US FTC weighs in on Synopsys + Ansys, enters public comment period

Late yesterday, the US Federal Trade Commission said that it would approve Synopsys’s acquisition of Ansys if the companies divest specific assets that the FTC believes could otherwise lead to “higher costs for the countless everyday products that use computer chips, LED screens, fiber optic cables, and many other high-tech components … The FTC’s divestiture order ensures that competition can thrive across software markets that are critical to designing the digital products that power Americans’ daily lives.”

The FTC’s complaint says that the companies make up a duopoly (meaning, two companies that dominate a market) in optical software tools, a joint 60% share in photonics software, and a combined 70% share in RTL power consumption analysis tools. (You can read the FTC’s complaint here.)

To remedy this and allow the acquisition to go ahead, per yesterday’s press release:

Under a proposed consent order, Synopsys will divest its optical software tools, which enable engineers to design and simulate optical devices that generate, reflect, or refract light, such as LED screens, mirrors, and lenses. Synopsys will also divest its photonic software tools, which assist in the design and simulation of devices that use photons as a signal to transmit information, which include fiber optic cables and solar panels.

In addition, Ansys will divest a power consumption analysis tool, called PowerArtist, which is used to measure and optimize the power consumption of digital chips at an early stage of the design stage, known as Register Transfer Level (RTL) design.

Both Synopsys and Ansys will divest their assets to Keysight Technologies, Inc.

Synopsys and Ansys clearly anticipated these specific objections, so back in September, Synopsys agreed to sell its optical solutions group, and in January, Ansys announced that it was selling PowerArtist to Keysight.

Yesterday’s FTC consent added these other conditions:

• Synopsys and Ansys complete the divestitures no later than 10 days after Synopsys closes its acquisition of Ansys.
• Synopsys and Ansys provide a limited amount of transition services and technological support so that Keysight can compete immediately with the merged company.
• The Commission appoint a monitor to oversee the implementation of the requirements of the consent order and a divestiture trustee in the event Synopsys and Ansys fail to complete the divestitures as required.

The public still has 30 days to comment on this, so it’s not a completely done deal. Go here if you want to comment.

One last thing. The FTC’s announcement was linked to a statement from the FTC chairman. He wrote

Because most of the Commission’s merger-enforcement actions involve horizontal mergers—mergers between direct competitors at the same place in the supply chain—the classic example of a remedy is a divestiture of each competing line of business of the merging parties, such that the consummated merger will not involve the combination of directly competing products or services. We generally call this sort of remedy a “structural remedy,” because it affects the structure of the market in which the merged firm operates … [FTC] Staff conducted a thorough investigation and identified substantial anticompetitive effects likely to flow from the proposed transaction across three relevant markets. Had the Commission proceeded to litigation, I am confident the Commission would have prevailed in demonstrating that the merger as originally filed would have violated Section 7 of the Clayton Act. But the parties proposed divestitures in the three relevant markets, and the divestitures satisfy the conditions of a successful structural remedy. They involve the sale of standalone or discrete business units, or as close to it as possible, with all tangible and intangible assets necessary for a buyer to succeed in the market after the divestiture. And the divestiture buyer [Keysight] has a long track record of acquiring assets in related markets and making them successful, as well as the financial resources to compete effectively after the divestiture.

There’s a lot more in the Chairman’s statement –and it has WAY too many footnotes– but it’s interesting and worth a read.

So, what does it all mean? We’re one step closer to this deal (finally finally) closing, but we’re not there yet.