All questions

Merger review

The number of merger filings with the JFTC has been relatively stable with a slight decrease compared to the immediately preceding year. From April 2017 to March 2018 (FY 2018), the JFTC accepted 306 notifications, of which 299 were cleared in Phase I, one was brought into Phase II and six were voluntarily withdrawn by the parties. From the standpoint of the competitive landscape between the parties, 179 involved a horizontal overlap and 121 involved a vertical relationship.

Likely supported by the parties' effective use of pre-notification consultation with the JFTC, the rate of Phase I clearance continues to be high. Informal discussion between the authority and the parties during the pre-notification phase often extends to substantive competition issues, and sometimes remedies may also be agreed. While the JFTC only publishes a limited number of its decisions, it published three Phase I clearances with conditions in FY 2018.

i Significant casesFukuoka Financial Group (FFG)/Eighteenth Bank

The JFTC scrutinised FFG's acquisition of Eighteenth Bank with a focus on the parties' horizontal overlap in corporate loans for small and medium-sized enterprises (SMEs) in Nagasaki Prefecture and three sub-regions, where the combined market share would be 70 to 75 per cent. After an in-depth review of more than two years, the transaction was approved on the condition that the parties divest loan receivables valued approximately ¥100 billion, accounting for 5 to 10 per cent of the above-mentioned relevant markets.

Oji Holdings/Mitsubishi Paper Mills

Oji Holdings' acquisition of 33 per cent voting rights in Mitsubishi Paper Mills involved the parties' substantive horizontal overlap in art paper, base paper for wallpaper, and press board markets in Japan. Upon Phase II scrutiny, the JFTC unconditionally approved the transaction taking into account the competitive pressure from customers, competitors and neighbouring markets.

Nippon Steel & Sumitomo Metal (NSSMC)/Sanyo Special Steel (SSS)

Reviewing NSSMC's acquisition of 51.5 per cent voting rights in SSS, the JFTC focused on the Japanese market of small diameter seamless steel pipes for bearings, where the parties are the only two players SSS holding a 70 per cent market share and the remaining 30 per cent held by NSSMC. Given the absence of competitive pressure from competitors, imports and new entrants, as well as the limited presence of competitive pressure from customers and neighbouring markets, the JFTC considered that the transaction would substantially restrain competition. The transaction was approved during Phase II on the condition that SSS assigns a certain portion of right of use for its manufacturing facility and associated business to Kobe Steel, as well as the relevant firewall, so that sensitive information of Kobe Steel may not be shared, and monitoring undertakings.

ii Trends, developments and strategies

The JFTC has reviewed and approved 16 mergers and acquisitions between Japanese regional banks over the past 10 years, of which two recent cases (Daishi Bank/Hokuetsu Bank, FFG/Eighteenth Bank) were subject to Phase II. With the expected decrease in the Japanese population and other economic circumstances as a backdrop, mergers and acquisitions are considered important and effective options for regional players to survive, but their relatively high market share in specific regions may lead transactions to an in-depth review by the JFTC. In order to facilitate such momentum, the Japanese government is considering new legislation that provides a temporary exception to the current merger control regime under the AMA for a period of five to 10 years.

iii Outlook

The Growth Strategy Council, which is the government's initiative to promote growth of the Japanese economy in the prospective sectors, suggests an amendment to the JFTC's merger control guidelines with an aim to facilitate merger review that involves digital platforms. New factors such as data, R&D investments, human resources, and accumulation of know-how are proposed additions to the traditional factors of substantive competition assessment.