Pre-Merger Notifications for M&A in Taiwan
This article discusses issues related to the mandatory merger notification regime for Merger and Acquisitions transaction in Taiwan, including threshold tests, filing procedures and answer other frequently asked questions.
1. Is there a mandatory merger notification regime?
2. Is there a voluntary merger notification mechanism, and if so, what advantages does it offer?
Yes: even if a merger falls below the notification threshold the parties may seek a review of the proposed transaction (please refer to item 13 below), in order to eliminate or reduce the risk of a post-closing challenge.
3.What types of transactions are caught?
The mandatory notification system only applies to mergers. Mergers are defined in Article 6 of the Fair Trade Act 2002 as any situation where
- an enterprise and another enterprise are merged into one;
- an enterprise holds or acquires the shares or capital contributions of another enterprise to an extent of more than one-third of the total voting shares or total capital of such other enterprise;
- an enterprise is assigned by or leases from another enterprise the whole or the major part of the business or properties of such other enterprise;
- an enterprise operates jointly with another enterprise on a regular basis or is entrusted by another enterprise to operate the latter's business; or
- an enterprise directly or indirectly controls the business operation or the appointment or discharge of personnel of another enterprise.
4. What are the threshold tests, above which a notification is required and below which it is not?
The threshold tests for the mandatory notification system are set out in Article 11 of the Fair Trade Act 2002. Advance notification is mandatory when:
- as a result of the merger the enterprise(s) will have one third of the market share;
- one of the enterprises in the merger has one fourth of the market share; or
- sales for the preceding fiscal year of both enterprises in the merger exceed the threshold amount publicly announced by the central competent authority.
The current threshold limits for sub-paragraphs 3 (for non-financial holding companies) are stated by the Fair Trade Commission (“FTC”) to be, for the acquiring company, more than 10 billion New Taiwan dollars domestic sales revenues (approximately USD347,222,222, as of July 2011), and for the target company, more than 1 billion New Taiwan dollars domestic sales revenues (approximately USD34,722,222, as of July 2011).
The threshold tests do not apply where (Article 11-1):
- any of the enterprises participating in a merger already holds no less than 50% of the voting shares or capital contribution of another enterprise in the merger and merges such other enterprise.
- enterprises of which 50% or more of the voting shares or capital contribution are held by the same enterprise merge.
- 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.
- an enterprise (pursuant to certain provisions in the Company Law and the Securities and Exchange Law) redeems its shares held by shareholders so that its original shareholders’ shareholding falls within the circumstances provided for in paragraph 2 of Article 6 (see item 3 above).
5. Are there ways to minimize the required information filing?
Yes. The applicants may apply to the FTC for a simplified procedure, which shortens the waiting time, in situations where:
- The market share of the enterprises filing an application under Article 11-1, Sub-paragraph 3 of the Fair Trade Act (see item 4 above) conforms to either one of the following:
- (1) The combined market share of the participating enterprises in a horizontal merger is less than 15% (this limitation does not apply in certain defined business environments);
- (2) The combined market share of the participating enterprises in a vertical merger is less than 25% in each other’s market.
- The enterprises participating in a multi-disciplinary merger (as defined) are found to be without any probability of significant latent or potential mutual competition in each other’s market.
- A parent or holding company conducts an internal reorganization whereby either:
- (1) one of the participating enterprises directly owns at last one-third share of another enterprise with stockholder voting rights or capital investment, amounting to less than 50%, and said participating enterprise merged with or acquired the other enterprise.
- (2) the participating enterprises merged with or acquired the subsidiary of its subsidiary company, provided that the participating enterprise shall directly owns at least 50% stockholder voting rights or capital investment of the aforesaid subsidiaries.
However, this simplified procedure is not available where:
- the nature of the merger involves significant public interests.
- one of the participating enterprises in the merger is a holding company (as defined).
- it is difficult to identify the business environment required in paragraph 1(1) above, or to assess the market share of the participating enterprises.
- the business environment described in 1(1) above has a high-level barrier to entry, a high level of market concentration, or there are other significant concerns regarding the detrimental effects of the limited competition.
If an application for the simplified procedure is unsuccessful, the parties must reapply under the general application procedure.