Issued by: Ministry of Commerce of the People’s Republic of China
Announcement No.61, 2013
Date of Issuance: August 26, 2013
Ministry of Commerce of the People’s Republic of China (hereinafter referred to as the Ministry of Commerce) received the anti-monopoly declaration of concentration of undertakings on the merger of MStar Semiconductor, Inc. (Cayman) (hereinafter referred to as MStar Cayman) by Media Tek. Inc. (hereinafter referred to as Media Tek). Upon review, the Ministry of Commerce decided to approve the concentration of undertakings with additional restrictive conditions. In accordance with Article 30 of the Anti-monopoly Law of the People’s Republic of China (hereinafter referred to as the Anti-monopoly Law), relevant matters are hereby announced as follows:
I. Case-filing and review procedures
On July 6, 2012, the Ministry of Commerce received the anti-monopoly declaration of concentration of undertakings on the merger of 100% equities in MStar Cayman by Media Tek. After examining the documents and materials for declaration, the Ministry of Commerce reckoned that they were insufficient, and required the declaring party to provide supplementary materials. On September 4, the Ministry of Commerce confirmed that the supplemented documents and materials complied with the requirements in Article 23 of the Anti-monopoly Law, and then filed a case on concentration of undertakings. On September 29, the Ministry of Commerce decided to carry out further review on the concentration of undertakings. Upon further reviews, the Ministry of Commerce decided that the concentration might eliminate or restrict competition in the design and sales markets of LCD TV main control chip (the core part of LCD TV chips) (hereinafter referred to as LCD TV main control chip market). On December 28, with the consent of the declaring party, the Ministry of Commerce decided to extend the period for further review. In the extended review period above, the declaring party submitted several rounds of solutions for the competition issues raised by the Ministry of Commerce, none of which, upon review, could effectively solve the competition issues caused by the concentration. On February 22, 2013, the declaring party applied for case withdrawal and obtained the consent from the Ministry of Commerce. On March 12, the Ministry of Commerce filed a new case for re-declaration by the declaring party. On April 9, the Ministry of Commerce decided to carry out further review on the concentration of undertakings. On July 8, with the consent of the declaring party, the Ministry of Commerce decided to extend the period for further review to September 6.
In the course of the review, the Ministry of Commerce have verified relevant data by soliciting opinions in writing from relevant government departments, trade associations, business competitors and downstream enterprises, issuing questionnaires to related parties, convening symposia, and entrusting local competent authorities of commerce to make field investigations, and understood the characteristics of relevant commodities, market players, market structure, industry characteristics and future development trend. Meanwhile, the Ministry of Commerce also engaged independent third-party consultation agencies to analyze and assess the competition issues of the concentration.
II. Competition analysis
Media Tek and MStar Cayman are both chip (microelectronic integrated circuits) designers, which are mainly engaged in design of chips in relation to multi-media display and wireless communications. The method adopted for the concentration was merger by share exchange that every ordinary share of MStar Cayman was exchanged for 0.794 ordinary share of Media Tek plus NTD 1 in cash (equivalent to RMB 0.2112). The total transaction value was RMB 24.55 billion.
In accordance with the Anti-monopoly Law and relevant regulations, the Ministry of Commerce, after reviewing the matters involved in the concentration and conducting in-depth analysis of the impact of the concentration on market competition, decided that the concentration might eliminate or restrict competition in the LCD TV main control chip market.
(i) Relevant markets.
Relevant markets involved in the transaction are LCD TV main control chip market and mobile baseband chip design and sales market. Giving the difficulty for the concentration to eliminate or restrict the competition in the mobile baseband chip design and sales market, the Ministry of Commerce has mainly focused on the review of LCD TV main control chip market.
1. Relevant commodities market. LCD TV main control chips, set-top box chips and LCD monitor chips are all chips in relation to multi-media display, which are mainly used to receive and switch audio and video signals. In terms of the demand, the range of application, functions and prices of LCD TV main control chips, set-top box chips and LCD monitor chips differ largely with little substitutive relations. In terms of supply, there is no obvious supply substitution among LCD TV main control chips, set-top box chips and LCD monitor chips. Due to the high integration of LCD TV main control chips and the complicated design plans, in practical operation, in order to ensure the stability and compatibility, the suppliers of LCD TV main control chips are required to establish long-term cooperation with LCD TV manufacturers. The designers of LCD monitor chips and the designers of set-top box chips require long-term accumulation in technologies, experience and customers to become manufacturers of LCD TV main control chips. Therefore, the LCD TV main control chip market constitutes an independent relevant commodities market.
