Taiwan Merger Control: When and How Do You Have to File?

INTRODUCTION

Mergers happen in good economic times and bad. In good times, larger companies flush with cash can go shopping for complementary startups and SMEs that need the investment; in bad times, the lowered stock prices of certain companies may make them attractive targets for rescue or acquisition.

Over the past several years, Taiwan has updated its antitrust laws and guidelines in some key ways as part of an effort to keep up with the times. Many multinational companies get caught unaware of the Taiwan rules about merger-control notifications, the process by which companies entering into a merger may be required to let the Taiwan Fair Trade Commission (FTC) know about an upcoming transaction and wait for their approval before proceeding. As we work with these issues frequently, merger control is often done in a rush with attorneys around the world trying to either confirm the transaction is exempted or else to obtain clearance quickly.

The punishments for failing to comply are considerable, but given the reasonableness of the FTC in their practices, there really is no reason to skip this crucial step. The FTC has the ability to prohibit the merger, unwind a merger, and issues fines in increasing amounts.

DEFINITIONS OF ‘MERGER’

Mergers are defined under the Fair Trade Act (FTA) quite broadly, with Article 10 covering everything from traditional mergers to joint-venture activities and even more creative ways of handing over the control of a business from one entity to another through assignments and leases. The FTA covers the notions of direct and indirect control, so there’s no point in getting cute about it by pretending a significant minority stake is not enough to handpick the board in many companies.

THRESHOLDS FOR MERGER NOTIFICATION

The Taiwan laws also look to how much of an effect the merger will have on the local market, having thresholds based on market share and the amount of turnover. Under FTA Art. 11, Taiwan’s merger-control system requires filing a merger notification (for approval) prior to a merger so long as the merger hits the following thresholds:

1. As a result of the merger the enterprise(s) will have one-third of the market share;
2. One of the enterprises in the merger has one-fourth of the market share; or
3. Sales for the preceding fiscal year of one of the enterprises in the merger exceeds the threshold amount publicly announced by the competent authority:

• Non-financial institutions: more than TWD 15 billion sales in Taiwan by one party, more than TWD 2 billion sales in Taiwan by the other party.
• Financial institutions: TWD 30 billion sales in Taiwan by one party, TWD 2 billion sales in Taiwan by the other.
• If the combined global sales volume of the immediately preceding fiscal year of all parties to a combination exceeds TWD 40 billion and at least two of the parties each had Taiwan sales volume for the same year of at least TWD 2 billion.

NORMAL VERSUS SIMPLIFIED FILINGS

Under the FTC Disposal Directions (Guidelines) on Handling Merger Filings, there are simplified filings and regular-procedure filings.

Simplified filings can be used where:

1. The aggregate market share of the parties to a horizontal merger is less than 20 percent of the total market.
2. The aggregate market share of the parties to a horizontal merger is less than 25 percent of the total market and the market share of one of the parties to the merger is less than five percent of the total market.
3. The aggregate market share of the parties to a vertical merger in each relevant market is less than 25 percent of the total market.
4. After examining the considerations specified in Paragraph 1 of Point 12, the FTC concludes that potential competition between the parties to a conglomerate merger is insignificant.
5. One of the merging parties directly holds more than one-third but less than half of the voting shares or capital contributions of another business and merges with the said business.

Simplified filings cannot be used where:

1. The market shares of the top two businesses account for two-thirds of the relevant market, or the market shares of the top three businesses accounts for three-fourths of the relevant market that a horizontal merger involves. However, this regulation does not apply if the aggregate market share of the merging parties is less than ten percent of the total market.
2. The merger in question involves significant public interest.
3. One of the merging parties is a holding company as defined in the Financial Holding Company Act or the Taiwan Stock Exchange Corporation Rules Governing Securities Listings.
4. It is difficult to define the relevant market the merger involves or to calculate the market shares of the merging parties.
5. High-level market entry barriers or high market concentration exists in the relevant market the merger involves or there are other conditions likely to lead to disadvantages as a result of the significant competition restrictions thereof incurred.

WHO SHALL FILE WITH THE FTC?

