In August 2018, Thales applied to the Commission for clearance to acquire Gemalto as part of a global transaction that required approval from competition authorities in a number of jurisdictions.

In making its decision, the Commission primarily focused on the products that both parties supply in New Zealand – the supply of payment HSMs and general purpose HSMs. HSMs are dedicated hardware appliances running on encryption software to generate, protect and manage encryption keys used to protect data in a secure tamper-resistant module.

“We believe the combination of the two largest suppliers of general purpose HSMs in New Zealand would be likely to result in a substantial lessening of competition, with customers having limited alternatives to the merged entity when selecting a new general purpose HSM," Commission Deputy Chair Sue Begg said.

“However, we consider the divestment offered by Thales is sufficient to remedy the competitive harm the acquisition would cause in New Zealand and have granted clearance subject to this undertaking.”

To comply with the undertaking, Thales will divest its general purpose HSM business to a purchaser with experience and reputation in this industry. Any purchaser will need to be approved by the Commission.

The Commission is satisfied there are no competition concerns in the market for the supply of payment HSMs in New Zealand due to a range of factors, including the low level of overlap in New Zealand and the presence of competitive constraints from other suppliers.

A public version of the written reasons for the decision will be available on the case register in the near future.

Background

Thales is based in France and supplies electronic and communication equipment for a number of different industries including a range of data encryption hardware and software products. Gemalto is based in the Netherlands and supplies a range of specialised data encryption hardware and software. At present, Thales and Gemalto are two of the most prominent global suppliers of HSMs.

As part of its investigation, the Commission cooperated with a number of other competition agencies including the European Commission. The European Commission recently approved the acquisition and this approval was also conditional on the divestment of Thales’ general purpose HSM business.

Merger clearance process

When considering a proposed merger, the Commission must determine whether any competition that would be lost with the merger would be substantial. Where a merger is likely to substantially lessen competition in a market, the acquiring company may undertake to divest certain assets.

If we consider the proposed divestment undertaking will remedy the likely substantial lessening of competition, we will clear the merger. For a divestment undertaking to remedy competition concerns, we must be satisfied that the divestment will result in sufficient additional competitive constraint on the merged firm so that a substantial lessening of competition is no longer likely. A fact sheet explaining how the Commission assesses a merger application is available on our website.