On 24 November 2017 the Ministry of Commerce of the People’s Republic of China (MOFCOM) conditionally cleared the proposed acquisition of Siliconware Precision Industries Co., Ltd. (SPIL) by Advanced Semiconductor Engineering Inc. (ASE). Due to MOFCOM’s concerns that the proposed deal may have the impact of eliminating or restricting competition in the market for original equipment manufacturer (OEM) services for semiconductor assembly and testing, the parties had to withdraw and refile the notification, such that MOFCOM’s conditional approval was eventually obtained 15 months after the notification was initially submitted to MOFCOM.
The parties had fairly significant horizontal overlaps, with combined market shares ranging from 25% to 30% globally and in China. To address MOFCOM’s concerns, the parties offered, amongst other commitments, to hold the businesses separate for 24 months. This rather exceptional remedy requires ASE and SPIL to operate independently, for 24 months post-merger, in relation to management, finance, personnel, pricing, sales, production capacity, and procurement, so as essentially to prohibit integration and coordination between the parties in relation to their overlapping business of OEM services for semiconductor assembly and testing. The parties would have to report to MOFCOM every six months on their compliance with the conditions. The other conditions imposed by MOFCOM are also behavioural in nature for a duration of 24 months. They include providing services for customers in a non-discriminatory manner, not restricting customers from selecting other providers and not exercising certain shareholder rights.
It was reported that MOFCOM considers the “hold-separate” remedy an appropriate measure to address competition concerns in problematic mergers and it is a way of avoiding an outright prohibition of a deal. The “hold-separate” remedy was first accepted by MOFCOM in 2011 in its conditional approval of Seagate’s acquisition of Samsung’s hard disk business, requiring the parties to remain independent for 12 months; and we last saw the use of the remedy four years ago in MediaTek’s merger with fellow Taiwanese chip maker MStar, which was subject to a 36-month hold-separate remedy. Generally, parties may apply to MOFCOM for the condition to be removed after its expiry, but MOFCOM’s review process for such removal may be lengthy. The process took more than two years in Seagate’s case, and as regards MediaTek/MStar, although the companies reportedly applied for the lifting of the condition on its expiration in August 2016, MOFCOM has still not published any decision regarding revising the conditions it imposed on the deal. The ASE/SPIL decision avoids this uncertainty, as the final remedy proposal submitted by the parties states that the conditions imposed by MOFCOM would automatically expire after 24 months.
The deal has otherwise received unconditional approval from the U.S. Federal Trade Commission and Taiwan Fair Trade Commission in May 2017 and November 2016 respectively.