Fair Trade Commission Disposal Directions (Guidelines) on Handling Merger Filings

Approved at the 762ndCommissioners' Meeting on Jun. 15, 2006
Promulgated per Kung-Yi-Tzu Order 0950005804 on Jul. 6, 2006
Title and Point 1 amended at the 1057thCommissioners' Meeting on Feb. 8, 2012
Promulgated per Kung-Fu-Tzu Order No. 1011260189 on Mar. 9, 2012
Amended at the 1083rdCommissioners' Meeting on Aug. 8, 2012
Promulgated per Kung-Fu-Tzu Order No. 10112610891 on Sep. 7, 2012
Points 5 to 8, 11 and 13 amended at the 1181st Commissioners Meeting on Jun. 25, 2014
Promulgated per Kung-Fu-Tzu Order No. 10312608241 on Jul. 7, 2014
Points 2 to 4, 7, 8, 10 and 11 amended at the 1220th Commissioners' Meeting on Mar. 25, 2015
Promulgated per Kung-Fu-Tzu Order No. 10412603301 on Apr. 13, 2015
Points 7 and 12 amended at the 1280th Commissioners'Meeting on May 18, 2016
Promulgated per Kung-Fu-Tzu Order No. 10512606761 on July 18, 2016


1. Purpose

The Fair Trade Commission (hereinafter referred to as the FTC) has specifically established theseguidelines to set precise standards for merger filingreview and for businesses to observe.

2. Definition of Terms

Terms used in these principles are defined as follows:
(1) Relevant Markets: refers to the regions or scopes within which the enterprises ofparticular goods or services are competing.
(2) Demand Substitution: refers to the circumstances where trading counterparts canswitch to other goods or services to replace the specific goods or services providedby the enterprises when the enterprises adjust the prices or compensation for thespecific goods or services.
(3) Supply Substitution: refers to circumstances where existing or potentialcompetitors can provide substitutable goods or services to replace the specificgoods or services provided by the enterprises when the enterprises adjust theprices or compensation for the specific goods or services.
(4) Horizontal merger: a merger between businesses that have horizontal relationship by offering similar products or services
(5) Vertical merger: a merger between businesses that have an upstream-downstream relationship in the same industry
(6) Conglomerate merger: a merger between businesses that neither compete horizontally nor have an upstream-downstream relationship

3. Relevant market definition

According to theseguidelines, "relevant market" is judged by combining the definitions of the product market and the geographic market:
(1) Product market: the range in which the demand substitutability or supply substitutability of a product or service is high in terms of functionality, characteristic, usage or price
(2) Geographic market: the area in which trading counterparts can easily choose suppliers or switch to other suppliers for products or services similar to those a specific business provides.

Depending on the specific case,in addition to product market and geographic market as stated in the preceding paragraph, the influence of timefactors on the relevant market may also be taken into account,.

4. Market share calculation

To calculate the market share of an enterprise, the production, sales, inventory, and input/output value (volume) data of the enterprise and the relevant market shall be taken into account.

In principle, the sales value (volume) of the relevant market as defined in Point 3 shall be adopted as the basis of market share calculationdescribed in the preceding paragraph. Where calculation based on sales value (volume) is deemed inappropriate, other characteristics of the relevant market may be applied as the basis of calculation. Corresponding data established by the competent authority through investigations or records from other government agencies may be applied in market share calculation.

5. Review Procedures

The procedures the FTC adopts to review merger filings are divided into simplified procedure and regular procedure.

6. Review criteria

The overall economic benefits of merger cases processed through the simplified procedure may be regarded as greater than disadvantages from the competition restrictions thereof incurred, if none of the exceptions specified in Point 8 apply.

