Phase II Merger Review

1. Introduction

Phase II merger review is the detailed investigation undertaken by a competition authority when a proposed merger, acquisition, or joint venture may substantially lessen, eliminate, or otherwise restrict competition and the concerns cannot be resolved during the initial review.

In China, this corresponds broadly to the “further review” (进一步审查) stage under the Anti-Monopoly Law and the Provisions on Review of Concentrations of Undertakings. SAMR may move a transaction into further review where the initial investigation indicates possible effects of eliminating or restricting competition. In 2024, for example, SAMR completed 643 concentration cases; 65 cases that reached the further-review stage were cleared without conditions, while one case—JX Metal/Tatsuta Electric Wire—was conditionally approved.

Internationally, the same basic concept exists under systems such as the EU Merger Regulation and U.S. Hart-Scott-Rodino framework, although terminology and procedure differ.

2. Meaning of Phase II Review

Phase II is not simply a longer version of Phase I. It is an intensive substantive investigation designed to determine whether the transaction is likely to create or strengthen market power or otherwise harm competitive conditions.

The authority normally examines:

1. Relevant product and geographic markets;
2. Market shares and concentration;
3. Closeness of competition between the parties;
4. Entry barriers;
5. Countervailing buyer power;
6. Competitors' ability to expand;
7. Vertical and conglomerate effects;
8. Access to technology, data, infrastructure or intellectual property;
9. Coordinated effects;
10. Efficiencies claimed by the merging parties;
11. Failing-firm arguments;
12. Remedies proposed by the parties.

Under China's concentration-review rules, remedies can include divestiture of tangible or intangible assets, opening networks or platforms, licensing key technology, ending exclusivity, maintaining independent operations, modifying platform rules or algorithms, and interoperability commitments.

3. Phase I v. Phase II

The European Commission expressly describes Phase II as an in-depth analysis and provides that, following Phase II, the Commission may clear unconditionally, approve subject to remedies, or prohibit the transaction.

4. When Does Phase II Begin?

A transaction may enter Phase II where the authority concludes that the merger cannot be cleared during the initial investigation because material competition concerns remain.

Typical triggers include:

A. High post-merger concentration

If two major competitors combine and the resulting entity obtains substantial market power, further investigation may be required.

B. Loss of an important competitor

The parties may have relatively modest individual market shares but may compete particularly closely with each other.

C. Vertical foreclosure

A vertically integrated merger may allow the merged entity to restrict competitors' access to:

• inputs;
• distribution;
• platforms;
• data;
• infrastructure;
• technology;
• intellectual property.

D. Network effects

Digital markets may require deeper analysis because market power can increase through:

• user data;
• interoperability;
• network effects;
• switching costs;
• ecosystem integration.

E. Innovation competition

The authority may investigate whether the merger removes an important source of future innovation.

F. Coordinated effects

The transaction may make coordination between remaining competitors easier.

5. Legal Framework in China

The principal framework consists of:

• Anti-Monopoly Law of the People's Republic of China;
• Provisions on Review of Concentrations of Undertakings;
• SAMR's merger-review practice and guidance.

The authority considers factors such as:

• market shares;
• market control;
• market concentration;
• effects on downstream customers;
• effects on other market participants;
• barriers to entry;
• technological development;
• effects on consumers;
• effects on national economic development.

The Chinese review framework expressly permits SAMR to require remedies where the transaction has or may have effects eliminating or restricting competition. If proposed commitments cannot effectively reduce those adverse effects, the authority may prohibit the concentration.

6. Market Definition in Phase II

Market definition becomes particularly important in Phase II because the authority must determine the competitive space in which the merger operates.

Product market

Questions include:

• Are the products substitutable?
• How easily can customers switch?
• Are there technological differences?
• Are there different customer segments?

Geographic market

The authority considers:

• transportation costs;
• import competition;
• regulatory restrictions;
• customer purchasing patterns;
• technological compatibility;
• local production.

