Fair Trade Commission Guidelines on Handling Merger Filings	Guidelines

Passed by the 762th Commissioners’ Meeting on June 15, 2006
Promulgated by Letter Kung Yi Tzu No. 0950005804 on July 6, 2006

These Guidelines are specially adopted by the Fair Trade Commission (hereinafter referred to as The Commission) to make the standards of examining merger filing clearer and hence for the ease of enterprises to abide by.

II. Definitions

The terms used in these Guidelines are defined as follow:

1. Relevant market: refers to a geographic area or a coverage wherein enterprise compete in respect of particular goods or services.
2. Demand Substitutability: refers to the situation that the supplier of particular goods or services changes the price or the remuneration for those particular goods or services, the ability of its trading counterparts to switch to other sellers or substitute the above-mentioned goods or services with other goods or services.
3. Supply Substitutability: refers to the situation that the supplier of particular goods or services changes the price or the remuneration for those particular goods or services, the ability of its other competitors or potential competitors to supply substitute goods or services.
4. Horizontal Merger: Enterprises participating in the merger have horizontal competitions relation.
5. Vertical Merger: Enterprises participating have upstream, downstream relation.(6) Conglomerate Merger: Enterprises participating do not have horizontal competition relation or upstream, downstream relation.

III. Definition of Market

These Guidelines delineate relevant market into overall product market and geographic market for further decision:

1. Product market means the scope of goods or services that in terms of functionality, characteristics, purposes or prices, have high degree of demand or supply substitutions.
2. Geographic market means a region or scope in which the merging parties supply particular goods or services, and the trading counterpart can select or switch easily to other suppliers. In addition to the consideration of the above-mentioned product market and geographic market, depending on the case, the duration of a merger affects the relevant market is examined.

IV. Calculation of Market Share

Production, sales, inventory, and import/export value (volume) data for the enterprise and the relevant market shall be taken into account when calculating the market share of an enterprise.

In principle, the sales value (volume) of the relevant market defined in Article III is used to calculate the above-mentioned market share. In the case of sales value (volume) is not suitable for the calculation, the other basis of calculation is selected according to the characteristics of its relevant market.

The data of the central competent authority’s investigation and the record of other government agencies can be used to calculate market share.

V.Review Procedures

The Commission adopts simplified or general procedure to review merger filing.

VI. Criteria of Merger Review

In the case that the merger filing meets the circumstances mentioned in Article VII and is reviewed by simplified procedure, if the exceptional matters for the applicable of general procedure stated in Article VIII is not found, then it can be regarded that the overall economic benefits of the merger outweighs the disadvantages resulting from competition restraint.

In the case that the merger filing is reviewed by general procedure, for a horizontal merger, the market share and the factors specified in Article IX, Article X are deliberated, for a Vertical merger, the factors specified in Article XI are deliberated and for a conglomerate merger , the factors specified in Article XII are deliberated and there is no suspicion of obvious competition restraints, then it can be regarded that the overall economic benefits of the merger outweighs the disadvantages resulting from competition restraint. Otherwise, the overall economic benefits shall be further examined to determine whether the overall economic benefits of the merger outweighs the disadvantages resulting from competition restraint.

VII. Types of Merger Filing that Simplified Procedure is Applicable

With regard to the following types of merger filing, the Commission shall adopt simplified procedure to shorten the waiting period of merger:

1. The enterprises that file the merger with the Commission according to Article 11.1.3 of the Fair Trade Law, and their respective market shares meet one of the following circumstances:
   1. In a horizontal merger, the combined market shares after the merger is less than 15 percent. However, the market share of the two largest enterprises in the relevant market reaches two-third or the three largest enterprises of the relevant market reaches three-fourth are excluded.
   2. In a vertical merger, the combined market share in each individual market is less than 25%.
2. In the case of conglomerate merger, if the factors of consideration stated in Article XII are deliberated, the merging parties do not have any major potential competition possibility between each other.
3. following merger between a controlling enterprise and its subordinate enterprise that changes the manners of their relations:
   1. One of the enterprises participating in the merger directly owns more than one-third and less that half of the voting shares or paid-up capital of the other merging party.
   2. The parent company merges with the subsidiary company of its subsidiary company. The above-mentioned subsidiary company refers to a company in which the parent company holds fifty percent or more of its voting shares or paid-up capital.

