On 25 November 25 2015, both the Federal Trade Commission (“FTC”) and China's Ministry of Commerce (“MOFCOM”) approved NXP Semiconductors NV’s (“NXP’s”) proposed US$11.8 billion takeover of Freescale Semiconductor Ltd. (“Freescale”), on the condition that NXP divests its radio frequency (“RF”) power amplifier assets to alleviate the agencies’ competition concerns. Earlier in September this year, the European Commission (“EC”) gave the deal a similar go-ahead after NXP offered the same divestiture. The Netherlands-based NXP and Texas-based Freescale, which develop and manufacture semiconductor products for a wide range of electronic systems, announced the merger in March 2015.
The convergence of the three antitrust agencies’ remedies, as well as the close timing of the clearance decisions, should be encouraging for companies considering global transactions that could raise substantive concerns across the Atlantic and Pacific.
The three agencies appear to have defined the relevant product market in slightly different ways. While the FTC defined the relevant market as “RF power amplifiers,” MOFCOM and EC looked into smaller sub-segments of RF power amplifiers. Nevertheless, all of them reached the same conclusions that the market of RF power amplifiers is highly concentrated and the two parties in question are the two largest market players. The FTC alleged that the two parties have a greater than 60 percent combined worldwide share of RF power amplifiers, with Infineon Technologies AG the only other significant competitor.
To address these concerns, NXP committed to all three agencies to divest all of its RF power amplifier business. It proposed to EC to sell its RF power amplifier business, comprising all key assets and personnel, except assets necessary for the so-called “front-end” manufacturing of these products; to enter into an agreement with a third party foundry to perform front-end manufacturing services for the divested business; and to provide the divested business with the transitional services to guarantee business continuity. The purchaser was not identified at that stage.
The FTC’s order requires NXP to divest all its assets that are used primarily for manufacturing, research and development of its RF power amplifiers, as well as to grant the divested business a royalty-free license to use all other NXP patents and technologies.Similarly, MOFCOM ordered NXP to divest its RF power business, comprising tangible and intangible assets as listed in detail in NXP’s final commitments to MOFCOM. Neither the FTC nor MOFCOM carve out the “front-end” manufacturing assets from the divested assets. Both agencies required NXP also to provide transitional assistance to the divested business. A monitoring trustee will oversee NXP's compliance with the obligations set forth in these decisions.
The purchaser of NXP’s RF power amplifier business is Beijing Jianguang Asset Management Co., Ltd (“JAC”), a subsidiary of JIC Capital which is a Chinese state-owned investment group. On 22 June 2015, NXP announced that it intended to file joint voluntary notices with the Committee on Foreign Investment in the United States (“CFIUS”) for the acquisition of Freescale and the sale of the divested business to JAC. CFIUS conducts national security reviews of acquisitions by foreign persons of U.S. businesses. On 13 October 2015, NXP announced that CFIUS had concluded its review of the NXP-Freescale transaction. NXP announced on 24 November 2015, one day before clearance from the FTC was announced, that CFIUS approved its transaction with JAC.
While the substantive concern appears to have been fairly straightforward—the transaction was a clear 3-to-2 transaction in RF power amplifiers according to all three agencies—the deal is significant because it highlights how the U.S., EU and Chinese merger control agencies can work (relatively) harmoniously to achieve a consistent worldwide remedy. Moreover, the parties’ up-front approach to the remedy appears to have helped create the possibility for such coordination. The EC confirmed that at the same time of submitting its merger filing, NXP also put forward a set of measures designed to allay any competition concerns. MOFCOM also explicitly mentioned in its decision that as early as in the preliminary stage of the merger review, NXP proposed the divestiture plan to MOFCOM. In its press release, the FTC talked about its cooperation with other antitrust agencies in various jurisdictions throughout this investigation, including on the analysis of the proposed transaction and potential remedies, to reach compatible approaches on an international scale. Such interagency coordination again puts a spotlight on the importance of both creating a coherent global merger clearance strategy from the beginning and achieving consistent management of multi-jurisdictional merger filings.
Finally, CFIUS’s clearance of the NXP-JAC transaction is also instructive. The RF power amplifier business that JAC acquired focuses primarily on the cellular base station market, so CFIUS’s clearance is another reminder that CFIUS continues to clear Chinese acquisitions of U.S. businesses – even ones involving a Chinese government-owned buyer and a U.S. business with a nexus to a sensitive sector. In this transaction, the 'folding-in' of the CFIUS clearance for the divestiture before the FTC and MOFCOM approvals further highlights the need, and benefits, of cross-jurisdiction interdisciplinary cooperation.