Intending to secure a majority on the Board Of Directors of Yieh Loong Corporation, China Steel Corporation deputized its senior managers to apply for approval to merge pursuant to Article 11 of the Fair Trade Law
Case:
Intending to secure a majority on the Board Of Directors of Yieh Loong Corporation, China Steel Corporation deputized its senior managers to apply for approval to merge pursuant to Article 11 of the Fair Trade Law
Key Words:
directorship, manager
Reference:
Fair Trade Commission Decision of February 2, 2000 (the 430th Commissioners' Meeting); Disposition (89) Kung Chieh Tzu No. 144.
Industry:
Rolled steel (2712)
Relevant Laws:
Summary:
1. China Steel Corporation, the Applicant, and Yieh Loong Corporation ("Yieh Loong") overlap in their production of hot and cold rolled steel. Consequently, this is a case of horizontal merger. Chinese Taipei's only producers of hot rolled steel are Applicant, Yieh Loong, and An Feng. Cold rolled steel is produced by Applicant, Chen An, Yieh Loong, Ye Hui, President, Kao Hsing Chang, Ye Hsin, Sheng Yu, and Yan Wu. If we consider the market share for these steel products of the two merging enterprises in the market for these steel products, we find that the Applicant had approximately 10 percent of the hot and cold rolled steel markets in 1998 while Yieh Loong had a share of approximately 15 percent. Thus a merger of the two companies would decrease the number of domestic competitors while increasing the Applicant's market share. Figures from the Taiwan Steel and Iron Industries Association, however, indicate that Chinese Taipei's steel industry overproduced hot and cold rolled steel products between 1998 and September 1999. Steel prices are determined on international markets. Under the zero-to-zero WTO steel plan, participating countries have committed to phasing out tariffs by 2004 for products including hot and cold rolled steel and steel tubing. This tariff phase-out will put Chinese Taipei's steel industry under considerable pressure from major international competitors. Taken together, these factors indicate that the merger of these two companies will not be detrimental to competition. While the Applicant may enter the steel tubing industry, Yieh Loong controls only about 70 percent of the domestic market for this product and there are 30 to 40 other domestic competitors. Consequently, this merger will have a limited effect on the Taiwanese steel tubing market. 2. Currently, Chinese Taipei's domestic steel industry urgently needs to improve its technologies and lower costs to raise competitiveness. The industry's competent authority also subscribes to this view. Given this, the Applicant, which is a steel producer whose production spans from smelting to finished products and whose operations, technologies, and sales have reached a considerable scale, is clearly more competitive than most pure play rolled steel foundries due to the savings it realizes by reducing the costs of raw materials and its ability to create steel products with substantial added value. Yieh Loong, however, is only a pure rolled steel foundry limited by its dependence on imports. Moreover, Yieh Loong's production involves only a few processes. This fact has led to losses in recent years. The managers deputized by the Applicant included high ranking executive responsible for steel manufacturing and sales. This merger application is, therefore, in keeping with the industry aims of improving technology and lowering costs. Moreover, the Industrial Development Bureau supports this merger application as a means of improving Yieh Loong's technology capabilities and increasing the stability of raw material supplies and negotiating muscle as Chinese Taipei prepares to meet the challenge of WTO entry. 3. Internationally, major steel companies that have merged or formed strategic alliances includes British Steel and Hoogoven, US Aksteel and Armco, England's LNM Group and China's Pao Kang. Accordingly, this application is part of the Applicant's strategy to become more competitive in response to increasing global competition. In this context, there is no compelling reason to reject this merger application given the fact that even though integrated steel producers have the concentrations of capital and technology to overcome or resolve barriers, this is part of the existing nature of the industry and will not increase the difficulty of this merger. With WTO entry looming in the near future, the Applicant must transform itself in order to face stiff competition from integrated international steel producers. At the same time, pure rolled steel producers will also be facing fierce competition apart from the liberalization of raw material imports. Thus there are no positive reasons to believe that this merger will close markets for certain products, nor that it affect opportunities for other enterprises to compete. 4. After its approval, this merger should have a positive effect on Yieh Loong's steel product sales while having little significant limiting impact on competition in domestic markets for particular products. The application therefore is approved pursuant to Article 12 of the Fair Trade Law. Appendix: China Steel Corporation's Uniform Invoice Number: 30414175 Yieh Loong Corporation's Uniform Invoice Number: 07838854 Summarized by Lin Chin-Tan