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

Case:

Key Words:

instant noodles, market definition, unilateral effect

Reference:

Fair Trade Commission Decision of September 1, 2010 (the 982nd Commissioners' Meeting) , Merger Letter Kung Jie Tzu No.099003

Industry:

Noodle Manufacturing (0892)

Relevant Laws:

Article 6, 11 and 12 of the Fair Trade Law

Summary:

1. Uni-President Enterprises Corporation (hereinafter referred to as Uni-President) intended to merge with Weilih Food Industrial Co., Ltd. (hereinafter referred to as Weilih Food) by indirectly acquiring one third of the shares of Weilih Food and directly or indirectly taking control of its management or personnel appointment or removal. The intended merger met the types of enterprise merger described in Subparagraphs 2 and 5 of Article 6 (1) of the Fair TradeLaw (FTL). In accordance with Subparagraphs 2 and 3 of Article 11 of the FTL, Uni-President filed the pre-merger notification to the FTC on July 2, 2010.
2. Findings of the FTC after investigation:
3. (1) The overlapping categories of business in this merger were the manufacturing and sales of instant noodles, beverages, and cooking oils. Uni-President asserted that since cookies, crackers and other ready-to-eat foods had the characteristics of being convenient, easy for consumption and with unique flavor; besides, they were substitutes and competitive with instant noodles and could be defined as belonging to the same market. The merger would not lead to market monopoly or have any impact on market competition. The company also suggested that the cross-price elasticity of demand between ready-to-eat foods and instant noodles was "supposed" to be positive but failed to provide any data to support the argument. The boundaries of such a market as may be determined by examining industry or public recognition of the submarket as a separate economic entity, the product's peculiar characteristics and uses, unique production facilities, distinct customers, distinct prices, sensitivity to price changes, and specialized vendors
   (2)The FTC cited the practical indicia proposed for market definition in the U.S. case of Brown Shoes Co. (370 U.S. 294,82 S.Ct.1502) in 1962 as an example to support that the boundaries of such a market as may be determined by examining industry or public recognition of the submarket as a separate economic entity, the product's peculiar characteristics and uses, unique production facilities, distinct customers, distinct prices, sensitivity to price changes, and etc. In addition,, in accordance with the domestic CNS9537 Standards and the definition of instant noodles given by the World Instant Noodles Association, the FTC considered instant noodles as with the characteristics of easy to prepare and having unique flavors and long shelf lives. Moreover, as they could serve as complete meals, especially with the cross-price elasticity of demand taken into account, they were rather different from ready-to-eat foods. Therefore, it would be inappropriate to say that there was significant or high interchangeability in between. As a consequence, the FTC defined boundary of the merger involving the instant noodles market, the beverage market, and the cooking oil market.
4. Grounds for prohibition of merger
   (1)Whether from the aspect of the occasions of consumption or demand, there would be no direct substitutability between instant noodles and ready-to-eat foods. As both Uni-President and Weilih Food together had a large share of the domestic instant noodle market, there were concerns about lessening of competition after the merger. Based on the instant noodle market share in 2009 calculated according to the FTC's industrial database, the HHI growth after the merger between Uni-President and Weilih Food would exceed 2,000. The increase of market concentration would be immense and the unilateral effect had to be seriously considered. Meanwhile, judging from the coordinated effect, smaller manufacturers would be squeezed out of their niche markets after the merger and would have to reduce their assembly lines, which in turn would have an effect on the number of options for consumers.
   (2)From the angle of entry barrier to the market, although the capital required to set up and operate an instant noodle plant would not be high, the domestic market was already saturated and there was no appeal to potential competitors. In addition, since brand names and marketing channels were highly important in sales of instant noodles, after the merger, the parties involved would have increased negotiating power for acquisition of sales channels and this could hinder other existing manufacturers from releasing new products. Balance-wise, the parties involved would dominate the market after the merger. The raw material suppliers in the upstream, chain outlets in the downstream, conventional retailers, and consumers would be in no position to cope with such dominance. The disadvantages of restricting competition after the merger would outweigh the overall economic benefit. The FTC therefore prohibited the merger in accordance with Article 12 (1) of the FTL and.

Appendix:
Uni-President Enterprises Corporation (UPEC)'s Uniform Invoice Number: 73251209
Weilih Food Industrial Co., Ltd.'s Uniform Invoice Number: 59869913

Summarized by:Chien,Hao-Yu; Supervised by:Yang,Chia-Hui