Aaron Chen and Sally Yang
To reduce the cost burden on a business for preparing pre-merger notification materials and enhance the efficiency of merger review, the Taiwan Fair Trade Commission (hereinafter, the “TFTC”) separately preannounced the following draft amendments to two regulations concerning pre-merger notification cases in January 2022 as follows:
I. Preannouncement of the draft Partial Amendments to the Enforcement Rules of the Fair Trade Act (hereinafter, the “Enforcement Rules”) with a period of solicitation for public comments expiring on March 28, 2022. Highlights of the amendments:
(1) Flexible approaches for notification are adopted for a business that has a relationship of control or affiliation with the business that possesses or obtains its shares or capital or that is under common control by another business (Article 8):
Under the existing requirement, it is always required for the merger of such businesses to have the “business that exercises the ultimate control” file the pre-merger notification. In this draft, the proviso is modified so that the pre-merger notification “may also” be filed by the business that exercises the ultimate control.
(2) For an assignee or lessor of the operation or property of another business, it is specifically provided that the assignee or lessor business shall file the pre-merger notification (Article 8).
(3) The documents that shall be submitted to the TFTC by businesses are revised so that they include the other documents or “other materials” designated by the TFTC to assess the impact of the merger on competition (Article 9):
According to the TFTC’s explanation, for a fellow subsidiary or related party other than the “businesses participating in the merger” that is controlled by the “ultimate controlling business” or for a person, business, or organization that becomes influential through a trust relationship, although it is not a “business participating in the merger,” if the TFTC believes that the materials related to it are materials needed for assessing the impact of the pre-merger notification case, the TFTC may still designate them to be provided by the notifying businesses.
II. The preannouncement amends the Principles of the Fair Trade Commission for Handling Pre-merger Notification Cases (hereinafter, the ” Pre-merger Notification Handling Principles”) and repeals the Principles of the Fair Trade Commission for Handling Extraterritorial Merger Cases (hereinafter, the “Extraterritorial Merger Handling Principles”). The period for the solicitation of public comments ended on February 7, 2022. Highlights of the amendments:
(1) The content of the Extraterritorial Merger Handling Principles is incorporated into the Pre-merger Notification Handling Principles by adding the “consideration factors for the domestic effects” of pre-merger notification cases. For the sake of clarity, the “types of merger without significant domestic effects” are provided below (Point 9):
1. The foreign businesses participating in the merger that do not provide goods or services within the territories of Taiwan or do not have a horizontal competition or upstream or downstream relationship with each other.
2. The foreign business participating in a horizontal merger that accounts for less than an aggregate of five percent (5%) of the Taiwan market.
3. The foreign business participating in a vertical merger that accounts for less than an aggregate of five percent (5%) of the Taiwan market.
4. The businesses participating in the merger that have set up or jointly operated a joint venture outside the territories of Taiwan with such a joint venture business not engaging in economic activities in the territories of Taiwan.
(2) It is additionally stipulated that before deciding on a merger, the TFTC may inform the businesses participating in the merger of the anticompetitive concerns and request the businesses participating in the merger to propose structural or behavioral remedies sufficient to resolve the anticompetitive concerns (Point 15).
In practice, it has happened in the past that the ultimate controlling business is an offshore group parent company, which did not actually participate in the merger. If such a business is required to be the notifying business, the timeliness of a merger case may be delayed due to the difficulties of obtaining materials. Therefore, the FTC intends to amend the Enforcement Rules so that for the above-mentioned type of merger, the “possessed or obtained business” may be chosen to be the notifying business to reduce the cost burden on businesses for the merger procedure.
In addition, the TFTC has amended the Pre-Merger Notification Handling Principles to specifically enumerate the types of mergers that do not have significant domestic effects and to specify a mechanism to encourage the businesses participating in a merger to take the initiative to propose corrective remedies, which will help promote the predictability of the merger procedure.
However, with respect to the documents that should be submitted for merger notification, the TFTC has added the requirement in Article 9 of the draft Amendments to the Enforcement Rules that the TFTC may require the businesses participating in a merger to provide “other materials,” which seems to be overbroad and may conversely increase the uncertainty in pre-merger notification. Although the Reasons of the Amendments indicate that for this additional requirement, the TFTC may request “materials related to other businesses or organizations other than the businesses participating in the merger,” still the scope of the “businesses or organizations other than the businesses participating in the merger ” may be potentially overbroad. If the draft is adopted as it is, the boundaries for the TFTC’s future application of this provision are worthy of our close observation.