29 July New Merger Rules in Thailand: Impact on Trade and Business
By Kiratika Poonsombudlert, Associate, Chandler MHM Limited
In today’s business climate, the most time-efficient way to kick-start your company’s growth is no doubt by way of Mergers and Acquisitions (M&A). Until recently, Thai law did not impose any hurdles to market consolidation in most sectors. However, due to new rules which have recently been enacted, M&A deals may not be as easy to complete as they once were.
In late 2018, a number of notifications originally drafted by the Office of Trade Competition Commission (“OTCC”) were announced in the Government Gazette and became effective (the “Notifications”). Among these Notifications, three concern merger control under the Trade Competition Act B.E. 2559 (2017) (the “Act”), rendering the merger provisions under the Act immediately effective and enforceable by the OTCC. Most importantly, the Notifications have provided clarification in the areas outlined below.
What is a “Merger” under the Act?
Under the Act, the transactions that qualify as “mergers” are not clearly defined. However, the Notifications have clarified that there are three situations under which a transaction would be subject to the merger provisions. The “merger” situations referenced in the Notifications are:
1. Two competitors amalgamating to become a new entity;
2. One competitor acquiring more than half of the relevant assets of another competitor, in a particular market; and
3. One competitor acquiring and becoming the holder of at least 25% of all outstanding shares in a public company, or more than 50% of the shares in a private company.
Concerted actions of affiliated companies will be viewed together as having come from the same entity.
If and When filing is required
The Act divides the filing obligations into two categories, depending on the outcome of the merger. These are:
1. Pre-merger filing and approval: for mergers that may result in the creation of a business monopoly or a dominant player;
2. Post-merger notification: for mergers that would substantially lessen the competition in a market, meaning a merger where any business operator that is a party to the transaction, whether before or after such merger, has a sales turnover of at least THB 1,000 million in a particular market, but does not result in the creation of a business monopoly or a dominant player. The resultant entity is required to notify the OTCC within seven days after the completion of their merger.
Thus, when contemplating an M&A deal, if the transaction would be classified as a “merger”, it is up to the parties to analyze whether the merger control regime of the Act would apply. Specifically, the parties must determine whether they are required to apply for the pre-transactional approval or simply to notify the OTCC of their transaction after completion.
Mergers for purpose of reorganization between affiliates are exempted from any filing obligation. The Act recognizes the concept of a “Single Economic Entity” and grants this type of merger a waiver for the filing obligation. Mergers that are exempted from this obligation are those between business entities that have a “relationship in policy” or “directive power”. The two terms under the Notifications can be summarized as:
Relationship Policy means a relationship between two business operators or more that have their own sets of guidelines, policies, or procedures on business administration, direction, or business management under the control of the same business operator with directive powers;
Directive Power means the power to control, whether directly or indirectly, among others, the majority of votes in a shareholders meeting of the other entity, the appointment or removal of at least half of all directors in the other entity, etc.
How to file?
The Notifications provides instructions on how to submit the supporting documentation to the OTCC, and what corporate and contractual documents must be submitted along with their application. The Notifications also include a specific form for this purpose, which details the requirements for the provision of certain basic information, such as a list of concerned businesses, the timing of the merger, the value of the businesses, etc.
As the merger control provisions under the Act are currently enforceable, all prospective businesses which intend to combine and/or synergize forces should carefully review these regulations before undertaking a prospective M&A deal.
Questions which need to be asked before undertaking your deal include:
• What is your business’s market share?
• What is the target’s market share?
• Does the contemplated transaction have the potential to reduce competition in any particular market?
The consequences of not following these new rules include severe penalties and potential prison sentences for wrongdoers. Thoroughly understanding Thailand’s merger control regime will help ensure the legality of your investments rests on solid legal ground.