Lite-On Technology Corp. applied for a proposed merger with Lite-On Communications Corp.
Case:
Lite-On Technology Corp. applied for a proposed merger with Lite-On Communications Corp.
Key Words:
streamlined, horizontal combination, relationship of control or subordination
Reference:
Fair Trade Commission Decision of March 1, 2001 (the 486th Commissioners' Meeting); Decision (90) Kung Chieh Tzu No. 080
Industry:
Precision Instruments Manufacturing (3319)
Relevant Laws:
Summary:
1. Both two companies involved in this proposed merger case, Lite-On Technology Corp. and Lite-On Communications Corp., convened board of directors meetings on 22 December 2000 and passed resolutions in favor of the merger. The companies then signed a contract for the merger, scheduled for mid-August 2001, stipulating that Lite-On Technology would be the surviving company while Lite-On Communications would be extinguished. The stated goals of the proposed merger are to enlarge economic scales, reduce costs, integrate technical personnel and resources, improve operational efficiency, and bolster competitiveness. The merger is a diversified (conglomerate) merger as the two companies involved manufacture different products and neither serves as an actual or potential supplier for the other. An application for approval of merger was filed with the Fair Trade Commission (the Commission) pursuant to Articles 6(1)(iii) and 11(1)(iii) of the Fair Trade Law. 2. According to the investigation by the Commission, the Commission found as follows: (1) The combination in this case is a statutory merger. The two companies involved each possess their own sales markets and the products they manufacture are not substitutable. According to the Commission's Standard Industry Classification market statistics, computer monitors are Lite-On Technology's primary products and Lite-On Technology is Chinese Taipei's eighth ranking monitor producer; nevertheless, Lite-On Technology's overall market share is only 3.71%. According to the Semiconductor Industry Year 2000 Report, the major competitors in the LCD monitor market are SEECOM Inc., Unipac Optoelectronics Corp., and Acer Display Technology Inc., all of which have invested in high-resolution TFT-LCD panel production. Lite-On Technology is merely a downstream user of LCD technology. Lite-On Communications produces network cards, hubs, and switches and, whether in terms of its R&D expenditure, market scale, or market share, does not rank among this industry sector's major players (which include D-Link Corp., Accton Technology Corp., and Cnet Tech. Inc). By its own estimates, Lite-On Communications has a market share of only 1%-6% (network cards 5.92%; switches 1.42%). Moreover, Lite-On Communications's sales are wholly export in nature, so the merger case does not affect the domestic market. (2) Article 369bis of the Company Law defines affiliated enterprises as 1) companies with a relationship of control or subordination; or 2) companies invested in one another. Article 369ter, subparagraph 1, of the same law furthermore states that if a majority of executive shareholders or directors in a company are contemporarily acting as executive shareholders or directors in another company, a relationship of control or subordination shall be presumed to exist. Lite-On Technology and Lite-On Communications share the same board chairman and three directors concurrently serve on the boards of both. Lite-On Technology and Lite-On Communications each have a total of eight directors, meaning there is a 50% overlap in their board members, clearly allowing for mutual control over each other's policies and business operations. Lite-On Technology furthermore holds approximately 42% of the shares of Lite-On Communications. So it can be inferred that the two enterprises participating in this merger have a relationship of control and subordination and so conform to the above definition of "affiliated enterprises." The Commission therefore reviewed the case in accordance with section [1]2 of the Commision's Streamlined Procedures for Review of Enterprise Combinations. (Section [1]2 is applicable to mergers of controlling and controlled enterprises in which the enterprises alter the nature of their pre-existing combination, with no resulting substantive change to their standing in relevant markets.) 3. Reasons for granting the approval are as follows: (1) This combination is a statutory merger in which Lite-On Technology will be the surviving entity and Lite-On Communications will be extinguished. Prior to this merger, the two companies already had a relationship of subordination and control, and so had a pre-existing merger relationship. Lite-On Technology is primarily involved in the production and sales of monitor tubes and LCD PC monitors, and is a downstream user of LCD technology. The scope of Lite-On Communications' operations is primarily in network card, hub, and switch products. The products manufactured by the two companies are distinct and not substitutable, and each company has its own sales regions. The companies' market scales are not substantial and numerous other firms are involved in manufacturing and selling similar products in Chinese Taipei. The proposed merger will not directly affect competition in the relevant markets, the market shares of related enterprises, or concentration in the relevant markets. (2) According to data from the Semiconductor Industry Year 2000 Report and the Opto-Electronic Industry Report, given slowing global monitor growth and the development of IA products, companies will not only need to attain economies of scale and reduce costs in order to compete for outsourcing contracts, but must also strengthen their product availability online and provide low-cost, value-added products through the Internet. The combination in this case will allow the surviving company, Lite-On Technology, to reduce management and marketing costs, consolidate resources, and focus its energies on developing its monitor and LCD markets, and at the same time expand its product line and sales channels into IA and Internet related products, thereby increasing competitiveness and overall economic benefits. Moreover, as the business in which Lite-On Communications is engaged falls in a market that has been fully deregulated in Chinese Taipei, its participation in this combination will in no way preclude or affect the entry of other companies into the domestic market and therefore does not constitute an entry barrier or pose any obvious detrimental effect on market competitiveness. Therefore, the overall economic benefits following approval of the combination will outweigh any potential disadvantages from restriction of competition. The Commission therefore approved the combination pursuant to Article 12 of the Fair Trade Law.Appendix: Lite-On Technology Corporation's Uniform Invoice Number: 23357403 Lite-On Communications Corporation's Uniform Invoice Number: 84898958 Summarized by Yang, Chia-Hui; Supervised by Shin, Gin-Tsun