The parties obligated to file with the FTC are based on the merger conditions and the type of merging party:

1. Where an enterprise is merged into another, jointly operates on a regular basis with another, or is commissioned by another enterprise to run operations, the FTC filing shall be submitted by the enterprise who participates in the merger;
2. When an enterprise holds or acquires the shares or capital contributions of another enterprise, the FTC filing shall be performed by the enterprise who conducts the acquiring. However, if there are control or affiliation relations between the holding or acquiring enterprises, or the holding or acquiring enterprises are controlled by the same enterprise or a group of enterprises, the FTC filing may also be performed by the enterprise with ultimate control of the hold;
3. Where an enterprise is assigned by or leases from another enterprise(s) the operations or assets of another, the FTC filing shall be submitted by the assignee or the lessee;
4. A controlling enterprise, where an enterprise directly or indirectly controls the business operations or the appointment or discharge of personnel of another enterprise;
5. Financial holding companies shall file with the competent authority if the companies or any subsidiaries in which the companies have a controlling interest as specified in the Financial Holding Company Act participate in the merger.

However, if an enterprise required to file a merger has not yet been established, the existing enterprises participating in the merger shall file with the FTC.

PRE-FILING CONSULTATION SERVICE

The FTC promulgated the Guidelines on the Pre-Filing Consultation Service in 2021. The services include: (1) assisting enterprises to clarify whether the definition of merger or the threshold for notification is met, and whether they are obligated to file with the FTC; (2) advising on the notification documents and the applicable procedure; and (3) answering other necessary questions regarding the filing and review.

The request for consultation service may be submitted via hardcopy or email, stating the issues, names of enterprises, products or services, transaction scheme, market affected, estimated date of notification and other relevant information. Enterprises are recommended to request consultation service at least 10 working days prior to the estimated date of merger filing under Art. 11. For complex cases, earlier submission is recommended. If Enterprises file for the merger within 10 days after applying for consultation, the FTC may directly proceed with the merger review procedure without continuing the consultation service.

After receiving the request, the FTC may elect to arrange a meeting (in person or via teleconference). The contents and documents provided during the consultation service shall be kept confidential. In principle, there shall be only one consultation service for each merger case, and the FTC is not bound by the consultation result.

INFORMAL LETTER PRACTICE

In practice, the FTC will often decline jurisdiction if a merger would hit one of the Art. 11 thresholds but will not substantially change the relevant market shares. This can be handled by sending a letter to the FTC with an explanation of the merger and explaining the situation and why it will not have a significant effect. We can often hear back really quickly if the FTC does not want a merger to go through a full filing.

For example, in a case involving a company that controlled about two-thirds of a key automotive-part market segment in Taiwan, we were able to explain that it was being acquired by a group of white-knight investors who had nothing to do with the transmission business. The company was being rescued from bankruptcy, and the end result of the deal would have no effect on the relevant market shares.

PUNISHMENTS FOR FAILING TO FILE

The FTC has several options under FTA Article 39 to take action where parties disregard the obligations under Article 11. The FTC can prohibit the merger, prescribe a period for the splitting of the merged companies, order disposal of all or part of the shares, transfer part of their operations, remove certain persons from their positions, or make other relevant orders. Administrative penalties between TWD 200,000 and up to TWD 50,000,000 can be imposed on the company.

If false or misleading information is submitted as part of a merger notification, then the FTC can undo the merger and do many of the listed orders, as above, but the fines range between TWD 100,000 and TWD 1,000,000.

Companies that further disobey the FTC can be ordered to dissolve, be suspended, or have their business operations terminated.

EXEMPTIONS FROM FILING

FTA Art. 12 provides that a filing does not need to be made:

1. Where any of the enterprises participating in a merger, or its 100 percent held subsidiary, already holds no less than 50 percent of the voting shares or capital contribution of another enterprise in the merger and merges such other enterprise;
2. Where enterprises of which 50 percent or more of the voting shares or capital contribution are held by the same enterprise merge;
3. Where an enterprise assigns all or a principal part of its business or assets, or all or part of any part of its business that could be separately operated, to another enterprise newly established by the former enterprise solely;
4. Where an enterprise, pursuant to the proviso of Article 167, Paragraph 1 of the Company Act or Article 28-2 of the Securities and Exchange Act, redeems its shares held by shareholders so that its original shareholders’ shareholding falls within the circumstances provided for in Article 10, Paragraph 1, Subparagraph 2 herein;
5. Where a single enterprise reinvests to establish a subsidiary and holds 100 percent shares or capital contribution of such a subsidiary;
6. Any other designated type of merger promulgated by the competent authority.

CONCLUSIONS

With merger-control compliance quite easy and reasonable in Taiwan, companies working with skilled counsel can get through these issues quite smoothly and efficiently. In our experience, it’s normal to be able to resolve most FTC queries without delay.

By Eiger, Taiwan, a Transatlantic Law International Affiliated Firm.

For further information or for any assistance please contact taiwan@transatlanticlaw.com

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