Revision of Merger Guideline and
Some Case Studies of Merger Review
focusing on Market Definition
Japan Fair Trade Commission
Merger & Acquisition Division
Yuji Kimura
Yuji_Kimura@jftc.go.jp
Past Efforts to Improve Accountability of
Japanese Merger Regulation



Annual release of the outlines on the review
of some cases of business combinations
(1993～)
Issue of “Guidelines to Application of Act
concerning Review of Business Combination”
(5.31. 2004)
Issue of “Policies dealing with prior
consultation regarding business combination
plans” (2002)
Background of Merger Guideline
Revision


Improved environment for implementing M&A
to restructure industries (The Commercial
Code Revision, enacted May, 2007) and the
globalization of economy made us perceive
necessity to revise merger guidelines.
JFTC decided the revision to improve
predictability of regulation, regulatory
transparency, and quickness of merger review
more in accordance with the above economic
situation.
Background of Merger Guideline
Revision

The Japanese government made “New
Economic Growth Strategy” and “Basic
Policies for Economic and Fiscal Management
and Structural Reform” in which the JFTC
should have reviewed three points in the
Merger Guideline last year.



Market Definition (to show the possibility to admit
the global market as relevant market)
Safe Harbor (to fit it to past records of merger
review)
Framework of Import (to clarify its evaluation
method)
Background of Merger Guideline
Revision


In the revision process, the JFTC has
communicated with wide range of actors such
as business groups (Keidanren, etc.),
practitioners (attorney, M&A advisory
consultants), academic professors, METI,
foreign competition authorities (US, EU).
The revised guideline is published at March
28, 2007.
Revised Points
- Clarification of Market Definition
Methodology


In the revised merger guideline, the SSNIP
(small but significant and non-transitory price
increase by a hypothetical monopolist) test is
adopted as a basic procedure to define a
relevant market.
To define the market, demand substitution is
mainly considered, but supply substitution
should also be considered if it is appropriate.
Revised Points
- Clarification of Market Definition
Methodology
Old Guideline
Revised Version
〔function and efficacy〕 are similar?
Substitutability for the users is the main
factor to define the relevant market
Defining the market is based on the concept of SSNIP
A
To check whether 〔function and efficacy〕 are similar
or not, the concept of SSNIP can be available as a
tool.
When the price is raised,
A
When the price
was raised,
B
then users are expected
to substitute B for A.
So A and B should be
the same product range.
B
〔function and efficacy〕 are part of the evidence to
show the substitutability for users.
Revised Points
- Definition of Geographic Range
Integration of Optical Disk Drive Business between Sony and NEC
Suppliers in A
area
Suppliers in B area
Sony, NEC, and
other Suppliers in
Japan
User (PC manufacturer)
in all over the world
PC manufacturers
In Japan
（Ex.Fjitsu）
PC manufacturers
In USA（ExDell）
PC manufacturers
In Taiwan
・PC manufacturers buy optical disk drives
without paying attention to the suppliers’
geographic location.
→ In this situation, the suppliers of the drive
is thought to be competing each other all
over the world.
→ We concluded that this business
combination does not substantially restrain
competition because of the factors, such
as strong competitors, bargaining power of
users.
In this case, the JFTC has used the geographic range all over the world to
analyze the market, but there have been no description on the possibility to
define international market as a relevant market in the old Guidelines. In
the revised version, we clearly wrote it down that we can define the
international range as a relevant market.
Revised Points
- Safe-Harbor

Safe-Harbor threshold is set as a combination
of HHI and the increment of HHI.


Using the increment of HHI rather than the share
is more consistent with the merger regulation
which treats with the structural change of industry.
The combination of HHI and the increment of HHI
is more consistent with global standard.
Revised Points
- Safe-Harbor

New Safe-Harbor

The levels of new safe-harbor are determined by
Japanese merger review experience in recent five
years.
<Old Guideline>
Post-merger share is below 10 %, or below 25% with the HHI below 1000
Old
unilateral effect safe harbor
In the old merger guideline, even if a merger is in range of the unilateral safe harbor, it
is reviewed by JFTC, since the coordinated effect is doubted. So, to simplify the safeharbor application, the safe-harbor for both unilateral effect and coordinated effect is
set.
<Revised Guideline>
①Post-merger HHI below 1,500
②Post-merger HHI between1,500 and 2,500 with the increment in the
HHI below 250
③Post-merger HHI above 2,500 with the increment in the HHI below150
Revised Points
- Clarification on How to Evaluate Import
Pressure