2. Relevant geographic markets. The Ministry of Commerce has analyzed LCD TV main control chips in customs duties, transportation costs, import and export policies, trading volumes, product research and development, design procedures and industry distributions, and believes that the chips have global features. Meanwhile, designers of TV main control chips are required to meet the requirements of domestic market of China Mainland for language and culture, geographical locations, technical service and price expectations. The market of China Mainland has its own features. Therefore, when reviewing the global markets, the Ministry of Commerce focuses on assessing the situations in the market of China Mainland.
(ii) The concentration changed the structures of relevant market.
Before the transaction, the market concentration index (HHI) of LCD TV main control chips in China Mainland was 4,533, which was very high; after the transaction is completed, the figure turned to 6,500. The increase in the index (ΔHHI) reached 1,962. The transaction obviously changed the market structure of LCD TV main control chips in China Mainland.
(iii) The concentration eliminated major competitors.
Media Tek and MStar Cayman are both major suppliers of LCD TV main control chips. Their products have good comparability while they have many common customers. Before the transaction, they ranked the first and the second in relevant market with mutual restrictive abilities in innovation, services and prices.
(iv) The concentration gave the acquirer the dominant position in relevant markets.
In the global market of LCD TV main control market, the market share of MStar Cayman is 43.6% while that of Media Tek is 17.5%. Their total market share is about 61%. In the LCD TV main control chip market of China Mainland, the market share of MStar Cayman is 65% while that of Media Tek is 15%, 80% in total, which makes difficult for the other suppliers to form effective competitive restrictions against them.
(v) The concentration limited the choices by customers of chip suppliers.
In the market of China Mainland, the suppliers of LCD TV main control chips and TV manufacturers depend on each other. They are required to cooperate closely on product positioning and technological familiarity. In the meanwhile, in order to share risks in the operations, TV manufacturers usually choose two enterprises as their suppliers. At present, six major TV manufacturers in China Mainland all take both MStar Cayman and Media Tek as their major suppliers, depending on them to certain extent. After the transaction is completed, MStar Cayman will be merged, which will limit the choices by TV manufacturers of chip suppliers.
(vi) It is relatively difficult to access relevant markets.
The industry involved in the concentration is a high-tech industry, access to which requires corresponding intellectual properties and experience in designs. As the initial phase of product research, development and design takes high cost and a long time, it is difficult for enterprises without relevant design experience and intellectual property rights to access the market. At present, except for Media Tek and MStar Cayman, the market share of other market players are small and there are only a few new players.
(vii) Industry characteristics and development trend.
While assessing that the concentration generates competition eliminating or limiting effects in the LCD TV main control chip market, the Ministry of Commerce also reviewed in depth the industrial status of relevant products, believing that the industrial characteristics and changes in demand and supplies weaken the disadvantageous effects of the concentration on the competition to certain extent.
1. The competition pattern of LCD TV main control chip market is not stable. The products feature fast upgrading and short lifecycle. As the promotion for smart TV chips accelerates, the boundaries among TV chips and mobile chips, computer chips tend to be vague. Designers with comprehensive research and development strength are capable of participating in market competition in the future.
2. The transaction provided other market players with growth opportunities. Six major TV manufacturers in China Mainland usually purchase chips from two or more chip suppliers. After the transaction is completed, TV manufacturers choosing Media Tek and MStar Cayman as suppliers may seek other competitors, which provides small competitors with opportunities to grow into those with great strength.
To sum up, the Ministry of Commerce believes that, even the industry characteristics and development trend may weaken the disadvantageous effects of the concentration on the competition, the concentration is still restricting or limiting competitions in the LCD TV main control chip market of China Mainland in short term, which may be reflected by price elevation in chips, reduction in research and development, postponement of new product release and reduction in customer service level.