The overall economic benefits of merger cases processed through the regular procedure, with horizontal mergers assessed according to the considerations specified in Points 9 and 10 and the market share, vertical mergers assessed according to the considerations specified in Point 11 and conglomerate mergers assessed according to the considerations specified in Point 12,may be regarded as greater than disadvantages from the competition restrictions thereof incurred, if the potential competition restrictions are deemed insignificant.If the potential competition restrictions are considered significant, the overall economic benefits shall be further evaluated to determine whether they are greater than disadvantages from competitions restriction thereof incurred.

7. Merger filing types to which the simplified procedure applies

The FTC may adopt the simplified procedure for the followingmerger filing types:
(1) The aggregate market share of the parties to a horizontal merger is less than twenty percent of the total market.
(2) The aggregate market share of the parties to a horizontal merger is less than twenty-five percent of the total market and the market share of one of the parties to the merger is less than five percent of the total market.
(3) The aggregate market share of the parties to a vertical merger in each relevant market is less than twenty-five percent of the total market.
(4) After examining the considerations specified in Paragraph 1 of Point 12, the FTC concludes that potential competition between the parties to a conglomerate merger is insignificant.
(5) One of the merging parties directly holds more than one third but less than half of the voting shares or capital contributions of another business and merges with the said business.

8. Exceptions where the simplified procedure does not apply

Under one of the following circumstances, the FTC shall adopt the regular procedure, rather than the simplified procedure, to process merger filings:
(1) The market shares of the top two businesses account for two thirds of the relevant market, or the market shares of the top three businesses accounts for three fourths of the relevant market that a horizontal merger involves. However, this regulation does not apply if the aggregate market share of the merging parties is less than ten percent of the total market.
(2) The merger in question involves significant public interest.
(3) One of the merging parties is a financial holding company as defined in the Financial Holding Company Act or the Taiwan Stock Exchange Corporation Rules GoverningSecurities Listings.
(4) It is difficult to define the relevant market the merger involves or to calculate the market shares of the merging parties.
(5) High-level market entry barriers or high market concentration existsin the relevant market the mergerinvolves or there are other conditions likely to lead to disadvantages as a result of the significant competition restrictions thereof incurred.

9. Effects of competition restriction to be taken into consideration inthe review of horizontal mergers

When reviewing horizontal mergersthroughthe regular procedure, the FTC may consider the following factors to assess the effects ofthe likely competition restrictions thereof incurred:
(1) Unilateral effects: Unilateral effects refer to the post-merger results of merging businessesgaining the capacity to increase their product or service prices as there is no more competition pressure between them. Under such circumstances, evaluation may be conductedaccording to developments in market concentration, market share of each merging party, and market shares and supply-demand of businesses outside the merger before and after the merger as well as the reaction of buyers to price changes. If the merger involves a differentiated product or service, further examinationmay be conducted to assess the level of substitutability of the product or service in question (whether a merging party is the best alternative for consumers, whether the clienteles are highly overlapped, whether the difference between the merging parties is merely a matter of choice, product positioningor price variation for consumers, or whether the merging parties market through same channels), and profit margins before and after the merger.
(2) Coordinated effects: Coordinated effects refer to the post-merge results of merging parties and their competitors establishing agreements to restrict each others business activities or taking concerted actions to render competition in the relevant market nonexistent without establishing agreements. Under such circumstances, evaluation may be conducted according to the number of businesses in the market, level of market concentration, market entry barriers, product homogeneity, compatibility between business scales and operating costs, level of market transparency, business transaction modes, capacity utilization rates, and whether there is any business with unusual competition edges able to influence market competition and whether such a business is a party to the merger.
(3) Market entry: This includes the likelihood and timeliness of market entry for potential competitors and whether such entry can bring pressureon existing businesses in the market.
(4) Countervailing Power: Countervailing power refers to the ability of trading counterparts or potential trading counterparts on the market to cope with post-merger product or service price increases by the merging parties.
(5) Other factors that have influence on effects of competition restriction

10. Horizontal mergers likely to result in significant competition restrictions

In principle, the FTC shall further assess the overall economic benefits when adopting the regular procedure to review horizontal mergers that involve one of the following situations:
(1) The aggregate market share of the merging parties achieves half of the total market.
(2) The top two competitors on the relevant market account for two thirds of the total market share.
(3) The top three competitors on the relevant market account for three quarters of the total market share.

