KEMET Corporation / EPCOS AG

OFT closed case: Anticipated acquisition by KEMET Corporation of the tantalum capacitor business of EPCOS AG.

Affected market: Tantalum capacitors

No. ME/2213/06

The OFT' s decision on reference under section 33 given on 11 April 2006. Full text of decision published 27 April 2006.

Please note that square brackets indicate figures or text which have been deleted or replaced with a range at the request of the parties for reasons of commercial confidentiality.


KEMET Corporation (KEMET) is a US manufacturer of electronic components, including tantalum, multilayer ceramic, and aluminium capacitors. It has manufacturing facilities in the US, China and Mexico, and operates through various worldwide subsidiaries. KEMET' s total worldwide turnover for the fiscal year ending 31 March 2005 was approximately £232 million. With respect to tantalum capacitors (the overlap area), KEMET' s turnover on a worldwide and UK basis in the same fiscal year was approximately [ ] and [ ], respectively. 

EPCOS AG (EPCOS) is a German manufacturer and supplier of passive electronic components, including capacitors, surface acoustic wave components, ferrites, inductors, varistors and piezo stacks. The worldwide and UK turnover attributable to its tantalum capacitor business (the Target Business) for the fiscal year ending 30 September 2005 was approximately [ ] and [ ], respectively. 


KEMET will acquire (through wholly-owned subsidiaries) the Target Business by way of a mixed purchase of assets and shares. The Target Business includes the entire issued share capital of EPCOS Portugal and certain assets located in Germany, including manufacturing and intellectual property rights.

The parties signed an asset and share purchase agreement on 12 December 2005. The administrative deadline is 20 April 2006. The transaction has also been notified and cleared in Portugal and Spain. It was not notifiable in Germany.


As a result of this transaction KEMET and the Target Business (the parties) will cease to be distinct. The parties overlap in the supply of tantalum capacitors in the UK. The OFT believes that the share of supply test in section 23 of the Enterprise Act is met in relation to tantalum capacitors and, therefore, it is or may be the case that arrangements are in progress or in contemplation which, if carried into effect, will result in the creation of a relevant merger situation.


Product market

Capacitors are passive electronic components that store, filter, and regulate electrical energy and current flow, used by a wide variety of applications (e.g. automotive, business equipment, communications, computer-related, and industrial). They consist of conducting materials separated by a dielectric which interrupts the flow of electrical current and can be made from various such materials, including tantalum. The parties only overlap in the supply of tantalum capacitors, for which they have confirmed they both produce a range of types favoured by different industries.

The parties consider that the relevant product market should be defined as all capacitors. They submit that there is a high degree of demand substitutability between tantalum capacitors and other types of capacitors (in particular, multilayer ceramic and aluminium). This is supported by documents showing customers switching to less expensive types of capacitors when a tantalum shortage led to a price increase in tantalum capacitors in 2000. However, third party views were mixed on the extent of such substitutability. Some third parties suggested that tantalum capacitor types for different target industry applications may not always be demand-side substitutes and the parties acknowledge that there are limited, specialised tantalum capacitors produced for medical and military applications which may currently be difficult to substitute with capacitors produced from other materials (because of certain favourable characteristics, such as tolerance).

On the supply-side, the parties contend that many capacitor manufacturers produce more than one type of capacitor comprised of different types of conducting materials, suggesting that the relevant market is potentially wide. Moreover, competitors generally confirmed the relative ease of switching from production of one type of tantalum capacitor to another. By way of exception, one competitor suggested that switching between certain major families of tantalum capacitors (see [note 1]) may be costly and timely.

As the degree of demand and supply side substitutability between tantalum and other types of capacitors, and between different tantalum capacitor types, is unclear in some cases, a cautious view is taken. Accordingly, all capacitors, tantalum capacitors and tantalum capacitors by target industry application are considered separately. However, it is not necessary to conclude on the exact product market as no competition issues are raised whichever definition is used.

Geographic market

According to the parties, the supply of tantalum capacitors (and capacitors in general) should be considered global in scope due to such factors as low import barriers, low transportation costs, technical standardisation and an absence of quotas or tariffs.

The relevant geographic frame of reference can be considered wider than the UK, as the entirety of UK supply is imported and appears at least transatlantic in scope (i.e. Europe and USA combined), as EPCOS is the only European-based supplier, with the other two large suppliers into the UK (KEMET and AVX) being US importers. Sales by various smaller Asian suppliers (e.g. Sanyo, Samsung) into Europe suggest that the market could be world-wide. The customers we contacted confirmed that they would consider Asian manufacturers of tantalum capacitors as credible alternative suppliers in the event of price increases by non-Asian suppliers.

It is not necessary to conclude on the exact geographic market as the competition analysis is unchanged whichever definition is used. However, for completeness, the OFT has considered shares of supply on a UK, European and world-wide basis.


Post-merger, the parties will supply no more than 10 per cent of all capacitors on a European or world-wide basis. More narrowly, the parties estimate that the total size of the UK sector for tantalum capacitors in 2005 was approximately £10 million and that the merged entity will have a combined share of tantalum capacitors by value of approximately [25-35 per cent] (increment [10-20 per cent]) in the UK.  On a European and world-wide basis, the merged entity' s share of tantalum capacitors by value would be approximately [45-55 per cent] (increment [15-25 per cent]) and [15-25 per cent] (increment [0-10 per cent]), respectively.

