Synnex Technology & BestCom Infotech

1273rd Commissioners' Meeting (2016)

Case:

Synnex Technology filed a pre-merger notification with the FTC regarding its intention to merge with and BestCom Infotech

Keyword(s):

Information service industry, server, notebook computer, PC

Reference:

Fair Trade Commission Decision of March 30, 2016 (the 1273rd Commissioners' Meeting)

Industry:

Information Service Activities (6390)

Relevant Law(s):

Article 10 and 13 of the Fair Trade Law

Summary:

1. Synnex Technology International Corp. (hereinafter referred to as Synnex Technology) engaged in the sales of cell phones, notebook computers, PCs and servers whereas BestCom Infotech Corp. (hereinafter referred to as BestCom Infotech) engaged in the sales of servers, notebook computers and PCs. Before the merger, Synnex Technology already possessed 40% of the shares of BestCom Infotech. To enhance its cooperation with BestCom Infotech, Synnex Technology intended to acquire all the shares of BestCom Infotech through a public takeover and gain the control of its management and personnel appointment. As the condition met the merger patterns of "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 number of voting shares or total capital of such other enterprise" set forth in Subparagraph 2 and "where an enterprise directly or indirectly controls the business operation or the appointment or discharge of personnel of another enterprise" in Article 10(1)(v) of the Fair Trade Law, the sales of BestCom Infotech accounted for one quarter of the domestic server market in 2015, and the annual sales of both enterprises in 2016 reached the filing threshold announced by the FTC while the proviso in Article 12 of the same Law did not apply, Synnex Technology therefore filed a pre-merger notification with the FTC.

2. The merger was a horizontal one. Both companies overlapped in the sales of PCs, notebook computers and servers. BestCom Infotech neither sold cell phones nor had any plan to do so in the future. Hence, both sides had no horizontal or vertical relations in the cell phone sales market. After the merger, Synnex Technology and BestCom Infotech together would account for 23%~33% of the PC, notebook computer and server market. However, Synnex Technology focused on the consumer market while BestCom Infotech concentrated on the commercial market. In addition, the target markets and marketing channels of both companies differed. Consequently, the level of substitutability between the two companies was limited. Moreover, since they both dealt with established brands, distributors or system integrators, upstream suppliers and downstream buyers would still have enough countervailing power on the market. Therefore, it was difficult to conclude that the merger could lead to any significant unilateral effect. Besides, no special government permission, specific technology, large amount of preliminary investment or sunk cost was required and no entry barrier caused by legal, technical or economic factors existed in this case. In other words, as there was no specific entry barrier, the merger would not result in any significant coordinated effect. As for the sales of cell phones in which the two companies did not overlap, because the merger could not change the structure and concentration of the cell phone market, the merger would not create any competition restraint.

3. The merger was analyzed in accordance with the structures of the PC, notebook computer, server and cell phone markets and the effects likely to be incurred on competition therein. The conclusion was that the merger could not lead to any significant competition restraint. Therefore, acting according to Point 6(2) of the Fair Trade Commission Guidelines on Handling Merger Filings, the FTC decided that the overall economic benefit from the merger would outweigh the disadvantages resulted from any competition restriction thereof incurred and therefore Article 13(1) of the Fair Trade Law should be applied in this case and the merger should not be prohibited.