FTC sends message with Synopsys, Ansys divestiture order
To prevent the creation of a monopoly in software tools used to design semiconductors, the FTC wants the two companies to divest assets before merging.
The Federal Trade Commission isn't letting up on merger scrutiny. The agency ordered Synopsys Inc. and Ansys Inc. to sell parts of their businesses before moving ahead with a $35 billion merger that otherwise would have created an anticompetitive market for software tools to design semiconductors used in consumer electronics, AI chips and high-performance computing.
Synopsys provides electronic design automation software for semiconductors, while Ansys offers simulation and analysis software for testing semiconductors. The FTC determined that Synopsys' acquisition of Ansys was anticompetitive in three markets in which the two companies competed against each other: optical software tools, photonic software tools and register-transfer level (RTL) power consumption analysis tools for integrated circuit design.
"The optical software tools, the two of them were roughly 100% of the market," said Olivier Blanchard, research director at The Futurum Group. "Merging both companies would have created an actual monopoly. For the photonic software and RTL, it was in the neighborhood of 60% to 70%. A lot of market power when you bring the two of them together."
Synopsys has been ordered to divest its optical and photonic software tools. Ansys will be required to divest PowerArtist, its power consumption analysis tool. The divested assets will go to Keysight Technologies Inc., which will compete with the new company created after the Synopsys and Ansys merger is complete. Keysight offers electronic design automation software tools.
This was the FTC asserting itself and firing a warning shot across the bow of all of the other big companies looking for big mergers and saying, 'We're still here, we're still going to do this.'
Olivier BlanchardResearch director, The Futurum Group
The FTC's divestiture order for Synopsys and Ansys sends a message to other big companies considering significant mergers and acquisitions during a time when the agency's approach hasn't been definitively set, Blanchard said. Federal agencies have undergone shake-ups in authority and funding cuts under President Donald Trump while also navigating a message of deregulation from the administration.
The Synopsys and Ansys divestiture order signals the FTC's posture on potentially anticompetitive deals, Blanchard said.
"This was the FTC asserting itself and firing a warning shot across the bow of all of the other big companies looking for big mergers and saying, 'We're still here, we're still going to do this,'" he said. "'If your acquisition, your merger, presents too much of a threat to competition, we will intervene.'"
What the divestiture order means
Without being ordered to sell parts of their businesses, Synopsys and Ansys could have controlled price inputs and stifled competition as a combined market power, Blanchard said.
"They could have made it really difficult for their competitors to grow," he said. "There were valid concerns by the FTC about the anticompetitive and semi-monopolistic impacts."
Indeed, in an M&A deal, companies can be ordered to divest assets when they compete in a market where their concentration is too high, said George Hay, a law professor at Cornell Law School. Divesting assets is a move to restore competition.
"That's the price they're paying in order to be able to complete the rest of the transaction," Hay said.
Beyond the merger's effect on competition, the FTC alleged in the order released on May 28 that the combined companies could have raised consumer prices. The agency said the software tools sold by Synopsys and Ansys are critical for designing the semiconductors used in computer chips and a wide range of consumer products, such as smartphones, cameras, cars and televisions.
Blanchard said he doesn't expect a significant shift in the software tools market because of the FTC's order. The new company formed by Synopsys and Ansys will focus on electronic design automation and simulation while saving costs previously spent competing against each other.
"For investors looking at this, the benefits should outweigh the costs," he said. "In some way, maybe divesting from these businesses allows them to focus on things they really want to focus on, and it doesn't take their attention and resources away from the important stuff."
Jim Handy, an analyst at Objective Analysis, agreed that the market impact will be minimal. Handy said he also doesn't expect Synopsys and Ansys customers to experience significant changes during the merger process.
Keysight will inherit the divested assets and serve as a new competitor in the market against Synopsys and Ansys.
"What this says is the whole rationale for the merger still exists," Handy said. "They believe they can become a more efficient operation and do better for themselves with what they've got left after they sell these particular divisions over to Keysight Technologies. And Keysight thinks they can do well by it too. It's a real win-win."
Makenzie Holland is a senior news writer covering big tech and federal regulation. Prior to joining Informa TechTarget, she was a general assignment reporter for the Wilmington StarNews and a crime and education reporter at the Wabash Plain Dealer.
