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Thursday, February 28, 2019

Justice Department Requires Divestiture of Thales’ General Purpose Hardware Security Module Business in Connection With its Acquisition of Gemalto

The Department of Justice announced that it is requiring Thales S.A. to divest its General Purpose Hardware Security Module (GP HSM) business in order for Thales to proceed with its proposed $5.64 billion acquisition of Gemalto N.V.  GP HSMs are secure encryption processing and key management devices that are most frequently included as components of complex encryption solutions used by government and private organizations to safeguard their most sensitive data.  The proposed divestiture will fully resolve all competition concerns.   

“This structural solution fully preserves competition in the sale of these critical machines used by corporations and governmental agencies to protect their most sensitive data,” said Assistant Attorney General Makan Delrahim of the Department of Justice’s Antitrust Division.  “As a result, American consumers and taxpayers will continue to benefit from competition in this industry.” 

The Department’s Antitrust Division today filed a civil antitrust lawsuit in the U.S. District Court for the District of Columbia to block the proposed transaction while simultaneously filing a proposed settlement that, if approved by the court, would resolve the Department’s competitive concerns.

According to the complaint, Thales and Gemalto are the world’s leading providers of GP HSMs and are significant direct competitors in the United States. Together they account for 66 percent of the U.S. market for the sale of GP HSMs.  Thales and Gemalto are each other’s closest competitors and compete head to head in the development, marketing, service and sale of GP HSMs.  Without the divestiture, the proposed acquisition would likely result in higher prices, lower quality, reduced innovation, and fewer choices for GP HSMs. 

The proposed settlement requires Thales to divest, as a viable ongoing business, Thales GP HSM Products business.  This includes all tangible and intangible assets primarily related to the production, operation, research, development, sale, or support of any GP HSM Product. Additionally, because Thales and Gemalto currently compete to develop new products and services, the settlement requires the divestiture of certain intellectual property and research capabilities for products under development.  The settlement also includes several provisions designed to improve the effectiveness of the decree and the Division’s future ability to enforce it.

The Antitrust Division cooperated closely with its enforcement partners around the world, including the European Commission, throughout the course of their respective investigations.

Thales is an international company incorporated in France with its principal office in Paris.  Thales is active globally in five main industries: (1) aeronautics; (2) space; (3) ground transportation; (4) defense; and (5) security, including data security products.  In 2017, it had global revenue of approximately $19.6 billion.

Gemalto is an international digital security company incorporated in the Netherlands with its principal office in Amsterdam.  Gemalto is active globally in providing authentication and data protection technology, platforms, and services in five main areas: (1) banking and payment; (2) enterprise and cybersecurity; (3) government; (4) mobile; and (5) machine-to-machine Internet of Things.  In 2017, Gemalto had global revenue of approximately $3.7 billion.

As required by the Tunney Act, the proposed settlement, along with the Department’s competitive impact statement, will be published in the Federal Register.  Any person may submit written comments concerning the proposed settlement within 60 days of its publication to Aaron D. Hoag, Chief, Technology & Financial Services Section, Antitrust Division, U.S. Department of Justice, 450 Fifth Street, N.W., Suite 7100, Washington, D.C. 20530.  At the conclusion of the 60-day comment period, the court may enter the final judgment upon a finding that it serves the public interest.

Updated February 28, 2019