Application for approval of extraterritorial combination between Citigroup and Associates First Capital
Case:
Application for approval of extraterritorial combination between Citigroup and Associates First Capital
Key Words:
extraterritorial combination, credit card
Reference:
Fair Trade Commission Decision of November 9, 2000 (the 470th Commissioners' Meeting); Decision (89) Kung Chieh Tzu No. 1056
Industry:
Foreign Banks (6513)
Relevant Laws:
Summary:
1. The US company Citigroup Corporation ("Citigroup") planned to acquire Associates First Capital Corporation ("Associates"). The acquisition (outside the territory of Chinese Taipei) was to be accomplished through a merger of Associates with a 100% owned subsidiary of Citigroup, AFS Merger Sub., Inc. newly established by Citigroup. Associates would be the surviving corporation of this merger and would become a 100% owned subsidiary of Citigroup, while AFS would be dissolved. Through the merger of AFS Merger Sub., Inc. into Associates, Citigroup would acquire all shares of Associates. On the predetermined settlement date, the shares would then be transferred to another 100% owned holding company of Citigroup. The holding company would in turn transfer the shares to Citicorp, a 100% owned subsidiary of Citigroup. Through this extraterritorial merger and the acquisition of the Associates shares, Citigroup, its holding company, and Citicorp would gain direct or indirect control of the business operations and personnel hiring and dismissal of Associates, Associates' 100%owned subsidiary Associates International Holding Corporation (an offshore enterprise), and Associates International Holding Corporation's 100%owned subsidiaries Associates Finance Taiwan Inc and Associates Credit Card Taiwan Co., Ltd. (both domestic enterprises). As a result, the merger falls under the purview of Fair Trade Law Articles 6(1)(i) ("merges with another enterprise"), as well as 6(1)(v) ("directly or indirectly controls another enterprise's business operation or hiring and dismissal of another enterprise's personnel"). An application was therefore filed with the Fair Trade Commission (the Commission) for approval in accordance with Article 11(1)(iii) of the same law. 2. The Commission's assessment of the overall economic benefits compared to the disadvantages of possible restraints on competition resulting from the merger: (1) Citigroup, through its 100%owned subsidiaries Citicorp and Citicorp Capital Asia (Taiwan) Ltd. ("Citicorp Capital") offers a wide range of financial services in Chinese Taipei, primarily including banking, securities, credit card services, insurance, financial consulting and securities investment consulting. The primary business of Associates, Associates International Holding Corporation, Associates Finance Taiwan Inc., and Associates Credit Card Taiwan is limited to financing and credit card operations. The financial services provided in Chinese Taipei by Citigroup and Associates and their subsidiaries are therefore different, and the only overlapping operations of the companies involved in the merger are their credit card businesses. Chinese Taipei's credit card industry is now developing rapidly. The market has many active competitors, causing profitability to fall off sharply over the last several years. Based on this finding, the proposed extraterritorial merger will likely raise the service quality of the participating companies and strengthen Chinese Taipei's financial market as a whole. In addition, with Citigroup's banking operations in 100 countries worldwide, and Associates First Capital's presence in 30 countries, the merger will increase the group's international competitiveness. It will also increase the efficiency of Citigroup's global operations, and customers of Citigroup and Associates will benefit from more innovative and efficient services. (2) There are currently 56 companies approved by the Ministry of Finance (MOF) to offer credit card services. The market is already quite competitive. According to the monthly statistical report published by the MOF Bureau of Monetary Affairs, as of the end of July 2000, Citigroup's Citibank is ranked third in Chinese Taipei's credit card market, with a 7.61% share of the market, while Associates' credit card operation had a market share of 0.69%. After the merger, Citigroup's market share is expected to increase only 0.69% from 7.61% to 8.3%, still behind the market shares of Chinatrust and the Bank of Taihsin. Currently, there are no entry barriers in the credit card market and new competitors are able to enter the market easily. If this situation continues, Chinese Taipei's credit card market structure and competitiveness will not be significantly affected by the merger and no restrictions on market competition are expected. (3) Based on the above analysis, the overall economic benefits outweigh potential restraints on market competition. Therefore, the decision is the merger should be allowed. Summarized by Lee Li Show; Supervised by Horng Der Chang