said Howard Elias, EMC COO and Read's counterpart in integrating the two companies. "All of the other regulatory approvals with every other regulatory body around the world went exactly to plan. No second requests for information, no contingencies, no special conditions. They all went straight to approval."

The Chinese antitrust process is notoriously time-consuming, and Dell executives said they're expecting success in China given the regulatory approvals already received in the U.S. and Europe.

A report by the law firm Davis, Polk & Wardwell, based in New York, stated the Chinese process can take "substantially longer" than the U.S. and European processes. More than a decade in the making, China's anti-monopoly regulations have been in place since 2008, and they've been troublesome for some high-profile U.S. firms from Microsoft to Coca-Cola.

Microsoft missed its initial deadline for the acquisition of Nokia in 2014 when Chinese regulatory review – the last approval the companies needed – dragged on beyond its original time frame. The approval came with tough conditions and concessions that hadn't been imposed by U.S. and European regulators. Chinese anti-monopoly officials raided Microsoft's China office that year on suspicion that the company's Windows operating system violated antitrust law.

It took China's Ministry of Commerce nine months to approve Panasonic's acquisition of Sanyo, and the approval came with a raft of special conditions that included the divestiture of business units.

Dave Hiechel, president and CEO of Dell partner Eagle Software, Salina, Kan., said there is a high level of uncertainty around the merger generally and some extra time might go a long way toward easing that confusion.

"If anything, the deal slowing down will delay the confusion and maybe give the team at Dell more time to fine-tune some programs once EMC and Dell are one," Hiechel said.

John Marciano, COO and director of sales, KIS, a $30 million Fremont, Calif.-based Dell partner, said even though the EMC acquisition is by far the largest transaction Dell has tackled, the company has proven that it can close deals.

"I've seen Dell have success with six acquisitions in the last seven years," Marciano said. "I give Dell more credit than most manufacturers. They make great products, and they're going to help EMC because they make great products."

Aaron Cardenas, CEO of P1 Technologies, a Hermosa Beach, Calif.-based Dell partner, said he's not particularly concerned about when the merger gets done. "The time frame on the merger isn’t concerning to me," he said. "I expected, and I still expect, it to take longer than projected, and it will likely be years before they are effectively functioning as one company."