The Merger Control Review: Taiwan


Taiwan established comprehensive regulation of antitrust and unfair competition activities when the Fair Trade Act was enacted in 1991 and made effective in 1992. There have been several amendments following, and the amendment in 2015 that modified over 70 per cent of provisions set forth in the original Fair Trade Act was one of the most significant amendments to the Fair Trade Act since its first enactment in 1991. The Fair Trade Act was most recently amended in June 2017 (the 2017 amendment). Under the 2017 amendment, the waiting period of a merger application has been extended in a practical manner and additional procedures have been added to merger control review.

Taiwan plays an active role in the international community with respect to competition policy and law, and in particular with respect to merger control. Since 1997, the Taiwan Fair Trade Commission (TFTC) has created and maintained the Asia-Pacific Economic Cooperation Forum (APEC) Competition Policy and Law Database on behalf of the 21 member economies that comprise the APEC. The Database allows APEC's member economies to share experiences and exchange views on complex issues of competition policy and law. Additionally, the TFTC is a member of the International Competition Network (ICN), which was created in 2001 to provide competition authorities with an informal, specialised venue for maintaining regular contact with competition authorities in other jurisdictions and addressing practical competition concerns. As a member of the ICN, the TFTC hosted the annual ICN Merger Workshop in 2009 and ICN Cartel Workshop in 2014, which were attended by members from around the world. Taiwan also regularly participates as an observer in discussions on competition law in the Organisation for Economic Co-operation and Development as well as regional forums, where it shares information and receives input from other jurisdictions.

Year in review

i Recent TFTC review of extraterritorial mergers

Yageo Corporation and KEMET Corporation

Yageo Corporation intended to acquire all of the ordinary shares of KEMET Corporation through its wholly owned subsidiary, Sky Merger Sub Inc. After the proposed acquisition, Yageo would indirectly and wholly own KEMET through its subsidiary, Yageo Holding Hungary Limited Liability Company. As the revenue of Yageo and KEMET in the previous fiscal year exceeded the TFTC's threshold for pre-merger notification and the participating parties held over one-quarter of the market share in the relevant market, Yageo and KEMET filed a pre-merger notification with the TFTC. The TFTC decided on 15 April 2020 not to prohibit the proposed acquisition.

Both Yageo and KEMET were manufacturers of passive components. The products relevant to the proposed acquisition included multi-layer ceramic capacitors (MLCCs), aluminium capacitors, inductors, resistors, tantalum capacitors and thin-film capacitors. Yageo and KEMET's overlapping products included MLCCs, aluminium capacitors and inductors. Yageo would enter the tantalum capacitor and thin-film capacitor markets after the completion of the proposed acquisition. The TFTC found that: (1) the increases of the parties' market shares in the relevant product markets would be limited; (2) the overlapping products were few and the products supplied by the participating parties were complementary to each other; (3) specific entry barriers did not exist in the relevant product markets; (4) competitors competing for the same customers as the parties were numerous; and (5) the countervailing power of buyer existed in the relevant markets. Thus, the TFTC concluded that the proposed acquisition would not impose a significant anticompetitive impact on the relevant markets. In addition to its own analysis, the TFTC also gathered opinion for the proposed acquisition from the competent authorities of the relevant industries, competitors in the same markets and the firms operating in the upstream and downstream markets. The TFTC decided not to prohibit the proposed acquisition through its comprehensive consideration of the foregoing factors.

Applied Materials, Inc and Kokusai Electric Corporation

Applied Materials, Inc intended to acquire the shares of Kokusai Electric Corporation from KKR HKE Investment LP. Because the revenue of Applied Materials and Kokusai in the previous fiscal year exceeded the TFTC's threshold for pre-merger notification and the participating parties held over one-quarter of the market share in the relevant market, Applied Materials and Kokusai filed a pre-merger notification with the TFTC. The TFTC decided on 4 March 2020 not to prohibit the proposed acquisition.

