China Motor Corporation took an increased equity stake in Fortune Motors Co., Ltd. (which brought its holdings to 36.32% of the company's voting shares) and filed a merger report with the Fair Trade Commission
Chinese Taipei
Case:
China Motor Corporation took an increased equity stake in Fortune Motors Co., Ltd. (which brought its holdings to 36.32% of the company's voting shares) and filed a merger report with the Fair Trade Commission
Key Words:
increased equity stake
Reference:
Fair Trade Commission Decision of July 31, 2003 (the 612th Commissioners' Meeting)
Industry:
Motor Vehicles Manufacturing (2931)
Relevant Law:
Summary:
1. China Motor Corporation (China Motor) took an increased equity stake in Fortune Motors Co., Ltd. (Fortune Motors), which brought its holdings to 36.32% of the company's voting shares. This qualified the transaction as a merger under the Fair Trade Law, Article 6(1)(ii), which provides as follows: "The term 'merger' as used in this Law means a situation where an enterprise holds or acquires the shares or capital contributions of another enterprise to an extent of more than one-third of the total voting shares or total capital of such other enterprise." In the preceding fiscal year (2002), China Motor and Fortune Motors posted total sales, respectively, of NT$54.77 billion and NT$35.7 billion, which means that the companies are above the merger reporting threshold set forth in Article 11(1)(iii) of the Fair Trade Law. The exemptions thereto set forth in Article 11(1) of the same law do not apply. The merger report meets the requirements set forth in Article 8 of the Enforcement Rules to the Fair Trade Law, and was thus accepted for processing.
2. China Motor has a technology tie-up with Japan's Mitsubishi Motors Corporation, whereby China Motor serves as the local manufacturer of Mitsubishi-branded vehicles and related parts and components. In addition, China Motor relies on Fortune Motors, Shung Ye Motor Co., Ltd. (Shung Ye Motor), and Yue Ye Motors Corporation (Yue Ye Motors) to act as distributors and provide aftermarket maintenance services. The merger report indicated that Toyota, Mitsubishi, and Nissan accounted for the lion's share of locally manufactured and imported vehicles in 2002, with approximate market shares, respectively, of 25.7%, 25.6%, and 14.2%. It is thus clear that the main competitors for China Motor and Fortune Motors (whose business is largely based on Mitsubishi vehicles) are Toyota and Nissan. Sales of Mitsubishi vehicles manufactured by China Motor reached 102,047 units in 2002, of which 61,351 units were sold by Fortune Motors, while the rest were sold by the distributors Shung Ye Motor and Yue Ye Motors, which are subsidiaries of China Motor. Barriers to the establishment of new auto factories in Taiwan are diminishing due to the increasing availability of funds in Taiwan, a gradual easing of local content requirements, and the emergence of a mature auto parts manufacturing sector fully capable of supplying all the parts needed by auto factories. Since joining the WTO, Taiwan has lifted legal restrictions relating to auto manufacturing, and there are no longer any tariff or non-tariff barriers. Import duties on fully built-up vehicles are also falling, and it is going to become easier and easier for both domestic and foreign manufacturers to enter and exit Taiwan's auto market. This merger is between a pair of upstream and downstream players in the same system, one of which manufactures Mitsubishi-branded vehicles, and the other of which distributes them. Such a merger will not have a major impact on the structure of the auto market as a whole, and thus will not have any sustentative effect on the existing auto market structure or on industrial competition. In addition, by sharing and integrating resources with its distributors, China Motor can seek to fully satisfy the needs of consumers by using its resources more efficiently, lowering costs, and raising the overall level of service quality in the market. In summary, the reported merger will not have a notably adverse impact upon competition structure in any specific market in Taiwan, and the overall benefit to the economy will likely outweigh any negative effect stemming from restriction of competition, and for this reason the commissioners have decided, in accordance with the provisions of Article 12(1) of the Fair Trade Law, not to prohibit the merger.
Appendix:
China Motor Corporation's Uniform Invoice Number: 03098415
Fortune Motors Co., Ltd.'s Uniform Invoice Number: 83446817
Summarized by Jan, Lih-Ling; Supervised by Shih, Chin-Tsun