In Vietnam, a Mergers & Acquisitions deal can be governed by various legal documents, in which competition law is considered to have a great influence on this activity.
1. Mergers & Acquisitions transaction (‘M&A’)
According to the Competition Law 2018, M&A is an economic concentration act, that includes merger, acquisition, and consolidation of enterprises.
- Enterprise merger means an act whereby one or several companies transfer all of /their property, rights, obligations, and legitimate interests to other companies, and at the same time terminate the existence of the merged companies.
- Enterprise acquisition means an act whereby a company acquires the whole or part of property or shares of another company sufficient to control or dominate all or one of the trades of the acquired company.
- Enterprise consolidation means an act whereby two or more companies transfer all of their property, rights, obligations and legitimate interests to form a new company and, at the same time, terminate their existence.
The main purpose of M&A deals is to maximize business value based on penetration in small independent markets to create a network while expanding market shares and taking the potential and existing advantages of the target company for development momentum. Therefore, an M&A deal will cause risks that affect competitiveness in the economic sector, especially market takeover, creating a monopoly position to benefit and breaking operation principles of the economic market based on supply and demand and competition.
2. Restrictions on M&A
As a tool to protect the sustainable development of the economic market and the freedom of business, the Competition Laws have placed certain restrictions on M&A activities based on the basics of:
- The combined market share of the enterprises involved in the transaction;
- Whether the relationship between enterprises after economic concentration is capable of creating a superior competitive advantage over other competitors in order to prevent or eliminate competition from entering the market;
- Competitive advantage brought about by economic concentration in the relevant market leads to the risk of creating or strengthening significant market power of enterprises formed after economic concentration;
- The possibility of businesses increasing prices or increasing profit margins over revenue after economic concentration;
- The possibility of enterprises after economic concentration eliminating or preventing other enterprises from entering and expanding the market;
- Specific factors in the industry or field that directly affect or significantly change the results of assessment of anticompetitive effects and the ability of participating enterprises to cause anti-competitive effects of economic concentration.
3. Allowable combined market share of enterprises
Competition Laws impose an allowable combined market share of enterprises conducting economic concentration of less than 20% in the relevant market. However, if this ratio is higher, the sum of squared market shares of enterprises after economic concentration in the relevant market is lower than 1,800 and the amplitude of increase in the sum of squares of market shares of enterprises in the market is lower than 100 still be implemented.
4. Responsibility to notify economic concentration
The responsibility to notify economic concentration is required if the economic indicators of related parties participating in the economic concentration in the fiscal year immediately preceding the implementation of the economic concentration fall into one of the following cases:
- The total assets in the Vietnamese market of a company or group of affiliated companies of which it is a member reach VND 3,000 billion or more;
- Total sales or purchases in the Vietnamese market of a company or group of affiliated companies of which it is a member reaches VND 3,000 billion or more;
- The transaction value of the economic concentration is from VND 1,000 billion or more;
The notification must be sent in writing to the National Competition Commission before proceeding. They are only allowed to carry out the deal after receiving the written responses of the said authority about economic concentration not in the banned cases. Currently, the prohibition on transactions with a combined market share of 50% or more has been abolished, instead, economic concentration transactions are prohibited if involved companies have an impact or have the potential to significantly limit competition in the Vietnamese market.
5. Note
It should be noted that the economic indicators mentioned above are applied to M&A transactions of organizations and companies doing business in normal industries. For M&A transactions in the field of credit, insurance companies and securities companies, competition Laws have some differences for carrying out.
Thus, in addition to investment laws and enterprise laws, most M&A transactions in Vietnam are governed by competition laws, especially transaction appraisal. This is to create a healthy competitive environment, prevent abuse of the monopoly position to dominate the market and affect the regulation of the economy. These regulations also create conditions for the development of small and medium-sized enterprises and are also a way to protect consumers.
