CN09 - SAMR conditionally approves two mergers in the technology sector

In January 2022, the State Administration of Market Regulation ("SAMR") conditionally approved two merger transactions in the technology sector - the acquisition of Siltronic AG by Global Wafers and the acquisition of Xilinx by Advanced Micro Devices.  These two cases demonstrate SAMR's ongoing mandate to regulate activity taking place in the growing digital and technology sectors.

Key takeaways

• The SAMR approved the Siltronic / GlobalWafers transaction subject to a number of remedies, including requiring the merged entity to divest a part of its business and commit to supply customers on fair, reasonable and non-discriminatory terms ("FRAND Terms"). While the transaction was cleared, the parties were ultimately unable to obtain foreign direct investment approval in Germany by the long-stop date and as a result, the transaction did not proceed.
• The SAMR approved the AMD / Xilinx transaction subject to a number of conditions, including requiring the merged entity to continue to allow its products to be purchased individually (rather than bundled) and on FRAND Terms, and to guarantee the interoperability of its products.
• These transactions are the first to be conditionally approved by SAMR in 2022.

GlobalWafers acquisition of Siltronic AG 

Taiwan listed GlobalWafers and German listed Siltronic AG are involved in the production of silicon wafers, which are commonly used in semiconductor products including computer memory chips, microprocessors and integrated circuits.  Silicon wafers are typically produced in three standard sizes, with 8-inch wafers being the most commonly used size.  

The SAMR raised concerns that this transaction might have the effect of eliminating or restricting competition in the global and domestic markets for 8-inch fused wafers.  The SAMR had a number of concerns, including that: 

• the transaction was likely to result in the merged entity holding significant global and domestic market shares of approximately 55-60% globally and 30-35% in the domestic market in China;
• the transaction was likely to further increase global and domestic market concentration;
• the reduction in the number of competitors as a result of the transaction would likely increase the risk of coordination; and
• barriers to entry were high, and any new entrant would be required to make significant capital and technological investments to compete effectively.

Notwithstanding these competition concerns, the SAMR ultimately approved the transaction subject to a number of conditions requiring the merged entity to: 

• divest GlobalWafers' zone melting wafer business within 6 months;
• continue to supply all types of wafer products to customers in China on fair, reasonable, and non-discriminatory terms;
• not engage in discriminatory treatment against customers in China regarding price, quality, quantity, delivery date, and after-sales services;
• not refuse customer requests to renew contracts without due reasons, and to ensure renewal conditions are not inferior to the original contracts; and
• continue training relevant management personnel and staff and take necessary measures to ensure the implementation of the remedies.

While the transaction was cleared by the SAMR, the parties were ultimately unable to obtain foreign direct investment ("FDI") approval in Germany by the long-stop date and as a result, the transaction did not proceed.   It remains unclear whether the transaction would have received FDI clearance in Germany. In light of legislative amendments to German foreign trade law, the scope of foreign direct control was expanded with regard to semiconductor manufacturers and other related businesses, with effect from 1 May 2021, and it is expected that the German government identified serious issues with the transaction.

Advanced Micro Devices acquisition of Xilinx 

US chip manufacturer Advanced Micro Devices ("AMD") is involved in the production of computer components, including central processing units ("CPU") and graphics processing units ("GPU").  Xilinx, another US technology company, is involved in the production of programable gate arrays ("FPGA"), which are a type of semi-customisable integrated circuit. 

The SAMR raised concerns that the transaction might have the effect of eliminating or restricting competition in the global and domestic markets for CPUs, GPU accelerators and FPGAs.  The SAMR had a number of concerns, including that: 

• the transaction was likely to eliminate or restrict competition in the relevant product markets, and as a result, the merged entity would have significant market power. The SAMR noted that this may result in the merged entity:
  • bundling the sale of CPUs and CPU accelerators;
  • refusing to supply FPGAs to competitors; or
  • reducing the interoperability between its FPGAs, and the CPUs and GPU accelerators produced by its competitors;
• barriers to entry were high, and any new entrant would be required to make significant capital and technological investments to compete effectively.

Notwithstanding these competition concerns, the SAMR ultimately approved the transaction subject to a number of conditions requiring the merged entity to: 

• not engage in bundling, hinder or restrict customers in China from purchasing CPUs, GPUs and FPGAs individually or otherwise discriminate against customers in China;
• continue to supply CPUs, GPUs and FPGAs, related software and accessories on FRAND Terms;
• ensure the flexibility and programmability of FPGAs, and ensure continued availability of the FPGA product family;
• guarantee the interoperability of the merged entity's CPUs, GPUs and FPGAs sold in China with third-party products; and
• ensure the confidentiality of information provided by third-party CPUs, GPUs and FPGAs manufacturers.

The outcome in these two cases demonstrates that the SAMR is:

• continuing to closely scrutinise mergers and acquisitions in the technology sector; and
• willing to depart from decisions made by overseas competition authorities. For instance, the Siltronic/Globalwafers transaction was cleared without conditions in other jurisdictions including Singapore, Taiwan and Germany.

With thanks to Rubaina Sehgal of Ashurst for her contribution.