Both Applied Materials and Kokusai were the suppliers of semiconductor manufacturing equipment, but they supplied the equipment for different manufacturing processes, and the production and application of relevant equipment were also different. The TFTC determined that the relevant market was the market for rapid thermal processing of heat treatment. The TFTC concluded that the proposed acquisition would result in a slight increase to the participating parties' market share in the relevant market, but the relevant market would still be a considerably competitive market because semiconductor equipment constitutes highly customised products. Therefore, competitors with considerable scale would still operate in the relevant market and the countervailing power of buyers also existed in the relevant market. In addition to its own analysis, the TFTC also gathered the opinion for the proposed acquisition from the competent authorities of the relevant industries, competitors in the same markets and the firms operating in the upstream and downstream markets. The TFTC determined that there would be no significant restrictions on competition and decided not to prohibit the proposed acquisition.

ii Recent proposed mergers prohibited by the TFTC

Between the time the Fair Trade Act was promulgated in 1992 and March 2020, 7,055 applications have been submitted for merger approval (for filings made before the amendments to the Fair Trade Act in February 2002) or merger notification (for filings made since February 2002, subsequent to the amendments to the Fair Trade Act). Of those filings, only 12 of the proposed transactions have been refused or prohibited by the TFTC, representing approximately 0.1 per cent of all applications. No statistics are, however, provided with respect to those mergers that are approved or cleared subject to specific conditions. Such conditions are not uncommon, particularly in cases requiring more complex analysis and a detailed balance between overall economic benefits and restraints on competitiveness. Some conditions may be very cumbersome for the parties, and, in effect, prohibit the completion of the deal.

In 2019, 64 merger notifications were filed with the TFTC; only one of which was prohibited. In 2020, 19 merger notifications were filed, and none had been prohibited as at March 2020, according to the most recent statistics from 9 May 2020.

Cashbox Partyworld Co, Ltd and Holiday Entertainment Co, Ltd

The only decision prohibited by the TFTC in 2019 was the acquisition contemplated by Cashbox Partyworld Co, Ltd of 100 per cent of the shares in Holiday Entertainment Co, Ltd, to control Holiday Entertainment's business operation or the appointment or discharge of its personnel. Cashbox Partyworld and Holiday Entertainment were the top two market-share leaders offering, as their main business, audiovisual and singing services by providing customers with the equipment and venue for karaoke in Taiwan.

The proposed merger was approved by the TFTC subject to specific conditions in 2003, but it did not take place. After failing to complete the initial transaction, the parties knocked on the door of the TFTC again in 2006 for clearance but, to the parties' surprise, the TFTC prohibited consummation of the contemplated transaction because the parties' market share had increased and the karaoke market was no longer the same as in 2003.

In 2019, the parties submitted a merger filing for the third time, in which they asserted a new and broader definition of the relevant 'market' that included the markets of live platform, online karaoke, apps used for singing and portable mini karaoke booths (an independent space for a single person to sing karaoke, which is usually located in public areas such as department stores, cinemas or hotels). However, the TFTC concluded that the relevant market should only cover the provision of audiovisual and singing services. For the calculation of the parties' market share in the relevant market, the TFTC considered that the market share should be determined by the parties' revenues rather than the number of karaoke rooms authorised by upstream suppliers or the equipment for audiovisual and singing services provided by each entity, which was never suggested by the parties.

As such, the TFTC determined that the true market shares of the parties after the proposed acquisition would reach 45.35 per cent in the aggregate. Apart from the high market share, Cashbox Partyworld and Holiday Entertainment would no longer act as each other's principal competitor. Hence, it would drastically increase the incentive for the parties to increase prices. Even if the parties agreed to commit to various post-merger commitments, including price maintenance for five years, no investment in overseas audiovisual or singing services for five years, and no abuse of their dominant market position, none of these commitments would be sufficient to remove the TFTC's concern of the potential anticompetitive conduct of the parties once the proposed acquisition occurred.

Therefore, the TFTC prohibited the proposed acquisition again on 21 August 2019 indicating that its harm to competition was not outweighed by the overall economic benefits. It is worth watching the future interaction between the TFTC and the parties in this proposed acquisition.

