Contract analysis

I. Executive Summary On October 6, 2023, the European Commission (the "Commission") formally opened a Phase II in-depth investigation into the proposed acquisition of Vectris Photonics, Inc. ("Vectris") by Halcyon Semiconductor Aktiengesellschaft ("Halcyon") under Council Regulation (EC) No 139/2004, the EU Merger Regulation ("EUMR"). The proceeding has been designated as Case M.11247 — Halcyon Semiconductor / Vectri

II. Background and Procedural History A. The Transaction On August 10, 2023, Halcyon Semiconductor Aktiengesellschaft, a German stock corporation organized under the laws of the Federal Republic of Germany and listed on both the Frankfurt Stock Exchange (FSE: HSAG) and the Nasdaq Global Select Market (Nasdaq: HCYN), entered into a definitive Agreement and Plan of Merger (the "Merger Agreement") with Vectris Photonics

III. Analysis of the Commission's Phase II Opening Decision The Commission's Phase II opening decision identifies several areas of competitive concern that warrant close analysis. We address each in turn, together with our preliminary assessment of the strength of the Commission's position and the arguments available to Halcyon. A. Relevant Product Market The Commission's preliminary view, as articulated in the Phase

1. Unilateral Effects (Horizontal Overlap) The Commission's primary concern is that the merger would eliminate close and significant competition between Halcyon and Vectris in the supply of CPO chiplets within the EEA, thereby enabling the combined entity to profitably raise prices, reduce output, or diminish the quality or pace of innovation in the affected market. This is a standard unilateral effects theory based

2. Customer Foreclosure Risk The Commission has also raised a vertical/conglomerate concern related to customer foreclosure. Specifically, the Commission is investigating whether the combined entity could leverage Halcyon's fabrication capacity and established relationships with European OEMs, together with Vectris's leading-edge design portfolio and intellectual property, to foreclose rival CPO chiplet suppliers fro

3. Innovation Concerns Finally, the Commission has flagged concerns about the potential impact of the merger on innovation in next-generation photonics technologies. Vectris's significant patent portfolio—187 issued U.S. patents and 43 pending applications—represents a substantial share of the intellectual property landscape in silicon photonics and CPO design. The Commission may investigate whether the merger would

IV. Expected Phase II Timeline A. Statutory Deadlines Under Article 10(3) of the EUMR, the Commission must take a final decision in a Phase II investigation within 90 working days of the date of the opening decision. The opening decision in this case was adopted on October 6, 2023. Counting 90 working days from that date—excluding weekends and Commission holidays—the statutory deadline for a final decision falls on a

1. Information Requests (RFIs). The Commission's case team will issue formal information requests under Article 11 of the EUMR within the first two to three weeks following the opening decision. We anticipate that the first set of RFIs will be issued by approximately October 23–27, 2023. These requests are expected to be extensive and will cover internal strategic documents, economic data, customer and competitor con

2. Third-Party Market Investigation. The Commission will conduct a comprehensive market investigation by sending detailed questionnaires to customers, competitors, and other industry participants. This process typically begins within one to two weeks of the Phase II opening and may continue for four to six weeks. The responses received during this investigation will form a critical part of the Commission's evidentiar

3. Statement of Objections (SO). If the Commission's investigation leads it to conclude that the merger would significantly impede effective competition in the EEA—and absent sufficient commitments to address the identified concerns—the Commission will issue a formal Statement of Objections under Article 18 of the EUMR. The SO is a detailed document setting out the Commission's case, including the factual findings, e

4. Oral Hearing. Following the submission of a written response to the SO, the parties may request an oral hearing before the Commission. The hearing is conducted by the Hearing Officer, an independent official within the Commission, and is attended by representatives of DG COMP, the Commissioner's cabinet, and representatives of Member State competition authorities. The oral hearing typically takes place two to four

5. Advisory Committee Consultation and Final Decision. Before adopting a final decision, the Commission must consult the Advisory Committee on Concentrations, which is composed of representatives of the competition authorities of the EU Member States. This consultation typically occurs in the final weeks before the statutory deadline. The Commission's final decision may take one of several forms: (i) unconditional cl

