Uni-President Enterprises Corporation Weilih Food Industrial Co., Ltd.

Case:

Key Words:

instant noodles, merger, market share

Reference:

Fair Trade Commission Decision of September 10, 2008 (the 879th Commissioners' Meeting), Merger Decision Kung Ch'u Tzu No. 097005

Industry:

Noodle Manufacturing (0892)

Relevant Laws:

Article 6,11 and 12 of the Fair Trade Law

Summary:

1. This case originated from the situation that Uni-President Enterprises Corporation (hereinafter referred to as "Uni-President Corporation") made a pre-merger notification to the FTC, and the background of the situation stated briefly is as follows: Uni-President Corporation planned to indirectly hold 49.75% of the shares in Weilih Food Industrial Co., Ltd. (hereinafter referred to as "Weilih Company") through a subsidiary company. Such a merger fell under the merger type set forth in Article 6(1)(ii) of the Fair Trade Law, which provides that "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." Furthermore, the sales amount for the preceding fiscal year of Uni-President Corporation and of Weilih Company were NT$ 46 billion and NT$ 1.9 billion respectively, and the market share of these two companies in the market of instant noodles was 47.4% and 21.2% respectively. Therefore, on the basis of Articles 11(1)(ii) and (iii) of the Fair Trade Law, Uni-President Corporation filed a pre-merger notification to the Commission.
2. Definition of Market:
   (1) Product market: It means the scope of goods or services that in terms of functionality, characteristics, purposes or prices, has a high degree of demand or supply substitutions. The product market involved in this merger should be defined as "the market of instant noodles, beverage, edible oils and fats, and health drinks.
   (2) Geographic market: It means a region in which the merger parties supply particular goods or services, and the trading counterpart can select or switch to other suppliers easily. As there was no particular regional restriction on manufacturing, transportation, sales channels of the aforesaid instant noodles, beverage, oil and fat, and health drinks, the whole islands should be the geographic market in this case from the perspective of the existing domestic geographical environment, and transportation and communications factor.
3. Competition analysis after merger: The disadvantages resulted from competition restraint would outweigh the overall economic benefits of this merger. The reasons are as follows:
   (1) This merger case would diminish the competitive function of the manufacturing market of instant noodles and affect consumers' benefits, it incurred disadvantages resulted from competition restraint: It showed that the market share of the merger parties in this case were the first and second largest enterprises respectively, and were each other's main competitor. After the merger, the mutual restraining power of the enterprises would be reduced, and the extent of the enterprises' mutual competitive pressure would be cut down. The reason for such phenomena was that with respect to unilaterally adjusting prices of products by one of these enterprises, the other enterprise's original anxiety over such an adjustment would be lessened. Such a cause would diminish the competitive function of the manufacturing market of instant noodles accordingly. With respect to the entry barrier, channels are key issue for the marketing of instant noodles, and any new entrant will not really easily and timely achieve the required time and the amount of capital for them. Moreover, it appeared that the domestic instant noodles market has inclined to be saturated, and even shrinking. Therefore, the size of the domestic instant noodles market is not large enough for potential competitors to arrive at economy of scale. Accordingly, the possibility and time of potential competitors to enter into the market are very low and limited. Moreover, in this case, if the enterprises merge with each other, the room for chain retailers to negotiate prices with the merger parties must be affected; in the same way, it will be even harder to expect that traditional retail channels have the ability to suppress the merged parties from raising products' prices. Putting into practice the alleged merger would diminish the effect competition in the market, and incur a considerable disadvantages as a result of competition restraint.
   (2) The economic benefits for the overall market or consumers, that might result from the merger was not conspicuous, and the merger of Uni-President Corporation and Weilih Company was unable to assure the materialization of these benefits: Uni-President Corporation alleged that it would not intervene in the operation and human resources of Weilih Company after the merger. Therefore, it would be difficult to believe that conspicuous benefits accruing from economies of scale would be resulted after the merger. In addition, the merging parties were not failing enterprises, so did not have the urgent need to speedily raise funds through the merger to assure businesses operation. In the same way, there was no evidence showing that Weilih Company will withdraw from the instant noodles market if the Commission does not approve this case. Let along the aforesaid points, the purposes of the alleged merger was mainly to let the merging companies exchange experiences with each other and to expand the overseas market. These companies, however, needed not achieve these purposes by means of Uni-President Corporation's acquisition of extra shares – the merger of Uni-President Corporation and Weilih Company was not the only way to achieve said purposes. Moreover, through the merger, the materialization of the situations, increasing the overall competitiveness of the nation, and promoting consumers' benefits, as alleged by Uni-President Corporation, was unable to be assured. Therefore, the overall economic benefits in this merger case were not conspicuous.
   (3) In summary, it was still difficult for the Commission to believe that the overall economic benefits of the merger would outweigh any disadvantages that might result from competition restraint. Accordingly, the FTC prohibited the merger of Uni-President Corporation and Weilih Company in accordance with Article 12(1) of the Fair Trade Law.

Appendix:
Uni-President Enterprises Corporation's Uniform Invoice Number: 73251209
Summarized by Chang, Chan-Chi; supervised by Yang, Chia-Hui