In the revised guideline, how to
evaluate import pressure is described
with more detailed explanation.
The approximate time to evaluate
import pressure is set as forthcoming 2
years.
Revised Points
- Clarification on How to Evaluate Import
Pressure
<Revised Guideline>
① Degree of institutional barriers
<Old Guideline>
Only 8 items to evaluate
import pressure are
drawn simply.
There is no detailed
explanation on each item.
② Degree of import-relatedtransportation cost and the existence
of problems in distribution
All 4 items should
be checked
③ Degree of substitutability
between the imported product and
the company group’s
④ Possibility of supply from overseas
Import
pressure
Revised Points
- Clarification on How to Evaluate Efficiency


In the revised merger guideline,
efficiency consideration is changed to
describe from abstract to more concrete
explanation.
And standards are shown on how to
evaluate efficiency.
Revised Points
- Clarification on How to Evaluate Efficiency
<Revised Guideline>
Efficiency is evaluated from the following aspects:
(1) Efficiency is specific to the business combination.
(2) Efficiency should be feasible.
(3) Efficiency contributes to increase consumers’ welfare.
However, if it removed almost all competition even the business
combination has some efficiency, it would be considered to
substantially restrain competition.
Revised Points
- Revised Description on Remedy


In revised guideline, if industrial
structure has changed to make the
remedy for business combination
unnecessary and the parties apply to
JFTC on that, the remedy could be
changed or removed.
The description of typical remedies is
added to the guideline.
Revised Points
- Other Points

Safe-Harbor on vertical or conglomerate merger:
<Old Guideline>
Post-merger share is below 10 %, or below 25% with the HHI below 1000.
<Revised version>
Post-merger share is below 10 %, or below 25% with the HHI below 2,500.


The description of failing company consideration
amended.
The description on buying power from users are
made more detailed.
Case Studies

Focusing on the merger review cases in
which the market is analyzed by global
market.



①Establishment of Optical Disk Drive Joint
Company by Sony and NEC (2005FY)
②Stock Acquisition of Komatsu Electronic
Metals Co., Ltd. by SUMCO (2006FY)
③Stock Acquisition of Maxtor Corp. by the
subsidiary of Seagate Technology (2006FY)
Case Studies
-①Sony-NEC on optical disc drive
business

Story

Parties




Sony Corporation
NEC Corporation
Establishing their Joint Company of optical
Disk Drives
Market

Optical Disk Drives
Case Studies
-①Sony-NEC on optical disc drive
business

Particular Field of Trade (Relevant Market)


Divided by products for major PC manufacturers
and distributors
Products Range: The following products are
different on the disk used in each drive and their
functions.





CD-ROM
CD-R/RW
DVD-ROM
COMBO
DVD±RW
Case Studies
-①Sony-NEC on optical disc drive
business

Particular Field of Trade (Relevant Market)

Geographic Range: The analyzed market on
products for major PC manufacturers is global
market, so the market share of each parties are
calculated on the global market.

The reason of this analysis is that the headquarters of
major PC manufacturers purchase the devices in all parts
of the world in bulk, the product price set by optical disk
drive manufacturers is set uniformly throughout the
world, and the manufacturers request estimates from
leading optical disk drive suppliers in all parts of the
world and select the supplier with the estimates.
Case Studies
-①Sony-NEC on optical disc drive
business

Market Share


The market share of the parties on the products
except CD-R/RW drive and DVD±RW are lower
than 10%, so the establishment of joint company
does not substantially restrain competition on the
products.
・ CD-R/RW drive
・DVD±RW drive
Sony
NEC
sum
app.10%
app.0~5%
app.10%
Sony
NEC
sum
app.30%
app.5%
app.35%
Case Studies
-①Sony-NEC on optical disc drive
business

Results (Horizontal Aspect)

On CD-R/RW drive and DVD±RW drive,
the establishment of the joint company
would not substantially restrain
competition.