Example

In JX Metal/Tatsuta Electric Wire, SAMR examined several specialised markets including blackened rolled copper foil, stainless-steel reinforcement sheets for flexible printed circuits, electromagnetic shielding film and isotropic conductive adhesive film. SAMR concluded that the transaction could restrict competition in these Chinese markets.

7. Competitive Effects Analysis

A. Horizontal effects

The authority asks whether two competitors becoming one will:

• eliminate an important competitive constraint;
• increase prices;
• reduce output;
• reduce quality;
• reduce innovation;
• increase switching costs.

B. Vertical effects

The authority examines whether the merged company could disadvantage downstream or upstream rivals.

For example:

Manufacturer + essential component supplier

could create an incentive to raise the component price or restrict supply to competing manufacturers.

C. Conglomerate effects

The authority may investigate bundling or tying of complementary products.

D. Innovation effects

The transaction may eliminate a potential future competitor or important R&D pathway.

8. Economic Evidence

Phase II frequently relies upon sophisticated economic evidence, including:

• HHI;
• diversion ratios;
• price-pressure analysis;
• critical-loss analysis;
• merger simulation;
• bidding analysis;
• customer switching data;
• internal documents;
• econometric evidence;
• entry analysis;
• capacity analysis.

Importantly, market share alone does not determine the outcome.

A company with a substantial market share may face strong competitive constraints, while a transaction involving relatively smaller shares may nevertheless create serious concerns if the parties are particularly close competitors.

9. Internal Documents

One of the most important forms of Phase II evidence is the parties' own documentation.

Authorities may examine:

• board papers;
• strategy documents;
• investment memoranda;
• emails;
• pricing documents;
• product plans;
• sales strategies;
• customer analyses;
• R&D plans.

These documents can reveal how the parties themselves understand competitive relationships.

10. Third-Party Evidence

Phase II generally involves extensive consultation with:

• customers;
• competitors;
• suppliers;
• distributors;
• industry associations;
• regulators;
• technology providers.

The Chinese authority expressly described obtaining views from government departments, industry associations, competitors and downstream customers in JX Metal/Tatsuta. It also commissioned independent economic analysis.

11. Remedies in Phase II

Remedies generally fall into three categories.

A. Structural remedies

Examples:

• sale of a business;
• divestiture of assets;
• sale of intellectual property;
• transfer of facilities;
• divestiture of customer contracts.

Structural remedies are intended to preserve an independent competitive force.

B. Behavioural remedies

Examples:

• supply obligations;
• licensing;
• non-discrimination;
• interoperability;
• prohibition of exclusivity;
• access commitments;
• firewall arrangements.

C. Hybrid remedies

These combine structural and behavioural obligations.

China's rules expressly recognise all three categories.

12. Six Major Case Laws / Cases

1. JX Metal Corporation / Tatsuta Electric Wire – China

Authority: SAMR
Decision: Conditional approval, 2024

JX Metal's acquisition of Tatsuta Electric Wire was subjected to an extensive further-review process. SAMR concluded that the transaction could restrict competition in several specialised Chinese markets.

The review began in 2023 and proceeded through extended further review and suspension of the review clock. SAMR consulted competitors, customers, industry bodies and government departments and commissioned independent economic analysis.

Significance

The case demonstrates:

• importance of specialised product-market definition;
• use of economic evidence;
• importance of customer and competitor consultation;
• extended Phase II investigation;
• use of behavioural/structural commitments.

2. SK Hynix / Intel NAND and SSD Business – China

Authority: SAMR
Decision: Conditional approval, 2021

SAMR reviewed SK Hynix's acquisition of part of Intel's business and concluded that the transaction could restrict competition in the global and Chinese markets for:

• PCIe enterprise SSDs;
• SATA enterprise SSDs.

The case underwent further review, including an extension and withdrawal/re-filing process before conditional approval.

Significance

It illustrates how Phase II may involve:

• global market analysis;
• specialised technology markets;
• enterprise customers;
• technological entry barriers;
• supply and competitive-constraint analysis.

3. AMD / Xilinx – China

Authority: SAMR
Decision: Conditional approval, 2022

AMD's acquisition of Xilinx was reviewed extensively because the transaction affected markets involving:

• CPUs;
• GPU accelerators;
• FPGAs.

