{"id":3061,"date":"2024-08-15T14:27:53","date_gmt":"2024-08-15T07:27:53","guid":{"rendered":"https:\/\/apluslaw.vn\/en\/?p=3061"},"modified":"2024-08-15T14:27:53","modified_gmt":"2024-08-15T07:27:53","slug":"mergers-and-acquisitions-in-vietnam","status":"publish","type":"post","link":"https:\/\/apluslaw.vn\/en\/research\/mergers-and-acquisitions-in-vietnam.html","title":{"rendered":"Mergers and Acquisitions in Vietnam"},"content":{"rendered":"

The Vietnamese government has simplified the mergers and acquisitions in Vietnam (M&A) process to attract investments in emerging economic sectors. For foreign investors who find it challenging to start a business in Vietnam, M&A provides a strategic alternative to overcome various hurdles.<\/span><\/p>\n

M&A allows investors to tap into existing consumer bases, strategic locations, and established distribution networks. This local insight is crucial for navigating Vietnam’s dynamic and rapidly evolving investment landscape.<\/span><\/p>\n

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What’s mean “mergers and acquisitions in vietnam”?<\/figcaption><\/figure>\n

The M&A in Vietnam approach is gaining traction, with deals totaling USD 9.9 billion in 2018, according to the Vietnam Association of Foreign Invested Enterprises. While this was a notable figure, it was slightly less than the M&A activity in 2017. However, an increase in M&A transactions, particularly in the retail sector, was anticipated in 2019.<\/span><\/p>\n

Notable transactions include VinCommerce, a subsidiary of Vingroup, acquiring the convenience store chain Shop&Go, and South Korea\u2019s GS25 acquiring Zakka Mart.<\/span><\/p>\n

Such deals are expected to contribute to a projected 14% growth in M&A value this year. The General Statistics Office (GSO) estimates that total M&A revenue could reach USD 484 billion by 2025, expanding beyond retail to include real estate, renewable energy, and technology sectors.<\/span><\/p>\n

To navigate the M&A landscape in Vietnam successfully, it’s essential to understand the legal framework and the specific procedures and limitations involved in these transactions.<\/span><\/p>\n

What are in Vietnam?<\/b><\/h2>\n

In Vietnam, mergers and acquisitions (M&A)<\/strong><\/em> are governed by various laws, including the Law on Enterprises and the Competition Law. These regulations establish a legal framework to ensure transparency and fairness in the market. The M&A process involves compliance with securities law, enterprise law, and competition law, among others as follow:<\/span><\/p>\n

The Law on Enterprise No. 68-2014-QH13<\/b><\/a>\u00a0<\/b><\/span><\/p>\n

Article 18 outlines the rights of individuals and companies to start a business, buy shares, and provide capital<\/strong><\/em>. However, there are some restrictions on who can participate, such as government officials, minors, and those <\/span>prosecuted for criminal acts.<\/span><\/p>\n

Article 195 covers the rules and limitations for mergers.<\/strong><\/em> If there’s a conflict with the Competition Law, the company’s legal representative must resolve it with the competition authority. After completing the merger, the new company must notify the national enterprise registration database.<\/span><\/p>\n

The Law on Investment No. 67-2014-QH13<\/b><\/a>\u00a0<\/b><\/span><\/p>\n

Article 25 defines the rights of foreign investors to contribute capital and purchase shares.<\/strong><\/em><\/span><\/p>\n

Article 26 details the process for contributing capital and buying shares<\/strong><\/em>. Investors must submit a registration application to the Service of Planning and Investment for approval.<\/span><\/p>\n

Law on Securities<\/b><\/a>\u00a0<\/b><\/span><\/p>\n

This law regulates the buying of shares in public companies<\/strong><\/em>, including public tender offers. The authorities responsible for enforcing this law are the State Securities Commission (SSC), Vietnam Securities Depository, and the Ministry of Planning and Investment (MPI).<\/span><\/p>\n

Law on Competition<\/b><\/a>\u00a0<\/b><\/span><\/p>\n

Vietnam’s new Competition Law, effective from July 2019, broadens the circumstances under which a merger needs approval.<\/strong><\/em> These include total assets, revenue, transaction value, or market share of the parties involved. It sets thresholds like having assets and revenue of at least $43 million. The law also requires a 30-day preliminary review to decide if the transaction can proceed or needs a full merger evaluation.<\/span><\/p>\n