V. Anticipated Information Requests A. Scope of Expected RFIs Based on our experience with Phase II investigations of comparable scope and the specific concerns identified in the Commission's opening decision, we anticipate that the Commission will issue a series of detailed information requests covering the following categories of documents and data: Market Data. The Commission will seek detailed data on Halcyon's E

VI. Potential Remedies If the Commission's Phase II investigation confirms its preliminary competitive concerns, the Commission will expect the parties to offer commitments (remedies) to address those concerns as a condition for clearance. The failure to offer adequate remedies would result in a prohibition decision. Below, we analyze the range of remedies that the Commission may consider. A. Structural Remedies (Div

VII. Interaction with Parallel DOJ Proceeding A. Coordination and Consistency Challenges The DOJ and the European Commission routinely coordinate their review of parallel merger investigations involving transactions with multi-jurisdictional effects. This coordination occurs under the framework of bilateral cooperation agreements between the United States and the European Union, including the 1991 U.S.-EU Competition

VIII. Recommended Strategy Based on the foregoing analysis, we recommend the following three-phase strategy for navigating the Commission's Phase II investigation and its interaction with the parallel DOJ proceeding. A. Immediate Actions (Next 2–4 Weeks)

1. Prepare for RFIs. Halcyon should immediately assemble an internal response team, coordinated by Dr. Luisa Hartmann (General Counsel), to gather EEA-specific sales data, internal strategic documents, and competitive analyses that will be responsive to the Commission's anticipated information requests. This effort should leverage the document collection work already underway for the DOJ Second Request to the maximum

2. Engage with the Commission Case Team. We recommend requesting a "state-of-play" meeting with the Commission's case team at the earliest available date, ideally within the next two weeks. The purpose of this meeting would be to: (i) understand the Commission's specific concerns in greater detail; (ii) identify the scope and timing of anticipated information requests; (iii) signal Halcyon's willingness to engage con

3. Coordinate with Vectris Counsel. Calderwood & Harkness should promptly liaise with Whitfield, Prager & Loomis LLP—specifically Douglas Prager, the antitrust partner leading Vectris's regulatory workstream—regarding Vectris's response obligations under the Phase II investigation and the need to ensure consistency between Halcyon's and Vectris's submissions to the Commission. A coordination protocol should be establ

4. Commission Confidentiality Waivers. Calderwood & Harkness will prepare and circulate draft confidentiality waivers authorizing the Commission to share information with the DOJ (and vice versa) in connection with their respective merger investigations. As noted above, the waivers should authorize the sharing of factual information and economic data but should contain appropriate carve-outs to protect privileged leg

5. Economic Expert Engagement. If not already engaged, Halcyon should retain a leading economic consultancy with experience before the European Commission to prepare quantitative analyses of competitive effects in the EEA, including diversion ratio analysis, GUPPI calculations, merger simulation modeling, and entry/expansion analysis. We recommend retaining Ridgeline Management Consulting or Ridgeline Advisors for th

1. Remedy Design. Halcyon's management team, in consultation with Calderwood & Harkness and our economic experts, should develop a comprehensive remedy proposal that could credibly address competitive concerns in both the EEA and the United States. The principal options to be evaluated include: (i) a global divestiture of Halcyon's existing photonics product line (spanning both EEA and U.S. operations); (ii) an EEA-s

2. Customer Outreach. Halcyon's commercial team should be coordinated to ensure that key European cloud operator customers are prepared to respond to Commission questionnaires in a manner that is factually accurate and, where appropriate, supportive of the transaction. This outreach should not involve any improper coaching of customer responses—which would be a serious violation of EU merger control rules and could e

3. Third-Party Advocacy. We should identify industry participants, trade associations, and academic experts who may be willing to submit supportive views to the Commission, either in response to Commission questionnaires or through unsolicited submissions. Potential advocates might include downstream customers who stand to benefit from the mer