Merger reviewi Definition
Under the TFTA, a defined combination meeting certain thresholds as prescribed by the TFTA would require a prior notification to the TFTC. The term 'combination' is broadly defined in the TFTA to include combinations conducted offshore (i.e., an extraterritorial combination or a foreign-to-foreign transaction).Types of notifiable combination
According to Article 10 of the TFTA, a 'combination' is defined to include:
- a merger;
- a holding or acquisition of at least one-third of the voting shares of or interest in another enterprise;
- a transfer or lease of all or a substantial part of an enterprise's business or assets;
- an arrangement with another enterprise for a joint operation on a regular, ongoing basis, or the management of another enterprise's business based on a contract of entrustment; or
- direct or indirect control over the operation or personnel of another enterprise.
According to Article 11 of the TFTA, if any or all of the parties to a combination meet any of the following thresholds, a notification must be filed with the TFTC prior to the closing of the proposed transaction:
- as a result of the combination, any of the enterprises will acquire at least one-third of the market share;
- any of the enterprises participating in the combination holds a market share of at least a quarter before the combination; or
- the preceding fiscal year's turnover of an enterprise participating in the combination exceeded the amount set forth by the TFTC (i.e., for a combination between non-financial enterprises, one of the enterprises generated an annual turnover of at least NT$10 billion, while the other enterprise generated an annual turnover of at least NT$1 billion).
In December 2016, the Thresholds and Calculation of Sales Amounts which Enterprises in Mergers shall File with the TFTC was also amended, adding an additional turnover threshold regarding the combined worldwide sales of parties. Thus, by this amendment, the aforesaid turnover filing threshold for a combination between non-financial enterprises includes:
- the aggregate global turnover of all the enterprises to a combination in the preceding fiscal year exceeded NT$40 billion, and each of at least two of the enterprises had a turnover in Taiwan of at least NT$2 billion in the preceding fiscal year; or
- one of the enterprises generated a turnover in Taiwan of at least NT$15 billion in the preceding fiscal year, while the other enterprise generated a turnover in Taiwan of at least NT$2 billion in the preceding fiscal year.
The TFTC Disposal Directions (Guidelines) on Extraterritorial Mergers are stipulated for the purpose of handing merger filings related to foreign mergers. In spite of these Guidelines, the filing requirements (thresholds, time frames, documents, etc.) for foreign mergers are the same as those for domestic transactions, although the TFTC will take the local effect into account when determining whether it will exercise jurisdiction.
In December 2016, the TFTC amended the Extraterritorial Mergers Guidelines. In the past, if none of the enterprises in an extraterritorial combination had any production or service facilities, distributors, agents or other substantive sales channels within the territory of Taiwan, the TFTC would not have exercised its jurisdiction over the case. After the amendment, the aforesaid circumstance became one of the factors that the TFTC will consider when determining whether to exercise its jurisdiction.
Furthermore, before the amendment, a merger of two or more foreign enterprises outside the territory of Taiwan would have been deemed an extraterritorial merger only if there was a direct, substantial and reasonably foreseeable effect on the domestic market. According to the newly amended Extraterritorial Mergers Guidelines, the local effect element is only one of the factors that the TFTC will consider in determining whether to exercise its jurisdiction. In general, the above amendments may give the TFTC more discretion in determining whether to exercise its jurisdiction over an extraterritorial merger.ii Significant casesCombination between chip makers (2012)
At its 1 August 2012 commissioners' meeting, the TFTC unconditionally cleared the proposed combination between MediaTek Inc (MediaTek) and Mstar Semiconductor Inc (Mstar).
The proposed combination entails the acquisition of at least 40 per cent and up to 48 per cent of the shares in Mstar by MediaTek through a public tender offer. Following the consummation of the tender offer, a post-closing merger will be further pursued in which MediaTek will be the existing company and Mstar will be the dissolved company.