SAMR concluded that the concentration could restrict competition in relevant global and Chinese markets and ultimately approved it subject to commitments.

Significance

The case demonstrates the importance of:

• semiconductor technology;
• product interoperability;
• customer choice;
• supply commitments;
• technology markets;
• global supply chains.

4. Broadcom / VMware – China

Authority: SAMR
Decision: Conditional approval, 2023

Broadcom's acquisition of VMware received particularly detailed scrutiny.

SAMR identified potential competition concerns involving:

• non-public-cloud virtualisation software;
• Fibre Channel adapters;
• storage adapters;
• Ethernet network cards.

The review involved consultation with competitors and customers, economic analysis and cooperation with competition authorities in other jurisdictions.

Significance

This is a major illustration of vertical and ecosystem effects in technology markets.

It shows that Phase II can examine whether a merged company could:

• restrict interoperability;
• disadvantage competitors;
• alter access conditions;
• exploit technological dependencies.

5. Maersk Line / Hamburg Süd – China

This transaction illustrates the significance of competition review in concentrated international shipping markets.

The combination involved major container-shipping operators and required competition authorities to examine:

• route overlap;
• concentration;
• network coverage;
• capacity;
• customer alternatives;
• shipping alliances.

Significance

It demonstrates why Phase II becomes important where a transaction involves markets characterised by:

• high fixed costs;
• limited competitors;
• network effects;
• capacity constraints.

6. Korean Air / Asiana Airlines – China

Authority: SAMR
Decision: Conditional approval

SAMR received the transaction in January 2021 and conducted an extended review. The authority ultimately approved the concentration subject to conditions.

Significance

The case demonstrates Phase II analysis of:

• airline routes;
• airport access;
• overlapping routes;
• capacity;
• consumer choice;
• barriers to entry;
• competitive constraints.

It also demonstrates the importance of route-by-route competitive analysis rather than relying only on the overall size of the merging airlines.

13. Additional Important International Cases

A. FTC v. Sysco / US Foods

The U.S. FTC challenged the proposed merger of Sysco and US Foods, arguing that the transaction would significantly reduce competition in broadline foodservice distribution nationally and in 32 local markets. The FTC alleged potential higher prices and lower service quality.

Principle

The case illustrates detailed analysis of:

• local markets;
• customer alternatives;
• market concentration;
• closeness of competition;
• likely price effects.

B. Microsoft / Activision Blizzard

The FTC challenged Microsoft's proposed acquisition of Activision Blizzard, focusing on potential effects in gaming, subscription services and cloud gaming. The FTC alleged that the transaction could enable Microsoft to disadvantage competitors.

Principle

The case illustrates modern Phase II-style concerns involving:

• digital ecosystems;
• vertical integration;
• platform competition;
• content foreclosure;
• cloud gaming;
• innovation.

C. Illumina / GRAIL

The European Commission's review of Illumina/GRAIL became an important example of merger control involving a vertically related innovative technology market. The Commission's decisions ultimately became subject to extensive judicial proceedings and later procedural developments.

Principle

The case demonstrates the importance of:

• innovation competition;
• nascent markets;
• vertical foreclosure;
• access to critical technology;
• effective merger remedies.

14. Phase II and Digital Markets

Modern Phase II review increasingly examines digital-market characteristics.

Relevant factors

1. Network effects

More users can increase the value of the platform.

2. Data advantages

A merger may combine large datasets.

3. Multi-homing

Customers may use several competing platforms simultaneously.

4. Switching costs

Users may face substantial costs in changing ecosystems.

5. Interoperability

A merged entity may have the technical ability to restrict interoperability.

6. Algorithmic competition

Algorithms may affect pricing, ranking and access.

7. Innovation

A small target may represent a significant future competitive constraint.

The EU has been updating its merger framework to address changes arising from digitalisation, globalisation and decarbonisation; draft revised merger guidelines were published in April 2026.

