The verdict is in: The European Commission has approved the acquisition of Osram by Austrian optical sensor maker ams, ruling that the combination of the two companies poses no competitive threat in the European Economic Area.
The decision yesterday — a day when LEDs Magazine suggested the approval might finally come — removes the remaining regulatory uncertainty to the deal that ams clinched via public stock purchases of Osram last December.
While ams continues to find ways to pay for a much larger company, it can now do so knowing that the EC’s Competition department (formally known as the Directorate-General, Competition) has decided that other players in the optical sensor and photonics market do not have to worry about unfair competition from the combined entity.
“The European Commission has approved unconditionally, under the EU Merger Regulation, the proposed acquisition of OSRAM by AMS,” the EC said in a press release. “The Commission concluded that the transaction would raise no competition concerns in the European Economic Area.” (Although ams spells its name with all small letters, the EC used all capital letters.)
As a quick Government 101 review, the EC is the executive branch of the European Union. The European Economic Area (EEA) consists of the EU’s 27 member countries plus Norway, Iceland, and Liechtenstein. The UK left the EU on Jan. 31 and is in a transition period as it and the EU try to reach an exit agreement.
In the countries where the EC has jurisdiction, “the Commission found that the transaction, as notified, would not significantly reduce head-to-head competition between the companies in the markets for optical semiconductors,” the press release stated.
As Munich-based Osram continues to define itself as more of a “high tech” and “high tech photonics” company and less of a general illumination outfit, it has been regularly releasing new optical LED and laser chips aimed at a wide array of applications such as facial recognition, car navigation, augmented and virtual reality, digital photography, and health monitoring, to name some.
Some of those areas would seem to overlap with Premstaetten-based ams, which is known as a key supplier of optical facial recognition chips to Apple for the iPhone.
The EC outlined a number of reasons why the ams‒Osram combination would not be anti-competitive. Among them, it noted:
- “The companies have low to moderate combined market shares for certain light sensors and laser diodes for which their offers overlap and in most of those cases their respective products are not close substitutes from a customer perspective.
- A number of competitors offer viable alternatives to the companies' products, and barriers to entry do not seem to prevent the emergence of new market entrants.
- The fast evolving products and market dynamics as well as sophisticated buyers do not allow the companies to exert significant market power.
- A majority of market participants consulted by the Commission appears to be either supportive of the transaction or not concerned by it.”
The EC’s approval yesterday, July 6, came in the spirt if not the letter of the “second quarter of 2020” timeframe that ams has anticipated, slipping by 6 days.
Ams said in its own press release that it expects to close the transaction by July 9 (Thursday).
“The EU regulatory approval constituted the last remaining condition precedent for closing the transaction which is now fulfilled,” the company said. “ams therefore expects the payment of the offer price to the holders of the tendered shares and the closing of the takeover offer on 9 July 2020.”
Meanwhile, it appears that ams and Osram will continue to be hamstrung in their efforts to integrate their operations, because ams did not acquire a large enough share of Osram to attain what Germany regulators call a “domination agreement.” Osram CEO Olaf Berlien noted earlier this year that without a domination agreement, the two companies are effectively limited in the information they can share as they discuss synergies.
Domination requires 75% ownership. At LEDs’ last count, ams had about 64%, a number that ams indicated in its press release will have crept up to 69% upon the expected July 9 closing — still short of 75%.
So ams was earlier this year planning a second course of action in which it would ask Osram shareholders to grant domination via an extraordinary voting session. LEDs has asked ams where that effort stands, but we have not received an answer.
The lack of domination has also deprived ams of access to Osram’s cash (dwindling as it is). That has prompted ams to seek other sources of funding including stocks and bonds to help pay back money it borrowed to acquire Osram in a €41 per share deal that valued Osram at €4.58 billion back in November.
The financial challenge is indicative of a company trying to acquire another that at the outset was nearly four times its size.
While Osram has shrunk and ams has grown since the acquisition efforts started, Osram is still substantially bigger, with 2019 revenue of €3.46B ($3.91B at today’s exchange rate) compared to $2.08B for ams (ams reports in US dollars).
The acquisition saga took another turn recently, when Reuters reported that the Austrian Financial Market Authority (FMA) is probing possible insider trading of ams shares.
But while the acquisition will continue to have its difficulties, ams has at last leapt over the regulatory hurdle of European competition overseers.
Exactly how ams will mix and match Osram’s photonics with its own offerings remains to be seen. The same could be said of Osram’s non-chip businesses which include horticultural lighting, automotive headlamps, and conventional mercury lamps which have come to the fore recently for their disinfection potential in the fight against the coronavirus. Osram’s IoT lighting program including Lightelligence appears to be under question.
MARK HALPER is a contributing editor for LEDs Magazine, and an energy, technology, and business journalist ([email protected]).
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