III. Negotiation on the additional restrictive conditions
During the review, the Ministry of Commerce pointed out to the declaring party the effect of competition elimination or restriction generated from the concentration, and made several rounds of negotiations on how to lessen such disadvantageous effects. Media Tek and MStar Cayman offered several solutions in succession. Upon examination, the Ministry of Commerce believes that, the Commitment Plan on Remedy for Acquisition of 100% Equities of MStar Cayman by Media Tek (hereinafter referred to as the Final Remedy Plan), which was submitted by both parties to the Ministry of Commerce on August 15, 2013, can effectively lessen the disadvantageous effects of the concentration of undertakings on competition.
IV. Review decision
Given that the merger of MStar Cayman by Media Tek will generate competition elimination or restriction effects on the LCD TV main control chip market of China Mainland, the Ministry of Commerce decides to approve the concentration of undertakings with additional restrictive conditions based on the Final Remedy Plan submitted by both parties to the transaction.
(1) The status of corporate entity of Morningstar Taiwan as an independent competitor shall be maintained. After the transaction is completed, MStar Cayman exits from the market, and its business of mobile chips and other wireless communications is consolidated into Media Tek. Its LCD TV main control chip and the other businesses shall be owned and operated by the existing subsidiary, Morningstar Taiwan, which shall maintain its corporate entity as an independent competitor.
(2) Media Tek shall exercise limited rights of shareholder. When Morningstar Taiwan remains independent, Media Tek, as a shareholder of Morningstar Taiwan, temporarily does not exercise the other rights of shareholder than those to receive the dividend of Morningstar Taiwan, the information of consolidated financial statements of the listed company and appointment of directors with conditions. Media Tek shall apply with the Ministry of Commerce when it is necessary to exercise other rights of shareholder, and prove that such exercise of rights will not damage the mutual independence and effective competition between both parties. The Ministry of Commerce will make decisions after listening to the opinions from the supervision trustee.
(3)Without the approval of the Ministry of Commerce, Media Tek and Morningstar Taiwan shall not develop business cooperation. Both parties shall formulate guarantee measures to prevent exchange of information and guarantee the dependence of the senior officers and employees of Morningstar Taiwan. At the same time, both parties shall maintain the same customary practices in supplies of LCD TV chip products, after-sale service and openness of source codes of programs on a verifiable basis as before the transaction to ensure that, the market competition after the transaction will not be affected by the disadvantageous effects of such concentration of undertakings.
(4) When merging other competitors in LCD TV chip market, Media Tek and Morningstar Taiwan shall file with the Ministry of Commerce in advance and shall not carry out the merger without approval.
(5) Implementation of supervision over the restrictive conditions. Within three years upon the effectiveness of this Announcement, Media Tek and Morningstar Taiwan shall submit a written report on fulfillment of obligations to the Ministry of Commerce every three months, and designate contact person to communicate with the Ministry of commerce and the supervision trustee. Upon the expiry of three years, Media Tek and Morningstar Taiwan may submit an application to the Ministry of Commerce for release of relevant obligation-“the status of corporate entity of Morningstar Taiwan as an independent competitor shall be maintained.”
Media Tek and MStar Cayman shall formulate a detailed plan on fulfillment of the obligations above, and obtain the approval of the Ministry of Commerce within three months since the date of the Announcement. Only after the Ministry of Commerce approves the detail plan, the transaction can be delivered.
The Final Remedy Plan submitted by Media Tek and MStar Cayman is an integral part of this Announcement, which shall have the same binding effects on Media Tek, MStar Cayman and Morningstar Taiwan. Media Tek shall, in accordance with requirements of the Interim Provisions on the Divestiture of Assets or Business in the Concentration of Undertakings, entrust an independent supervision trustee to supervise the fulfillment of the obligations mentioned above by Media Tek, MStar Cayman and Morningstar Taiwan.
Media Tek, MStar Cayman and Morningstar Taiwan shall acknowledge that, the commitment made complies with relevant laws, regulations and the articles of association of each company; where relevant laws, regulations or the articles of association of any company is violated due to fulfillment of the commitment made, the liabilities incurred therefrom shall be assumed by Media Tek, MStar Cayman and Morningstar Taiwan on their own to the extent that the fulfillment of the obligations above are not affected.
This Announcement shall take effect as of the date of issuance.
Annex: Final Remedy Plan
Ministry of Commerce of the People’s Republic of China
August 26, 2013