Affected market: Tantalum capacitors
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.
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
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.
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
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
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
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.
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.
THIRD PARTY VIEWS
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
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
This merger will therefore not be referred to the Competition
Commission under section 33(1) of the Act.
- 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.
- This typically takes between six months and one year to effect.
- 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).