Increase of share by the establishment is low
Existence of Strong Competitors
Strong Buying Power of Users
Case Studies
-②SUMCO-Komatsu on Silicon Wafer
business

Story

Parties




SUMCO
Komatsu Electronic Metals Co., Ltd.
Stock Acquisition of Komatsu Electronic
Metals Co., Ltd. by SUMCO
Market

Silicon Wafer
Case Studies
-②SUMCO-Komatsu on Silicon Wafer
business

Particular Field of Trade (Relevant
Market)

Product Range



300mm silicon wafer
All size silicon wafer
Geographic Range: The analyzed market
on silicon wafer is global, so the market
share of each parties are calculated on the
global market.
Case Studies
-②SUMCO-Komatsu on Silicon Wafer
business

Particular Field of Trade (Relevant
Market)

The reason to analyze global market


Products have no difference made by any
national makers and transportation cost does
not affect the choice of procurement place, so
the users purchase the products from all over
the world.
The product price set by silicon wafer maker is
set uniformly throughout the world.
Case Studies
-②SUMCO-Komatsu on Silicon Wafer
business

Market Share

300mm silicon wafer
SUMCO
app.30%
NEC
app.5%
sum
app.35%
Case Studies
-②SUMCO-Komatsu on Silicon Wafer
business

Market Share

All size silicon wafer
Rank
Company
Market
Share
1
2
3
4
5
A
app. 30%
SUMCO
app. 25%
B
app. 10%
C
app. 10%
Komatsu
app. 10%
6
7
(1)
D
app. 5%
E
app. 5%
Others
app. 5%
Sum of
SUMCO and
Komatsu
app. 35%
Total
100%
Case Studies
-②SUMCO-Komatsu on Silicon Wafer
business


Results: On 300mm silicon wafer and all size
silicon wafer, the stock acquisition does not
substantially restrain competition.
Reason:

Unilateral effect aspect




Easiness to change supplier by users
Existence of strong competitors
Existence of excess supply capacity of competitors
Strong buying power of users
Case Studies
-②SUMCO-Komatsu on Silicon Wafer
business

Reason:

Coordinated effect aspect


The situation in which lower price tends to
attract demand
Difficulty to expect competitors’ behavior
because of drastic innovation of silicon wafer
Case Studies
-③Seagate-Maxtor on HDD business

Story

Parties




Seagate Technology
Maxtor Corporation
Stock acquisition of Maxtor Corporation by
the subsidiary of Seagate Technology
Market

HDD (Hard Disc Drive)
Case Studies
-③Seagate-Maxtor on HDD business

Particular Field of Trade (Relevant
Market)

Product Range (Horizontal aspect)



HDD for enterprise usage
HDD for desktop PC
HDD for laptop PC (not treated by Maxtor)
Case Studies
-③Seagate-Maxtor on HDD business

Particular Field of Trade (Relevant Market)


Geographic Range: The analyzed market on HDD
wafer is global, so the market share of each
parties are calculated on the global market.
The reason to analyze global market


Products have no difference made by any national
makers and transportation cost does not affect the
choice of procurement place, so the users purchase the
products from all over the world.
The product prices set by HDD makers are set uniformly
throughout the world.
Case Studies
-③Seagate-Maxtor on HDD business

Market Share and HHI

HDD for enterprise usage
Rank
Companies’
name
Market
Share
1
Seagate
45~50%
5
2
A
15~20%
(1)
3
Maxtor
10~15%

4
B
C
10~20%
Sum of
Seagate
and Maxtor
60~65%
Total
100%
0~5%
HHI is approximately 4600~4700, and the increment
of HHI is approximately 1400~1500.
Case Studies
-③Seagate-Maxtor on HDD business

Market Share and HHI

HDD for enterprise usage
Rank
Companies’ Market
name
Share
1
Seagate
2
5
C
5~10%
30~35%
6
D
0~5%
A
25~30%
(1)
50~55%
3
Maxtor
20~25%
Sum of
Seagate
and Maxtor
4
B
10~15%
Total
100%

HHI is approximately 3600~3700, and the increment
of HHI is approximately 1300~1400.
Case Studies
-③Seagate-Maxtor on HDD business


Results (Horizontal Aspect): On HDD for both
enterprise usage and desktop PC, the stock
acquisition does not substantially restrain
competition.
Reason:

Unilateral effect aspect




Easiness to change supplier by users
Existence of strong competitors
Existence of excess supply capacity of competitors
Strong buying power of users
Case Studies
-③Seagate-Maxtor on HDD business

Reason:

Coordinated effect aspect



The situation in which lower price tends to
attract demand
Difficulty to expect competitors’ behavior
Frequent innovation and short product life cycle
tend to cause product price decrease