15. Phase II in Essential-Facility Transactions

Where the merged entity controls an essential facility, Phase II may consider whether it can restrict competitors' access.

Examples include:

• ports;
• airports;
• electricity grids;
• telecommunications infrastructure;
• payment systems;
• cloud infrastructure;
• software interfaces;
• digital platforms.

The authority may therefore require:

• access commitments;
• non-discrimination;
• interoperability;
• licensing;
• firewalls;
• independent operation.

China's merger rules expressly contemplate opening networks or platforms, licensing key technology and maintaining interoperability as possible remedies.

16. Phase II and Failing-Firm Arguments

A merging party may argue that the target would exit the market absent the transaction.

The authority normally asks:

1. Is the target genuinely failing?
2. Is there a realistic alternative purchaser?
3. Would the target's assets otherwise leave the market?
4. Would the competitive harm be greater without the transaction?
5. Is the proposed purchaser capable of maintaining competition?

The defence requires substantial evidence rather than a general assertion of financial difficulty.

17. Phase II and Efficiencies

The parties may argue that the transaction produces:

• economies of scale;
• lower costs;
• better technology;
• improved R&D;
• improved logistics;
• enhanced product quality;
• consumer benefits.

The authority generally examines whether efficiencies are:

• merger-specific;
• verifiable;
• sufficiently substantial;
• likely to benefit consumers;
• capable of offsetting competitive harm.

18. Procedural Issues

A Phase II investigation may involve:

1. Information requests

Authorities can require detailed information concerning markets, customers, competitors and internal strategy.

2. Third-party questionnaires

Customers and competitors may be questioned.

3. Economic studies

Independent economists may assess competitive effects.

4. Remedy negotiations

The parties may propose commitments.

5. Suspension of review periods

Certain legal systems allow review clocks to be suspended or extended in specified circumstances.

6. Re-filing

Where the transaction is withdrawn and re-notified, a fresh review period may begin.

The SK Hynix/Intel, Broadcom/VMware and JX Metal/Tatsuta matters demonstrate how extended review, withdrawal/re-filing and suspension can occur in complex Chinese merger investigations.

19. Possible Outcomes

A Phase II investigation generally produces one of three substantive outcomes:

1. Unconditional clearance

The authority concludes that the transaction does not create sufficient competitive harm.

2. Conditional clearance

The transaction is allowed subject to legally enforceable commitments.

3. Prohibition

The transaction is prohibited because the identified competitive harm cannot adequately be remedied.

The EU formally recognises these three Phase II outcomes. China's framework similarly permits conditional approval where commitments effectively reduce competitive harm and prohibition where adequate commitments are not available.

20. Key Legal Issues for Examination

A comprehensive Phase II analysis should therefore address:

1. Relevant market definition
2. Market shares
3. Market concentration
4. Market power
5. Closeness of competition
6. Entry barriers
7. Buyer power
8. Horizontal unilateral effects
9. Coordinated effects
10. Vertical foreclosure
11. Conglomerate effects
12. Innovation effects
13. Data and digital-market effects
14. Access and interoperability
15. Efficiencies
16. Failing-firm defence
17. Structural remedies
18. Behavioural remedies
19. Remedy monitoring
20. Judicial review

21. Conclusion

Phase II merger review is the principal mechanism through which competition authorities conduct an intensive investigation of potentially problematic concentrations. It moves beyond basic notification screening and examines the actual competitive structure and likely effects of a transaction.

The Chinese experience—particularly JX Metal/Tatsuta, SK Hynix/Intel, AMD/Xilinx, Broadcom/VMware, Illinois Tool Works/MTS and Korean Air/Asiana—shows that Phase II can involve prolonged investigation, detailed market definition, third-party consultations, economic analysis and extensive remedy negotiations. SAMR's rules expressly permit structural, behavioural and combined remedies.

For modern competition law, Phase II is especially significant in technology, semiconductors, pharmaceuticals, airlines, cloud computing, digital platforms, infrastructure and other concentrated or innovation-driven markets, where traditional market-share analysis may not adequately capture the transaction's competitive consequences.