Application for merger approval pursuant to Article 11 of the Fair Trade Law by Lockheed Martin Corporation and NGC Grumman Corporation (both are U.S. companies representing their Groups)

Chinese Taipei

Case:

Application for merger approval pursuant to Article 11 of the Fair Trade Law by Lockheed Martin Corporation and NGC Grumman Corporation (both are U.S. companies representing their Groups)

Key Words:

extraterritorial merger, group companies

Reference:

Fair Trade Commission Decision of November 5, 1997 (the 314th Commission Meeting); Letter (86) Kung Erh Tzu No. 8608957-001

Industry:

Aircraft manufacturing and repair industry (3261); other communication machinery/instrument manufacturing industry (3169)

Relevant Laws:

Article 11(1)(iii) of the Fair Trade Law

Summary:

1. Lockheed Martin Corporation (hereinafter referred to as "LMC") and Northrop Grumman Corporation ("NGC") intended to merge outside Chinese Taipei with NGC becoming a subsidiary of LMC. The merger would change the relationship between the subsidiaries/branches established in Chinese Taipei and the parent company within the group, which involves a combination of enterprises as set forth in Article 6(1)(v) of the Fair Trade Law.

2. In 1996, the value of the defense and commercial products imported by LMC into Chinese Taipei totaled more than NT$ 12.8 billion, among which sales of national defense products took up 98.5% with the other 1.5% being commercial products. In addition, the value of the national defense and commercial products imported by NGC into Chinese Taipei in 1996 totaled more than NT$ 4.5 billion, among which national defense products accounted for 99.3% and commercial products being 0.7%. Such sales revenue exceeded the threshold provided in Article 11(1)(iii) of the Fair Trade Law, i.e., NT$ 2 billion. Therefore, the group companies represented by the LMC and NGC applied to the Commission for merger approval.

3. The investigation showed that LMC and NGC were merged outside the boundaries of Chinese Taipei. Neither enterprise has directly established any branch office in Chinese Taipei, except for LMC's 20% equity holding in Shen Chi Technology Co., Ltd. However, some of their subsidiaries had set up subsidiaries and branch offices in Chinese Taipei, but the equity structure of such subsidiaries did not change as a result of the merger; the merger only caused NGC subsidiaries to become LMC subsidiaries. The main impact of the said merger on Chinese Taipei's related specific market was LMC's increased capability of importing goods into Chinese Taipei and the changed relationship of the branch offices of some subsidiaries of the merging enterprises. Furthermore, the merger was between two groups that took place outside Chinese Taipei, the change of the controlling relationship with respect to Chinese Taipei branches was only incidental. Therefore, the group companies represented by the LMC and NGC applied to the Commission for merger approval.

4. On 24 September 1997, the Commission held its 308th Commission Meeting. The Commission resolved on the "Recommendations for the Review of Extraterritorial or Cross-border Combinations" that, prior to the formulation of guidelines on combinations involving foreign group companies, the parent companies of the groups may apply for approval on behalf of the merging groups. In accordance with the said resolution, the Commission agreed that the applicants in this case filed an application on behalf of their groups. On the other hand, although the enterprise combination in this case took the form of a merger, the combination of the major controlling entities took place outside Chinese Taipei. Furthermore, the merger merely changed the ownership of the branch offices of some subsidiaries. Therefore, the Commission accepted that the application be filed by the applicants in accordance with Article 6(1)(v) which governs the type of combination where an enterprise gains the control, direct or indirect, of the business operation or the personnel employment of another enterprise.

5. The purpose of the merger was to enhance the applicants' competitiveness in the national defense industry in response to the challenge posed by an increasingly competitive global market in that industry. Furthermore, LMC and NGC were of the same horizontal market in the field of national defense products, regardless of the fact that their product lines were complementary, i.e., LMC was the main supplier of fighter planes, transport planes, guided missiles, outer space systems and electronic technology, while NGC mainly manufactured airplane substructures and national defense electronics. Accordingly, this case involved a horizontal combination. Such combination was believed to have little impact on Chinese Taipei's related manufacturing sectors because the products imported into Chinese Taipei by the merging enterprises and their subsidiaries were mainly national defense goods targeted for the global market; no local manufacturers had the capability of producing the same items. What requires scrutiny is whether the combination had any improper impact or burden on Chinese Taipei's procurement of military supplies. According to the evaluation done by the Ministry of Defense, the impact of the combination in question on Chinese Taipei's procurement of military supplies should be limited. The reason was that Chinese Taipei's high-tech arms systems and equipment such as military planes, aviation radar and missiles were mostly purchased through U.S. military procurement. Therefore, approval for the combination will not restrict fair trade in the local market of military procurements; it is granted pursuant to Article 12 of the Fair Trade Law.

　

Summarized by Lin, Ch'ing-tang
Supervised by Yang, Chia-chun

＊＊: For information of translation, click here

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