The European Commission has approved under the EU Merger Regulation the proposed acquisition of Freescale (of Bermuda) by NXP (of the Netherlands). Both companies manufacture semiconductors at the global level. The approval is conditional upon NXP divesting its radio frequency power business to address the Commission's concerns that the takeover could otherwise have led to higher prices and less competition in this specific market.
Semiconductors are used in various electronic components (such as diodes and transistors) that control the conduction of electricity. They are found in a very wide range of products from cars to smartphones and computers.
The Commission found that the two companies’ semiconductor product portfolios were mostly complementary, except for radio frequency (“RF”) power transistors. RF technology uses radio waves to transfer information through space. RF power transistors make RF signals more powerful and are predominantly used in base stations for mobile telecommunications (3G, 4G, LTE), as well as in radio and television broadcasting, microwave ovens, mobile radios and air traffic control equipment.
The Commission found that NXP and Freescale are the two largest players and close competitors in the RF power transistors market, in particular those used in base stations for mobile telecommunications. The Commission was concerned that after the merger, as originally notified, the remaining companies on the market would have been unable to exercise sufficient competitive pressure on the merged entity. This could have led to price rises and a reduced choice for customers.
To address these concerns, NXP offered:
- to sell its RF power business, comprising all key assets and personnel, except assets necessary for the so-called “front-end” manufacturing of these products, that is imprinting substrate silicon wafers with the precise circuitry required for semiconductors to function;
- a manufacturing agreement with a third party foundry to perform front-end manufacturing services for the divested business;
- to provide the RF power business with the transitional manufacturing and services agreements required to guarantee business continuity.
The commitments offered by NXP will allow the purchaser of the divested business to replicate NXP's previous role in the RF power transistors market thereby maintaining effective competition. These commitments completely remove the overlap between the RF power transistor activities of NXP and Freescale, and therefore adequately address the competition concerns identified by the Commission.
The decision is conditional upon full compliance by NXP with the commitments.
Merger control rules and procedures
The Commission has the duty to assess mergers and acquisitions involving companies with a turnover above certain thresholds (see Article 1 of the Merger Regulation) and to prevent concentrations that would significantly impede effective competition in the EEA or any substantial part of it.
The vast majority of notified mergers do not pose competition problems and are cleared after a routine review. From the moment a transaction is notified, the Commission generally has a total of 25 working days to decide whether to grant approval (phase I) or to start an in-depth investigation (phase II).