The European Chips Act – a political industry plan paralleling merger reviews

The European Commission has announced its answer to the global chip crisis: A number of measures put together in what is called the European Chips Act. We take a brief look at the Commission’s plans and how they might influence ongoing and future deal reviews in the industry.

Only recently, Tobias had a look at three of Europe’s most political transactions which are currently undergoing regulatory review (here). Two of them were chips-related, not really surprising in a time where a global chip shortage hits the European industry.

The chip crisis also seems to concern the European Commission in parallel to merger reviews, even so much that it announced its own plans to expand chips production in the EU. Ursula von der Leyen and the EU’s internal market commissioner, Thierry Breton, have laid down the three key elements of the – yet to be formally presented – European Chips Act:

• Firstly, a European semiconductor research strategy meant to ensure that the existing research in Europe will continue and even be expanded.
• Secondly, enhancing the European production capacity by anticipating possible future disruptions of supply chains and securing its resilience as well as supporting the development of European fabrication plants to produce high volumes of technical advanced and energy-efficient semiconductors.
• Thirdly, while the European Commission recognizes that industry demand will not be met with production in Europe only, supply chains should be diversified and overdependence on a certain region or country should be avoided.

Many countries have announced similar initiatives in order to secure the supply of semiconductors for their home industry. The US are currently discussing what is called the CHIPS for America Act (CHIPS stands for “Creating Helpful Incentives to Produce Semiconductors”), which would lead to a large public investment in the US semiconductor industry. China reportedly also tries to accelerate the growth of its chip industry through large investments and incentives like tax breaks, as do several other countries. So, it seems that global competition will be replaced by geopolitical interests, driven by politicians who have formed the view that supply-security of some products is key for national (industry) interests. It will be interesting to see how governments try to establish local research and production capabilities by means of regulatory intervention in an entire industry.

As of today, it is not yet clear what the measures by the European Commission will look like and how they will be implemented in law. However, from an antitrust and foreign investment control perspective, two points are worth mentioning:

• The European Commission claims it welcomes collaborations within the semiconductor industry. It will be interesting to see whether and to which extent it will enable future collaboration agreements or even mergers in this very industry, in particular when companies from outside Europe are involved. Is the Commission’s first step to form “European champions”? Loosening merger control rules to allow for the formations of such champions has been demanded by some European politicians and industry leaders for quite some time, most recently by the CEO of Deutsche Bank in German newspaper “Die Welt” (here).

• Mr. Breton also stated that “while the EU aims to remain the top global destination of foreign investment and we welcome foreign investment to help increase our production capacity especially in high-end technology, through the European Chips Act we will also put the right conditions in place to preserve Europe’s security of supply.” This might very much sound like foreign investments into European companies within the semiconductor sector could remain a challenge in the years to come.

When founding a new law firm you expect many obstacles, but certainly not that certain electronic products have long delivery times or are not available even for months, forcing you to type your blog posts on a typewriter. The European Commission has found its own initial response to the crisis, at a time where two chip-related deals are under close scrutiny in Europe. A global supply shortage, high-profile deals in the very same industry and then a political plan to strengthen that industry at home will very rarely occur at the same time – and it remains to be seen if and how the political plan might influence the deal reviews for Nvidia/Arm and GlobalWafer/Siltronic. The parties might argue that the industry might change anyway with political intervention, others might take the view that European chip assets should not be sold at a time when Europe wants to keep capabilities close to home.