U.S. Will Sue to Block Japanese High-Tech Deal : Antitrust: President Bush allowed the takeover of Semi-Gas Systems of San Jose by Nippon Sanso, but the Justice Department argues that it would reduce competition.
The Justice Department said Friday that it will sue to block the purchase of a major American semiconductor supply firm by a Japanese company, despite President Bush’s previous decision to allow the acquisition on grounds that it did not threaten national security.
Assistant Atty. Gen. James F. Rill said the planned takeover of Semi-Gas Systems of San Jose by Nippon Sanso K.K. of Tokyo would eliminate “substantial direct competition” between the two firms and “would harm consumers nationwide.”
The acquisition would combine the world’s two leading producers of gas delivery systems and substantially increase Semi-Gas Systems’ dominant position in the U.S. market, according to the Justice Department’s antitrust division. Gas delivery systems play a critical role in the computer chip manufacturing process.
Last July, Bush decided not to block Nippon Sanso’s purchase of Semi-Gas from Hercules Inc., a Wilmington, Del., chemical concern. That came after the interagency Committee on Foreign Investment in the United States found no national security problems with the combination.
Bush gave his approval despite objections from several Democratic lawmakers and from Sematech, the government-supported microchip technology consortium. Sematech contended that the acquisition would hand over an important high-tech venture to a Japanese competitor.
Assistant Atty. Gen. Rill, in an interview, said his decision to file a civil antitrust suit was based on a “thorough, independent analysis of this acquisition under the (Justice Department’s) merger guidelines.”
Proponents of the acquisition, however, characterized the challenge as “political” and not based on economic fundamentals.
Asked if the suit signaled a possible wave of challenges to Japanese acquisitions of U.S. companies, Rill said additional legal actions are “certainly possible.” But he emphasized that antitrust enforcers would be examining acquisitions on a case-by-case basis to assess their effect on consumers.
Rill said the Semi-Gas acquisition would violate Section 7 of the Clayton Act “because it may substantially lessen competition in the production and sale of gas cabinets in the United States.” He noted that Nippon Sanso recently obtained 100% control of Matheson Gas Products, another firm in the field.
“This lack of market competition between two worldwide and domestic rivals would harm consumers nationwide,” Rill said, indicating that the suit would be filed next week. Sales of gas cabinets in the United States last year exceeded $37 million.
William Blumenthal, a Washington lawyer for Nippon Sanso, said it would be “premature” to comment on the threatened suit “until we have a fuller understanding of what the (antitrust) division’s position is.”
Hercules spokesman Robert Hessler said the firm believed that the Justice Department allegations “have no merit or basis.”
Under terms announced in April, Nippon Sanso was to pay $23 million for Semi-Gas, which was purchased by Hercules for between $5 million and $10 million in 1988. Hercules turned down a $15-million buyout offer from Semi-Gas’ management to accept the Japanese bid.
Mark Nelson, director of government relations for Sematech, said the government-industry consortium was “very pleased” with the antitrust announcement. Sematech’s late president, Robert N. Noyce, wrote Rill last May raising antitrust concerns about the deal.
“Our goal was to keep an American technological jewel away from a foreign competitor,” Nelson said.
Bush’s advisers rejected Sematech’s claim that confidential Sematech information would be transferred to Japanese competitors, citing a Nippon Sanso pledge to protect the confidentiality of Sematech operations. Sematech said it would have to find a new gas cabinet supplier if the deal went through.
In a separate action, Rill said the department also intends to challenge the proposed acquisition of VeloBind Inc. of Fremont, Calif., by General Binding Corp., the nation’s largest maker of high-volume mechanized binding machines.
VeloBind is the sole maker of plastic-strip binding machines and supplies in the country and is second to General Binding in its output of high-volume mechanized binding equipment, according to the Justice Department.
Last year, domestic retail sales of these high-volume binding devices totaled about $30 million, and the two firms accounted for at least 80% of that volume, the department said.
In announcing his intention to file a civil antitrust suit, Rill said the acquisition would run afoul of the Clayton Act’s prohibition against combinations that may substantially lessen competition.
An aide to Grant Rollin, VeloBind’s chief executive, declined to comment.
