Legality of Next Media acquisition in question

By Shih Jun-ji, Flora Chang and Huang Kuo-chang 施俊吉、張錦華 黃國昌  / 

Tue, Jan 08, 2013 - Page 8

The buyout of the Next Media Group has set off a wave of civic protests. Among the buyers participating in the buyout, only the Formosa Plastics Group (FPG) has filed a merger report because it obtained more than one-third of the Next Media shares through an overseas subsidiary. The remaining buyers, including Want Want Group, have not filed such a report.

Article 6 of the Fair Trade Act (公平交易法) defines the main components that constitute a merger. In paragraph two of this article a merger is defined as the acquisition of “more than one-third of the total voting shares or total capital” of another enterprise. FPG clearly meets this criteria.

Paragraph four of the article adds that a “merger” also refers to a situation “where an enterprise operates jointly with another enterprise on a regular basis or is entrusted by another enterprise to operate the latter’s business.” This means that even if some of the buyers participating in a merger do not acquire more than one-third of the shares, they are still parties to the merger. The other buyers involved in the Next Media Group takeover meet these requirements.

In handling the merger application by Hitachi and the five other companies who joined together to buy One-Blue LLC in 2011, the Fair Trade Commission determined that all the buyers were part of the merger in accordance with the regulations in the aforementioned paragraph. This can be used as an example as to why the other buyers of Next Media are also parties to the merger and are legally required to submit a merger application.

According to Article 8 of the Enforcement Rules of the Fair Trade Act and the commission, a merger report should be submitted jointly by all participants in a merger.

According to a commission precedent, if a party does not submit the required documents, the report is incomplete and fails to comply with the rules. The commission will then set a time limit for submitting supplementary documents. Documents submitted after the expiration of this time limit will not be accepted by the commission.

Since FPG is the only buyer that has submitted a report in this case, and the other buyers have not, the commission should request that they do so. If they refuse to, the commission is required by law to return the merger application.

If the commission does return the application, that does not mean that the Next Media case has been completed, instead it means that the merger application has been rejected.

According to paragraph 3 in Article 11 of the Fair Trade Act, if a merger report is not submitted when it should have been, the application is incomplete and the merger cannot go ahead.

The commission should closely monitor the Next Media case. Should the buyers proceed with the merger in violation of the law, an order prohibiting the merger should be issued.

Shih Jun-ji is a research fellow at the Research Center for the Humanities and Social Sciences at the Academia Sinica. Flora Chang is a professor at National Taiwan University’s Graduate Institute of Journalism. Huang Kuo-chang is an associate research fellow at the Institutum Iurisprudentiae of the Academia Sinica.

Translated by Perry Svensson