Hewlett-Packard Company and Compaq Computer Corporation filed a report of merger with the Fair Trade Commission
Case:
Hewlett-Packard Company and Compaq Computer Corporation filed a report of merger with the Fair Trade Commission
Key Words:
merger, stock holdings, direct control
Reference:
Fair Trade Commission Decision of March 7, 2002 (the 539th Commissioners' Meeting)
Industry:
Computer Components Manufacturing (2614)
Relevant Laws:
Summary:
1. Hewlett-Packard Company, of the United States, (Hewlett-Packard USA) and Compaq Computer Corporation, of the United States, (Compaq) concluded a merger agreement on 4 September 2001 stipulating that Hewlett-Packard USA would purchase all stock issued by Compaq, to be accomplished by first having Hewlett-Packard USA establish a new subsidiary named Heloise Merger Corporation. This new subsidiary would then merge with Compaq, with Compaq as the surviving company becoming a subsidiary of Hewlett-Packard USA. This would be followed by Hewlett-Packard USA merging with Compaq, with Hewlett-Packard as the surviving company. After completion of the merger, Hewlett-Packard USA's curr ent shareholders would own 64% of the new post-merger Hewlett-Packard USA, while Compaq's original shareholders would own 36% of the new Hewlett-Packard USA. As for the Chinese Taipei subsidiary of Hewlett-Packard USA, Hewlett-Packard Taiwan Ltd. (Hewlett-Packard Taiwan), and Compaq's Chinese Taipei subsidiary, Compaq Computer Taiwan (Compaq Taiwan), after completion of the merger between the two parent corporations, Compaq Taiwan would be directly and fully owned by the new Hewlett-Packard USA. In the case under review by the Fair Trade Commission (FTC), Hewlett-Packard USA and Compaq applied for approval of merger as defined in the following three subparagraphs of Article 6, paragraph 1 of the Fair Trade Law: subparagraph 1 ("where an enterprise merges with another enterprise"); subparagraph 2 ("where an enterprise holds or acquires one-third or more of the voting rights or total capital represented by the shares or capital contribution of another enterprise"); and subparagraph 5 ("where an enterpri se directly or indirectly controls another enterprise's business operation or employment and termination of another enterprise's personnel"). The Report of Merger indicated that Hewlett-Packard USA would be the surviving company, and Compaq would be the non-surviving company. 2. Article 11(1)(iii) of the Fair Trade Law requires submission of a Report of Merger when the enterprises participating in a merger have posted total sales in the preceding fiscal year exceeding a threshold amount publicly announced by the FTC. (A report must be filed if an enterprise participating in a merger is a non-financial enterprise that posted over NT$10 billion in sales in the preceding fiscal year and the enterprise with which it is combining posted over NT$1 billion in sales in the preceding fiscal year.) In this case, Hewlett-Packard USA and Compaq posted total sales in Chinese Taipei for the previous fiscal year of NT$11.6 billion and NT$5.8 billion respectively, well above the announced threshold at which s ubmission of a Report of Merger is required pursuant to Article 11(1)(iii) of the Fair Trade Law. Submission of a Report of Merger was thus required in this case.3. Both parties to the merger were large, internationally famous manufacturers. Although there was a considerable degree of overlap in their product lines, Hewlett-Packard USA was nevertheless quite competitive in the areas of home-use PCs, printers, and peripherals, while Compaq was a strong performer in storage devices and servers, thus the product lines of the two companies were also complementary to a considerable degree. Moreover, with regard to the market, Hewlett-Packard USA was the world's top shipper of home-use PCs, while Compaq ranked as the top shipper of PCs in Europe, Latin America, New Zealand, Australia, and the Asia-Pacific region. After the proposed merger, the new company would be able to use Compaq's worldwide sales network to expand its PC market share, and would also be able to use Hewlett-Packard USA's dominance in the US market to maintain its competitiveness in the United States. The merger would make the new Hewlett-Packard USA the world's largest vendor of personal computers, servers, and storage devices, but the post-merger firm would still face stiff competition from competitors such as Dell, IBM, and EMC, and would also face stiff locally based competition in Chinese Taipei from the Macronix group and other manufacturers possessing their own established brands. In emerging markets, the post-merger company would still have to overcome problems related to cultural differences. Moreover, the product markets to be targeted by the post-merger company, are customer-driven. In the market where the proposed merger would take place, the post-merger Hewlett-Packard USA must continually upgrade product technology and service quality to expand market share, but it would operate globally in purchasing the parts and components needed for the manufacture of its products; the scale of its purchasing operations would be doubled by the combination of the two firms, and the post-merger Hewlett-Packard USA could be expected to use its purchasing volume as a bargaining chip. This could generate opportunities for Taiwanese manufacturers to receive more orders, but individual firms could either gain or lose orders depending on how the post-merger Hewlett-Packard USA chose to allocate business among its contract manufacturers. In addition to the possibility of a shakeup in the list of contract manufacturers used by the post-merger Hewlett-Packard USA and the amount of business going to each one, manufacturers in Chinese Taipei would also have to face the possibility of reduced profitability. However, Chinese Taipei has always been a very popular contract manufacturing base for major international manufacturers due to superior contract manufacturing know-how and a low-price strategy for contract manufacturing. Considering all of these factors, the proposed merger was not deemed to have a clear negative impact upon competi tion structure in any given market in Chinese Taipei, and in fact it would make the SONY group and other foreign firms feel more confident about investing in Chinese Taipei. For these reasons, the FTC approved the combination in accordance with the provisions of Article 12 of the Fair Trade Law.Summarized by Hsu, Tuan-Ying; Supervised by Shih, Chin-Tsun