The merger control regime

When two or more enterprises merge or combine their businesses, greater efficiency is often achieved in their operations. Along with such efficiency, however, a concentration in the market share will often occur. The objective of the TFTC in regulating mergers is to prevent enterprises from raising the concentration of a market to the extent that it weakens or impedes free competition in Taiwan through a proposed merger. To avoid these undesirable results, the Fair Trade Act requires parties intending to 'merge' as defined by the statute to notify the TFTC when certain market thresholds are attained. The TFTC is then given an opportunity to review and, if necessary, prohibit or impose conditions on the proposed merger.

i Covered transactions

Any transaction that is considered a merger2 under Article 10 of the Fair Trade Act is subject to pre-merger notification under Taiwan law. The following transactions are covered:

  1. two enterprises merge into one;
  2. an enterprise acquires the voting shares of, or makes capital contributions to, another enterprise equal to more than one-third of the total voting shares or capital of the other enterprise;
  3. an enterprise obtains an assignment of or a lease of all or substantially all of the business or assets of another enterprise;
  4. an enterprise jointly operates a business with another enterprise on a regular basis or agrees to operate another enterprise's business under a trust agreement; or
  5. an enterprise directly or indirectly controls the business operations or the appointment or discharge of personnel of another enterprise.

Under the Fair Trade Act, when determining whether the one-third of voting shares and capital contributions threshold specified in Article 10(b) is met, all shares and capital contributions of the subordinate companies controlled by the same company (or companies) as the merger participant must be included in the calculation.

ii Filing thresholds: market share and turnover

Under Article 11 of the Fair Trade Act, two types of thresholds have been set forth to determine whether a merger notification should be filed with the TFTC. The first is based on market share and the second is based on the amount of turnover generated in the preceding fiscal year by the parties to the proposed merger.

In determining market share, the TFTC will take into account the production, sales, inventory and data relating to import and export value and volume for the applicable enterprise and the particular market in which it operates. The market share threshold requires that the applicable party or parties file a merger notification with the TFTC under two circumstances:

  1. if, as a result of the merger, the enterprises will possess one-third of the market share of the area in which they operate; or
  2. if, regardless of the merger, one of the enterprises intending to merge possesses one-quarter of the market share of the area in which it operates.

Regarding the market share threshold, the TFTC is most concerned about having the chance to review mergers that will create a concentration in a particular market, which will be determined by the consideration of various factors (including sales, which is the same factor used for the second type of notification threshold). The large number of fairly broad variables included in the determination of market share ensures greater flexibility should the TFTC decide to exert its authority over notifiable mergers. In practice, the TFTC often consults statistical yearbooks published by government authorities to determine the applicable market.

Turnover is defined under the regulations to mean the total sale or operating revenue of an enterprise, which is conceptually the same as gross revenue. The turnover threshold requires that the applicable parties file a merger notification with the TFTC if sales for the preceding fiscal year exceed the threshold amount publicly announced from time to time by the TFTC. According to the rule the TFTC announced in March 2015, the threshold amount is met for non-financial enterprises if one party has sales in the preceding fiscal year in excess of NT$15 billion and the other party has sales in the preceding fiscal year in excess of NT$2 billion. For financial enterprises, the threshold amount is met if one party has sales in the preceding fiscal year in excess of NT$30 billion and the other party has sales in the preceding fiscal year in excess of NT$2 billion. In addition, based on the rule the TFTC announced in December 2016, the threshold amount is also met if the aggregate 'global' sales of all enterprises in the proposed merger in the preceding fiscal year exceeds NT$40 billion and at least two of such enterprises each has sales in excess of NT$2 billion in Taiwan in the preceding fiscal year. Other than the above sales revenue threshold amount set forth for financial and non-financial enterprises and all enterprises, the Fair Trade Act provides the TFTC with the discretion to decide different sales revenue threshold amounts by issuing an administrative order for enterprises in different industries.

In addition, the sales revenue of companies with controlling and subordinate relationships with the merger participants, and the sales revenue of subordinate companies controlled by the same companies as the merger participants, should be included when calculating the total sales revenue of an enterprise.

