FTC APPROVES DRAFT GUIDE-LINES FOR HANDLING MERGER FILINGS

05/01/2003

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With regard to the review of business combina-tion applications, the Fair Trade Law (FTL) merely provides in abstract terms, in Article 12 Paragraph 1, that the Fair Trade Commission (FTC) shall consider the overall economic bene-fits of a business combination and the disbenefits of restricting competition, to decide whether to prevent the combination from going ahead. On 13 March 2003 the FTC approved draft Guide-lines for Handling Business Combination Ap-plications. The guidelines were drafted with reference to the rules of the anti-trust agencies in various jurisdictions, and to the FTC's own practice. The FTC solicits comments on the draft from all sectors. On this basis, it aims to devise standards for the approval or rejection of busi-ness combination applications and to provide guidance to businesses intending to combine.

The draft sets out the following case review procedure:

First define the relevant market that may be affected.

Then consider the market power of the com-bining businesses.

If the business combination is considered likely to restrict competition, make an overall assessment, considering both the overall economic benefit and the disbenefits of re-stricting competition.

"Relevant market" means the scope within which businesses compete by supplying goods or ser-vices. When defining relevant market, the de-mand substitutability and supply substitutability of specific products or services must also be considered. Relevant market can be defined in terms of product market and geographical market respectively. "Product market" means the com-bination of all products or services that can sat-isfy a specific demand and are closely substi-tutable in terms of functionality and price. "Geographical market" means a geographical area in which vendors compete by supplying products or services, and in which there are no barriers to customers' choosing or changing trading counterparts.

The draft also identifies areas that are of high concern to the FTC when considering business combination cases, as well as types of combina-tion that do not present a high risk of restricting competition.

Areas of high concern

In the presence of any of the following condi-tions, the FTC will consider a case as of high concern. The combining entities will have to provide detailed and sufficient explanations that the combination would not have a marked effect on market competition:

1.The post-combination market share will exceed one-half.

2.The post-combination market share of the combining entities and one other entity will exceed two-thirds.

3.The post-combination market share of the combining entities and two other entities will exceed three-quarters.

4.The combination will increase the Herfin-dahl-Hirschman Index (HHI) of the market in question to over 1800. The HHI is the sum of the squares of the percentage mar-ket shares of all firms competing in a spe-cific market.

5.In a market with an HHI already exceeding 1800, the combination will increase the HHI by more than 50.

The FTC considers that business combinations of the following types do not present a high risk of restricting competition:

1.The market share of the largest entity par-ticipating in the combination is greater than one-quarter but less than one-third; pro-vided that the market share of the other participating entity is less than 5%.

2.None of the participating entities has an individual market share greater than 10%.

3.None of the entities participating in the combination ranks among the first three in the market by market share, and the com-bination will not affect the first three posi-tions in the market share ranking.

4.After the combination, the market's HHI will remain below 1000.