While the merged entity will become the largest tantalum capacitor supplier world-wide and in Europe, documentation provided by the parties and third party views indicate that the capacitor industry generally is competitive and characterised by a long-term trend towards lower prices and over-capacity. The parties'  main competitors for tantalum capacitors in Europe are AVX and US-based Vishay (together with a smaller fringe of players based in Asia, such as Sanyo and Samsung) which also produce a wide range of other capacitor types. Third parties have confirmed that in general customers tend to multi-source and they can easily switch between tantalum capacitor (including Asian) suppliers, subject in some cases to supplier/product approval (see [note 2]). 

Considering tantalum capacitors segmented by target industry application, the parties have confirmed that they do not both supply products relating to the same end uses where capacitors made from other materials cannot be substituted [ ].  Finally, the parties'  major competitors for tantalum capacitors have confirmed that they produce a full range of tantalum capacitor products.

The OFT investigation also considered whether a significant loss of technical innovation, which is a key competitive factor influencing the supply of tantalum capacitors, could result from the merger. While [ ] EPCOS has [ ] launched certain innovative tantalum capacitor products (e.g. polymer multianode tantalum capacitors, see [note 3]) in the last few years, evidence indicates that these were already produced by most of the other large world-wide players.  Furthermore, innovation in relation to alternative capacitor types appears to be a constraining influence on tantalum capacitors. Therefore, it is unlikely that incentives to innovate will be significantly reduced post-merger.

Barriers to entry and expansion

The parties submit that there are no natural or intrinsic barriers to entry or expansion into production in the capacitors industry in general either in terms of specific technology, production methods or intellectual property rights. 

There do no appear to be any significant barriers hindering manufacturers already selling in Europe from expanding their operations or preventing manufacturers not currently selling into Europe from doing so. Some competitors suggested that in some cases suppliers not currently selling into Europe would need a European sales/distribution presence to do so. This does not seem to be a significant obstacle to entry, particularly for those with other electronic component product lines. Therefore, it seems that new entry and/or expansion by existing tantalum capacitor manufacturers would act as a competitive constraint on the merged entity.

Buyer power

The parties submit that customers for capacitors are typically sophisticated, multinational electronic companies, purchasing on a global basis and possess a degree of buyer power. Third parties confirm that customers of tantalum capacitors are highly influential and, as such, sponsored new entry may be possible. Furthermore, multi-sourcing by customers is prevalent. Taken in conjunction with existing competition, these factors together represent a competitive constraint on the merged entity.


No vertical issues are raised by this transaction.


Customers were unconcerned by this transaction, save one comment that EPCOS'  manufacturing plant in Germany could be closed post-merger and local prices could be affected as a consequence. The high level of trade flow into Europe suggests that prices would not be affected by the closure of this European-based tantalum capacitor manufacturing facility.

One competitor raised a concern that switching tantalum capacitor suppliers may be difficult for customers in certain target industries, in relation to which it alleges that the parties have a strong presence, due to expensive and time consuming release procedures. No customers contacted expressed any concerns in this respect. Further, as the parties'  major tantalum capacitor competitors have confirmed they produce as wide a range of products as the parties, the ability of customers which multi-source to switch to its other supplier(s), or the threat of switching even in the long-term, should constrain the merged entity from imposing a price rise. If customers supply from either KEMET or EPCOS only (i.e. do not multi-source), the presence of any high switching costs would suggest that the parties do not in any event currently impose a strong competitive constraint on each other for these specific end-use applications. 


The parties overlap in the supply of tantalum capacitors, in relation to which the impact of this transaction has been considered. The geographic scope of the supply of tantalum capacitors is clearly supra-national.

The sector is characterised as competitive and subject to excess capacity. There are two large US suppliers active in Europe other than the parties (AVX and Vishay), as well as a fringe of Asian suppliers, to which customers could switch in the event of a price rise by the merged entity. Furthermore, barriers to entry and expansion appear low, and customers, who typically multi-source, possess a degree of buyer power.

Taken in conjunction with a general lack of third party concerns, the OFT believes that even considering the narrowest frame of reference (tantalum capacitors segmented by target industry application) the loss of any competitive constraint as a result of this transaction will not be significant. Consequently, the OFT does not believe that it is or may be the case that the merger may be expected to result in a substantial lessening of competition within a market or markets in the United Kingdom.


This merger will therefore not be referred to the Competition Commission under section 33(1) of the Act.


  1. For example, 'wet'  tantalum used in highly professional applications (military, heavy industry, medical); 'leaded'  tantalum used for industrial and automotive applications; and, 'conformal coated'  used for telecoms and computer applications.
  2. This typically takes between six months and one year to effect.
  3. These replace the manganese dioxide counter electrode by a solid conductive polymer with certain functional advantages over non-polymer tantalum capacitors (e.g. reduced flammability).
Published 11 April 2006