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On 2 March 2012, China's Anti-Monopoly Bureau of the
Ministry of Commerce ("MOFCOM")
conditionally approved Western Digital's acquisition of
Hitachi's hard disk drive ("HDD")
business. Similar to its recent decision in Seagate/Samsung, which
also involved an HDD business, MOFCOM took a decision that differs
from competition authorities in other countries. As was the case in
the Seagate/Samsung deal, MOFCOM defined the relevant market as the
global HDD market. It was of the view that the Western
Digital/Hitachi transaction could result in the increased
likelihood of coordination among competitors and therefore cause
competition concerns, as there were only a handful of players in
the HDD market and the market is highly concentrated and
transparent.
The European Commission required Western Digital to divest
Viviti's (the Hitachi subsidiary being acquired) 3.5 inch HDD
production. The U.S. Federal Trade Commission also cleared the
merger on the condition that Western Digital divests selected
Hitachi assets related to the manufacture and sale of 3.5 inch
desktop HDD to Toshiba.
MOFCOM went further and for the first time imposed a hybrid of
structural and behavioural remedies:
Western Digital needs to divest the 3.5 inch HDD business
currently carried out by Viviti within 6 months of the MOFCOM
decision. This is the same remedy imposed by the European and U.S.
competition authorities.
In addition to this divestiture, Western Digital is required to
hold the entire Hitachi's HDD business (operated by Viviti)
separate, so as to maintain Viviti as a viable independent
competitor on the HDD market. More specifically, Vivita must
maintain its independence in aspects including R&D, production,
procurement, marketing, after-sales service, administration,
finance, investment, personnel appointment, etc., and continue
producing and selling its HDD products by using the pre-transaction
brands TRAVELSTAR and ULTRASTAR. Further, firewalls must be
established to prevent the exchange of competitively sensitive
information between Western Digital and Viviti. This is similar to
the "hold separate" remedy imposed by MOFCOM in the
Seagate/Samsung deal.
Western Digital and Viviti will reasonably determine the
production volume and production capacity in accordance with market
demand. The production capacity and volume of Western Digital and
Viviti must be reported to the supervisory trustee on a monthly
basis.
To avoid potential foreclosure in the downstream market,
Western Digital and Viviti have undertaken not to force their
customers to exclusively procure hard disk products from Western
Digital or Viviti either overtly or covertly.
Similar to the Seagate/Samsung deal, as innovation has a
significant impact on the HDD industry and competition in the HDD
market is key to maintaining product innovation, Western Digital
has made undertakings to continue investing in R&D in
innovative areas consistent with its practice of recent years.
Unlike the Seagate/Samsung deal, no exact dollar figure has been
specified.
Twenty-four months after the implementation of MOFCOM's
decision, Western Digital will be eligible for applying to MOFCOM
for removal of the second and third remedies. MOFCOM will then
decide whether to grant such removal based on the market
competition conditions at the time.
The different approach between MOFCOM and the EU and U.S.
competition authorities can in part be explained by the fact that
MOFCOM does not purely focus on competition law issues. It also
takes the effect of concentrations on the Chinese national economic
development into account.
By taking 297 days, the Western Digital/Hitachi deal underwent
the longest China merger review period among all published cases.
This is longer than the mandatory maximum review period of 180 days
because of the withdrawal/re-submission strategy adopted by the
notifying parties.
If you would like to receive the original Chinese version or an
English translation of the MOFCOM decision, please send us an email
by clicking here. You can also find our discussion of the
Seagate/Samsung merger clearance in our China Update January 2012
by clicking
here.
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