According to the TFTC, MediaTek and Mstar overlap in the mobile chip market and TV/display control chips market, and thus the transaction should be defined as a horizontal combination. However, for the reasons listed below, the TFTC concluded that the proposed combination would not generate any anticompetitive effect on the Taiwanese relevant product markets:
- as most of the participating parties' relevant products are exported for sale globally, the participating parties face intense competition from their worldwide competitors. Therefore, after the combination, even if any attempt is made to raise product prices arbitrarily, it would be constrained by market forces;
- the proposed combination is unlikely to result in any concerted action among the participating parties and their competitors. Furthermore, no material entry barrier to the relevant markets exists; hence, Taiwanese and other multinational enterprises interested in the industry can enter the market any time, making the market even more competitive; and
- because there are already numerous enterprises in the relevant markets, when choosing business partners, the participating parties' upstream and downstream counterparties have a wide pool to choose from. In fact, the participating parties' transacting counterparties have considerable bargaining power. Consequently, the merged entity would not be able to abuse its market power after the combination.
The TFTC also indicated that the proposed combination did not have the potential of undermining competition and would instead fortify the Taiwanese TV/display control chip makers' ability to compete with global enterprises.
Given the above, the TFTC found that the overall economic benefit from this transaction would outweigh the disadvantages of stifled competition. Consequently, it cleared the subject transaction under Paragraph 1, Article 12 of the TFTA.iii Trends, developments and strategiesRemedies
In September 2012, the TFTC updated the Directions (Guidelines) on Handling Merger Filings (Merger Guidelines) to include its official standards for remedies. According to the Merger Guidelines, the remedies the TFTC can impose as conditions are:
a measures affecting the structural aspect: the TFTC can order parties to take measures to dispose of the shares or assets in their holding, transfer part of their operations or remove personnel from certain positions; and
- measures affecting the behavioural aspect: the TFTC can order parties to continue to supply critical facilities or essential elements to businesses outside the merger, order the parties to license such businesses to use their intellectual property rights, and prohibit the parties from engaging in exclusive dealing, discriminatory treatment and tie-in sales.
Despite the foregoing, the TFTC still reserves the right to impose other types of remedy on a case-by-case basis. The Merger Guidelines also outline that the TFTC may seek parties' opinions on the possible remedy before it makes its final decision.International cooperation for merger reviews
No official documentation indicates that the TFTC has, to date, ever cooperated with foreign authorities while conducting the review of a combination notification. However, the TFTC has entered into certain cooperation agreements or memorandum with the following countries for the application of competition regulations: Hungary, Canada, Australia, New Zealand, France and Mongolia. Meanwhile, while reviewing a cross-border transaction, it is not uncommon for the TFTC to order the filing parties to report the current status in other jurisdictions where a combination notification has also been made. Given the above, even without formal coordination, the TFTC still more or less consults agencies in other jurisdictions to make its decision on a merger filing.iv Outlook
According to the TFTA, the main revisions to the merger control rules are as follows:
- When assessing whether a transaction constitutes a combination and whether any filing threshold is met, the new law prescribes that in addition to the turnovers and shareholding of a party's parent or subsidiary, those of affiliate companies (including sister companies under common control) should also be taken into consideration.
- Apart from holding shares through corporate entities, it is not uncommon for an enterprise's business operations or the appointment of personnel to be under the control of certain individuals. It is also common for an enterprise to hold shares in another enterprise through natural persons or non-corporate entities. As the transactions of the above-mentioned shareholding structures may have the same effect as a combination under the TFTA, the new law stipulates that those natural persons or non-corporate entities that have a controlling share in a company should also be subject to the merger control rules, even though they are not corporate entities.
- The review period for a merger filing case has been revised from 30 days with a possible extension of an additional 30 days to a possible extension of an additional 60 days, as the original period may not be sufficient for the agency to thoroughly analyse a case that may have potential anticompetitive effects. Further, in May 2017, the above-mentioned review period has been revised from 30 days with a possible extension of an additional 60 days to 30 business days with a possible extension of an additional 60 business days. This amendment is to avoid a situation where the review period for major merger filing cases is unduly shortened due to successive national holidays. The amendment also precludes an acquirer in a hostile takeover from improperly fixing the review period by manipulating the filing schedule.
- It is noteworthy that the new TFTA follows the old law in implementing a dual filing threshold system. The TFTC's proposal of removing the market share filing thresholds did not pass the Legislative Yuan's final review.