Under the current Fair Trade Act, transactions exempt from merger filing include four additional types of transactions: (1) merger of an enterprise with another enterprise that has a controlling and subordinate relationship with such enterprise; (2) merger of an enterprise with another subordinate enterprise controlled by the same companies as such enterprise; (3) transfer of all or part of an enterprise's outstanding voting shares or equity capital of a third party to another enterprise that has controlling and subordinate relation with such enterprise; and (4) transfer of all or part of an enterprise's outstanding voting shares or equity capital of a third party to another subordinate enterprise controlled by the same companies as such enterprise.

iii Standard for review: overall economic benefits in excess of competition restraints

The standard under which the TFTC must review any merger notifications is fairly expansive. Under Article 13 of the Fair Trade Act, the TFTC may not prohibit any filed merger if the overall economic benefits of the merger outweigh the disadvantages resulting from the competition restraints that it would cause. Therefore, the standard does not require an absolute bar on mergers causing competition restraints. Rather, the TFTC will balance the restraints on competition with the overall benefit to the economy before determining whether such a merger should be prohibited. Under regulations set forth by the TFTC, a non-exclusive list of factors to be considered are consumer interests, whether the parties to be merged had weaker positions in the market before the proposed merger, whether one of the merging parties is a failing enterprise and how closely related the concrete results of the proposed merger may be to the stated economic benefits.

At times, the overall economic benefits to Taiwan as a whole relative to the global market have been a factor in the TFTC's decisions. In 2000, a merger involving three of Taiwan's semiconductor foundries was proposed for review. In this transaction, Taiwan-Acer Manufacturing Corporation and Worldwide Semiconductor Manufacturing Corporation would both merge into and be survived by Taiwan Semiconductor Manufacturing Corporation (TSMC). After the combination, TSMC's share of the domestic foundry market would rise from 53 per cent to over 60 per cent, which would give TSMC, along with only one other remaining market participant, nearly 100 per cent of the domestic market. The TFTC recognised that competition in Taiwan's domestic foundry market would be restricted or hindered, but that it was more important to 'the overall economic interests of the nation' for the combination to take place, as it would 'solidify Taiwan's leadership role in the foundry market, bring increased economies of scale to Taiwan's IC [integrated circuit] market, and give Taiwan a greater leadership role in the global IC market'. Additionally, the TFTC noted that upstream and downstream participants would also benefit from enhancement of the merged entity's global competitiveness.

iv Waiting periods and time frames

Under the 2017 amendment, enterprises must not proceed to merge within 30 working days (as opposed to 30 calendar days before the 2017 amendment) from the date that the TFTC accepts the filing materials as complete, which in a practical manner extends the waiting period for the merger control review. Should the TFTC in its discretion determine that the filing materials are incomplete and request that supplemental information be provided, the 30-working day waiting period will restart on the date of submission of the supplemental information if it is deemed complete. This waiting period may be shortened or extended as deemed necessary by the TFTC in writing. In our experience, the waiting period is rarely shortened unless a special request is made to the TFTC relating to the timing pressures of the proposed deal. The TFTC will, however, in its discretion and often for more complex transactions, extend the waiting period, with such extension not exceeding the statutory limit of an additional 60 working days under the 2017 amendment.

Certain proposed transactions having limited market shares or not posing any potential significant competition restraints may be eligible for shortened waiting periods (expedited notifications). Additionally, supporting information filed along with the notification form may include documents relating to production, sale and inventory for a shorter historical period.

v Third-party challenge, external opinion and judicial review

Third parties do not have the right to access merger files under the TFTC's custody; however, during the seven-day TFTC public opinion solicitation period, they may challenge the proposed merger. Persuasive challenges may prompt the TFTC to request more information from the merging parties, thereby, in some cases, delaying or breaking the deal. Under the 2017 amendment, the TFTC is also provided with the discretion to seek external opinion, and if necessary, appoint an academic research institution to conduct industrial economic analysis to supplement its review of the merger application. In addition, the TFTC shall provide necessary merger application information to the targeted enterprise in the hostile acquisition and consult with the targeted enterprise before a decision is made. Should parties be dissatisfied with the TFTC's decision, they have the right to file for an administrative litigation directly without first going through an administrative appeal within two months of the day after receiving the disposition letter.

vi Concurrent regulatory review

The National Communications Commission (NCC) has concurrent merger control authority with the TFTC over the media sector. Pursuant to the agreement between the two agencies, the TFTC must first consult the NCC before substantively reviewing a merger filing of parties in the media sector.