Conditions for Business Mergers<\/b><\/h2>\n

Under Clause 1, Article 201 of <\/span>The Law on Enterprise No. 68-2014-QH13<\/b><\/a><\/span>, when businesses merge, one or more companies (referred to as the merging companies<\/strong><\/em>)\u00a0can join another company (referred to as the receiving company<\/strong><\/em>). This process involves transferring all assets, permissions, legal responsibilities, and benefits to the receiving company, while the merging company ceases to exist.<\/span><\/p>\n

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What conditions are required for a business to merge?<\/figcaption><\/figure>\n

If a merging company controls 30% to 50% of the market<\/strong><\/em>, its legal representative must inform the competition authorities before merging. Companies must adhere to Competition Law regulations during mergers, resulting in the dissolution of the merging company.<\/span><\/p>\n

According to Article 29 of <\/span>Law on Competition<\/b><\/a>, Mergers where the merging company has over 50% market<\/strong><\/em> share are prohibited, except in specific situations like potential dissolution, bankruptcy, boosting exports, aiding socio-economic growth, or advancing technology.<\/span><\/p>\n

An example of a notable merger is Grab’s acquisition of Uber’s market share<\/strong><\/em> in Vietnam. Despite both being foreign-owned, they dominated the local high-tech taxi market. Eventually, Uber retained some shares in Grab\u2019s parent company and exited Vietnam. This merger wasn’t fully opposed by authorities due to ambiguities in defining the technology taxi sector against traditional taxis. At the time, Grab and Uber together held over 50% of the tech taxi market. Given their overseas parent companies, Uber\u2019s exit was seen as within their rights, showcasing a new type of international business merger.<\/span><\/p>\n

Mergers and Acquisitions Implementation Process<\/b><\/h2>\n

The company merger process is outlined as follows:<\/span><\/p>\n

Step 1:<\/b> The companies involved prepare the merger contract and draft the charter of the receiving company.<\/span><\/p>\n

Before the merger, the involved companies must prepare a merger contract. This contract should include key details such as the names and addresses of the headquarters of both the receiving and merging companies, the procedures and conditions of the merger, the labor utilization plan, the methods, procedures, timeframe, and conditions for asset transfer, and the conversion of capital contributions, shares, and bonds from the merging company to the receiving company. It should also state the timeline for executing the merger.<\/span><\/p>\n

The merger application and business registration process for the receiving company must comply with Article 201 of <\/span>The Law on Enterprise No. 68-2014-QH13<\/b><\/a><\/span> and include copies of the following documents:<\/span><\/p>\n

\n

“1. The merger contract.<\/span><\/em><\/span><\/p>\n

2. Resolutions and minutes approving the merger contract from the receiving companies.<\/span><\/em><\/span><\/p>\n

3. Resolutions and minutes approving the merger contract from the merging companies (except when the receiving company owns over 65% of the merging company’s capital or shares with voting rights).<\/span><\/em><\/span><\/p>\n

4. Business registration certificates or equivalent documents of both the merging and receiving companies.”<\/span><\/em><\/span><\/p>\n<\/blockquote>\n

Step 2:<\/b> The members, owners, or shareholders of the companies approve the merger contract and the charter of the receiving company, and then proceed with the business registration of the receiving company. Within 15 days of approval, the merger contract must be communicated to all creditors and employees.<\/span><\/p>\n

Step 3:<\/b> After completing the business registration, the merging company will cease operations, and the receiving company will inherit all legal rights and interests, as well as assume responsibility for the unpaid debts, labor contracts, and other property obligations of the merging company.<\/span><\/p>\n

Step 4:<\/b> The merging company must terminate its tax code with the tax authority. Meanwhile, the receiving company retains its tax code and only needs to update its tax registration information if the merger affects its tax details.<\/span><\/p>\n

Types of company mergers<\/b><\/h2>\n

Horizontal Merger<\/b><\/h3>\n

A horizontal merger happens when two companies in the same industry combine.<\/span><\/p>\n

For instance:<\/strong><\/em>\u00a0if one grocery store chain buys another grocery store chain in the same city. This type of merger is commonly used to increase market share, strengthen market presence, and reduce competition. However, if the merged company controls more than 40% of the market, it must be reported and approved by regulatory authorities.<\/span><\/p>\n

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There are three forms of corporate mergers: vertical, horizontal, and combination of mergers and acquisitions.<\/figcaption><\/figure>\n

Vertical Merger<\/b><\/h3>\n

A vertical merger occurs when two companies in the same supply chain but at different production stages merge. This type of merger aims to control the production process and improve product quality. It can also help companies manage competitors’ output and lower production costs.<\/span><\/p>\n