Under the circumstances described in Subparagraphs 2 and 3 of the preceding paragraph, the aggregate market share of the merging parties shall achieve twenty percent of the total market.

11. Factors to be considered in the assessment of the effects of competition restriction in vertical mergers

When adopting the regular procedure to review vertical mergers, the FTC may consider the following factors to determine their possible effects on competition restriction:
(1) The possibility for other competitors to choose trading counterparts after the merger;
(2) The level of difficulty to enter the relevant market for businesses not participating in the merger;
(3) The possibility for the merging parties to abuse their market power in the relevant market;
(4) The possibility of raising rivals cost.
(5) The possibility of concerted actions occurring as a result of the merger;
(6) Other factors likely to lead to market foreclosure.

12. Review of conglomerate mergers

The FTC may consider the following factors to determine whether potential competition exists between the parties to a conglomerate merger:
(1) The possibility of change of regulations and its impact on cross-industry operations of the merging parties;
(2) The possibility of technological improvement enabling the merging parties to engage in cross-industry operations;
(3) Whether any of the merging parties originally has the intention to develop cross-industry operations;
(4) Other factors likely to affect market competition.

When the existence of significant potential competition is deemed likely in a conglomerate merger according to the assessment described in the preceding paragraph, further analysis of the likely effects on competition restriction shall be taken into account as the post-merger status similar to a horizontal or vertical merger.

13. Factors to be considered in the assessment of the overall economic benefits

If a merger is considered likely to entail competition restrictions, the applicant(s) may submit proof of the following factors of the overall economic benefits to be assessed by the FTC:
(1) Efficiency
(2) Consumers' interests
(3) One of the merging parties is originally in a weaker competitor.
(4) One of the merging parties is a failing firm.
(5) Other concrete evidence of overall economic benefits to be expected.

The economic benefits stated in Subparagraph 1 of the preceding paragraph shall meet the following requirements:

(1) They can be brought to realization within a short time.
(2) They cannot be achieved other than through the merger.
(3) They can reflect on consumers interests. \

The failing firmstated in Subparagraph 4 of the preceding paragraph refers to a business that is 1) unable to pay up its debts within a short time, 2) unable to remain in operationonthe relevant market in any less restrictive way of competition except through the merger, and 3) bound to withdraw from the relevant market unless it merges with another business.

14. Merger approval with conditions or undertakings attached

The FTC may attach conditions or undertakings to its decisions on merging filings in order to eliminate any likely competition restriction as a result of merger to ensure that the overall economic benefits are greater than disadvantagesfrom the competition restrictions thereof incurred.The types of conditions or undertakings to be attached are as follows:
(1) Measures regarding the structural aspect: The FTC shall request merging parties to take measures to dispose the shares or assets in their possession, assign part of their operations, or remove personnel from certain positions.
(2) Measures regarding the behavioral aspect: The FTC shall request merging parties to continue to supply essential facilities or input elements to businesses outside the merger, to license such businesses to use their intellectual property rights, not to engage in exclusive dealings, not to have discriminatory treatment, or not to impose tie-in sales.

Depending on the specific case, the FTC may determine to attach other conditions or undertakings that it sees fit without being subject to the preceding paragraph.Before concluding its decision on a merger filing, the FTC may inquire the opinions of the merging parties toward the conditions or undertakings to be attached.

15. The opinions of competent authorities

When reviewing merger cases, the FTC may consider the opinions of the competent authority of the industry in concern to assess the overall economic benefits and disadvantages from the competition restrictions thereof incurred.

16. Review criteria for specific industries

Theseguidelines shall apply to mergers in all industries unless the FTC has established other disposal directions (guidelines) for specific industries.