Other strategic considerations

i Requests for waiver

In certain cases, it may be difficult to determine whether the proposed transaction is a covered transaction, or to determine whether the filing thresholds have been met for various reasons (e.g., because the relevant market is not easily defined). In such cases, a request for waiver may be made to the TFTC in the form of a letter. Recently, however, we note that the TFTC has been prone to not respond to such request for a waiver, as it appears to be less willing to bear the risks for such preliminary judgment before receipt of the complete filing materials.

ii Confidentiality

Unless qualified for expedited notification as described in Section III.iv, the TFTC will post basic information on its website to gather public comments on the proposed transaction. Such basic information will include the names of the merging parties and their relevant markets, the type of merger to be conducted as set forth in the Fair Trade Act, the period during which comments are accepted and the forum by which comments may be made to the TFTC. Furthermore, the TFTC has entered into agreements with certain foreign authorities, which will require the exchange of information in circumstances where the notification would affect the jurisdictions with which the agreements are entered. However, in a merger case, the TFTC will maintain the confidentiality of the filing if it determines that a filing is not necessary owing to a lack of jurisdiction or a failure to meet filing thresholds.

Parties to a proposed transaction still being negotiated may enquire whether a filing is necessary by submitting anonymous queries to the TFTC. However, at some point, if the parties intend to proceed with a transaction and if a filing is required, identifying details will need to be disclosed to the TFTC.

Parties will not have access to the TFTC's files during the review process in principle; however, the TFTC is required to provide necessary merger application information to the targeted enterprise in the hostile acquisition and consult with the targeted enterprise after the 2017 amendment. Also, in more complex cases and in the event that the parties have special requirements with respect to the review of their transactions, we have often been able to successfully request special meetings with the TFTC to discuss the review and any relevant facts that are to be specially communicated. Additionally, parties may request that the TFTC maintain certain portions of its information in absolute confidentiality if these are clearly denoted pursuant to applicable laws.

Outlook and conclusions

Since enactment of the Fair Trade Act, Taiwan has actively and conscientiously developed a full body of competition law to ensure that the basic principles of fair trade are followed. The merger control regime in Taiwan is robust, as demonstrated by the technical assistance that the TFTC provides to nearby jurisdictions such as Mongolia, Indonesia and Thailand.

On 22 October 2018, the TFTC proposed a draft amendment that, if an enterprise fails to comply with the TFTC's order to rectify acts violating the merger control regulations, the TFTC may have the discretion to order a further administrative fine from a minimum of NT$200,000 up to a maximum of NT$50 million. Additionally, in the same draft amendment, the TFTC proposed to suspend the current five-year statute of limitations once it commences its investigation against such enterprise to determine the violation of the merger control regulations. Whether such amendments will come into force is worth monitoring.



1 Victor I Chang and Margaret Huang are partners and Ariel Huang is an associate at LCS & Partners.

2 Note that the transactions covered under the definition of 'merger' are more expansive than the generally accepted legal meaning afforded to that term in many jurisdictions where a merger is generally understood to mean a legal mechanism by which one entity is absorbed into another with only one surviving entity. Under Taiwan law, and as may be seen in the English translations of the pre-merger notification forms, the concept of 'merger' also includes the concept of business combinations or the acquisition of control using varying methods as described under the statutory definition. After a proposed transaction is determined to be a statutory merger as defined by the Fair Trade Act, the filing requirement then turns on whether certain market share or turnover thresholds are met.

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