   

   3. A company merges with a subsidiary company of another company and both companies are subsidiary companies of the same company.

   

1. The merger involves major public interest.
2. One of the merging parties is a holding company as definition prescribed by Taiwan Stock Exchange Corporation Regulations for the Review of Stock Exchange Listings Applications by Investment Holding Companies or Financial Holding Company Act.
3. There is a difficulty to delineate the scope of relevant market or the calculation of market shares of enterprises participating in the merger.
4. The relevant market of enterprises participating in the merger has high entry barriers, market concentration or other unfavorable and questionable circumstances that severely limit competition.

IX.Factors Affecting Competition Restraint in Horizontal Merger

The Commission, in the general procedure of merger review, shall consider the following factors when assessing the competition restraints resulted from the horizontal merger:

1. Unilateral Effects: After the merger, the enterprises participating in the merger are not restrained from market competition and thus have ability to elevate the goods price or services remuneration. The Commission may assess the above-mentioned circumstances according to the market shares of merging enterprises, homogeneity of goods or services, production capacity and import competition.
2. Coordinated Interaction: After the merger, the merging parties and its competitors restrict business activities among themselves or, even though they are not mutually restricting one another from competition, but they have taken concerted actions to remove market competition in practice. The evaluation of whether the market condition is conducive for the enterprises to form concerted actions, the ease of monitoring violated acts and the effectiveness of punishments are carried out to determine the success of coordinate interaction.
3. Extent of Entry: the likelihood and timeliness of entry by potential competitors, and whether such entry would exert competitive pressures on the existing enterprises in the market shall be examined.
4. Countervailing Power: refers to the ability of trading counterparts or potential trading counterparts to restrict the merging parties from raising the price of goods or the remuneration of services.
5. Other factors affecting the result of competition restraints.

X.Horizontal Merger that has Obvious Suspicion of Competition Restraints

In principle, the Commission deems that the horizontal merger filing of general procedure that meets any of the following conditions has suspicion of obvious competition restraints and the overall economic benefits shall be examined further:

1. The combined market share of the merging enterprises reaches 50 percent.
2. The market share of the two largest enterprises of the relevant market reaches two-third.
3. The market share of the three largest enterprises of the relevant market reaches 3/4.For circumstances stated in the above-mentioned second or third paragraph, the merger in which the combined market shares of enterprises participating in the merger have to reach to 15%.

1. The probability of other competitors selects their trading counterparts after the merger.
2. The degree of difficulty for an enterprise not participating in the merger enters the relevant market.
3. The possibility of merging parties abuses its market power in the relevant market.
4. Other factors that may result market foreclosure.

XII.Conglomerate Merger Review

In the case that there is a likelihood of material potential competition in the relevant market of conglomerate merger, depending on the form of either the horizontal or vertical merger resulted from such merger, the factors affecting competition restraints in horizontal or vertical merger stated in these Guidelines shall be applicable.

The Commission shall take the following factors into consideration when determining the likelihood of the above-mentioned material potential competition:

1. The impact of regulation and control lift up on the merging parties’ cross-industry operation.
2. The probability of cross-industry operation by the merging parties because of technology advancement.
3. The original cross-industry development plan of the merging parties besides the merger.
4. Other factors that affect the likelihood of material potential competition

XIII.Considerations of Overall Economic Benefits

With regard to the merger filing that has suspicion of obvious competition restraints, the filing enterprises shall submit the following factors of overall economic benefits to the Commission for deliberation:

1. Consumer interests.
2. The merging parties are originally at the weaker position in the trading.
3. One of the merging parties is a failing enterprise.
4. Other concrete results related to overall economic benefits.

The failing enterprise stated in item (3) of the preceding paragraph must meet the following criteria: (1) It is unable to pay back the debt within the short period. (2) It does not have any other means of no competition restraints but opt to the merger in order to be able to survive in the market. (3) It inevitably will withdraw from the market if it cannot merge with other firms.

XIV.Opinions of Competent Authority

The Commission shall deliberate opinions of the competent authority when reviewing the merging filing to assess the overall economic benefits and the disadvantages of competition restraints.

XV.Review Standards for Specific Industry

In the industries that the Commission has separately set up merger guidelines, the merger filings shall be handled according to the respective guidelines. Whereas, this Guidelines is still applicable to industries that no merger guidelines has been established.