After months of too-ing and fro-ing, MOFCOM is finally comfortable with the commitment’s proposed in relation to MediaTek Inc’s US$4 billion acquisition of MStar Semiconductor Inc and has cleared the acquisition subject to the commitments. This decision is the fourth “hold-separate” case in China’s merger filing history.
After assessing the transaction, MOFCOM was concerned about the market share MediaTek would have in the market for LCD TV control chips (one of the products involved in the transaction*) and the impact on competition this would have, if the transaction were to proceed. According to MOFCOM, MediaTek and MStar were the top two competitors in the market pre-transaction, with a combined market share as high as 61% in the global market and 80% in the China market. Post-transaction, the constraints (innovation, service quality and price) that these two competitors placed on one another would be removed. Inability for other manufacturers to compete effectively and high barriers to entry due to the technical nature of the product were also cited as causes for concern.
To alleviate MOFCOM’s concerns, the commitment proposal put forward by the parties (which after many iterations was eventually accepted by MOFCOM) contained the following conditions:
- Post transaction, MStar’s Taiwan subsidiary should take possession of MStar’s LCD TV control chip business, and MStar Taiwan should remain in the market as an independent company.
- MediaTek’s shareholder rights should be restricted. MediaTek is only allowed to exercise its rights with respect to dividends, financial report consolidation and conditional appointment of board members. The exercise of other rights is subject to prior approval of MOFCOM.
- MediaTek and MStar Taiwan should not conduct business cooperation without first obtaining consent from MOFCOM, and should set forth safeguard measures to avoid information exchange at both the employee and management level. Moreover, MediaTek and MStar Taiwan should maintain their pre-transaction practice regarding supply, after-sale service, open source, etc.
- Without prior approval of MOFCOM, MediaTek and MStar Taiwan should not acquire any competitor in the LCD TV control chip market.
- The initial period of the remedies is three years. Within the three-year period, MediaTek and MStar Taiwan should submit written reports to MOFCOM on their compliance with the decision every three months. After the three-year period, MediaTek and MStar Taiwan may apply for the removal of the hold-separate obligations.
Interestingly (and uncommonly), the commitment proposal also made substantial promises about price reduction of the new LCD TV control chip products.