Contributed By Weerawong, Chinnavat & Partners Ltd.
In line with the overall growth of the economy in Thailand in recent years, the M&A market has also been active, especially with respect to renewable energy, consumer goods and technology innovations. This is due to the Thai government policy that supports these sectors through investment and tax incentives. A number of private equity buyers have shown interest in investment in pre-IPO companies, specifically technology start-ups. Transactions that attract strategic investors tend to be more complicated in terms of structure, tax and commercial conditions.
Following the issuance of the long-awaited merger control regulations on 28 December 2018, which came into effect from 29 December 2018, the merger control requirements must now be taken seriously in Thailand.
For example, Global Power Synergy Public Company Limited acquired a majority stake in Glow Energy Public Company Limited from Engie Global Developments BV, which was the largest acquisition in Thailand’s energy sector of 2018. As the deal closed in early 2019, it was one of the first deals governed under the new merger control regulations.
There has been an increase in inbound and outbound investments as major Thai and international companies expand through cross-border, high-value deals:
Renewable energy and technology innovations and start-ups are the industries that are expected to experience significant M&A activity in 2019.
A share acquisition is the primary means of acquiring a company. It is less complicated and has fewer legal implications than asset sales.
The primary regulator in the acquisition of shares of public companies listed on the Stock Exchange of Thailand (SET) is the Securities and Exchange Commission (SEC). The filing and disclosure obligations for such share acquisitions are outlined in the governing laws and regulations.
With respect to merger control, generally, the Trade Competition Commission (TCC) has the authority to oversee and regulate M&A activities in the generic industries that are not governed by specific laws in Thailand. The duties and obligations for filing or requesting an approval of a merger are provided in the governing laws and regulations that were updated in 2018.
In addition, M&A activity in certain industry sectors is regulated by specific regulators; for example, the insurance business is regulated by the Office of the Insurance Commission, banking and financing businesses are regulated by the Bank of Thailand, and telecommunications is regulated by the National Broadcasting and Telecommunications Commission (NBTC).
In general, foreign investment is governed by the Foreign Business Act (FBA), international treaties and privileges granted by the Board of Investment. Pursuant to the FBA, a foreign entity is prohibited from conducting certain businesses in Thailand unless a Foreign Business Licence is obtained from the Ministry of Commerce. In certain sectors, Thais have the ability to compete with foreigners so the related businesses have recently been exempt from the requirement to obtain a Foreign Business Licence. These businesses include those in the financial, securities and insurance sectors. Nonetheless, such businesses may be subject to other specific laws governing the foreign shareholding proportion. In addition, pursuant to the Land Code, a foreign entity is prohibited from owning land in Thailand unless, among other things, an Investment Promotion Certificate is granted by the Board of Investment.
The Trade Competition Act BE 2560 (2017) (TCA) is currently the main legislation governing the merger control regime in Thailand.
With effect from 29 December 2018, any merger that meets the requirements under the TCA and the relevant subordinate regulations issued thereunder shall be subject to the merger clearance process as stipulated under the TCA. The application of the TCA also covers State-owned enterprises and public organisations, but exemptions have been provided for duties specified by law or Cabinet resolutions, for the enhancement of national security, public benefit or the provision of utilities. The TCA does not apply to certain industries where merger control is already regulated by specific legislation for that industry (ie, currently the telecommunications, broadcasting and television, insurance, financial and energy sectors). Unlike the TCA, the merger regime under the specific sectors has been established and developed since the issuance of the respective regulations. In 2018, this firm advised one of the leading power companies in Thailand in obtaining pre-merger filing approval from the Energy Regulatory Commission, in respect of a share acquisition of another prominent power company. This transaction is expected to close in February 2019.
An important point to note in relation to the merger control rules is that the TCA divides regulated mergers into two categories: those that require approval (pre-merger filing) from the TCC and those that only require notification to the TCC (post-merger notification). Essentially, submission of a pre-merger filing will be required if the merger may result in the creation of a monopoly or a business operator with a dominant market position. On the other hand, the merging entity (or merging entities) must notify the TCC within seven days after the completion of the merger if the merger may substantially lessen competition.
The Office of the Trade Competition Commission (OTCC), an agency independent from any government department, is the regulatory body established under the TCA. The OTCC’s powers and duties include undertaking administrative works of the Commission and the sub-commission, monitoring business operators for violations of the TCA, receiving complaints in respect of alleged violations of the TCA and making recommendations to the TCC, the enforcement agency. In the case of disputes over alleged violation of offences under the TCA, civil claims for damages, or appeals against administrative orders issued in connection thereof, the Intellectual Property and International Trade Court, and the Administrative Court shall have jurisdiction to decide on such matters.
Unlike in other countries, the parties to M&A transactions in Thailand are not required to obtain the consent or approval of employees. Therefore, labour laws do not play a major role in M&A transactions, except with regard to the transaction costs of M&A (eg, golden parachute clauses in employment agreements, excessive contributions to the provident fund and illegal work rules).
There is no national security review for acquisitions in Thailand.
The merger control regime in Thailand came into effect and was implemented at the end of December 2018 (see 2.4 Antitrust Regulations).
There has been no significant change in takeover laws in the past three years. There is no takeover legislation under review that could result in significant changes in the next twelve months.
Stakebuilding is commonly employed prior to launching an offer; the strategy is subject to the level of control the acquirer wishes to attain. Pursuant to the tender offer rule, a tender offer is mandatory when 25% of the total voting rights in the listed company is acquired, so acquirers usually seek less than 25% of shares.
An acquirer must disclose certain information to the SEC (provided that the company is a listed company on the SET) once it acquires at least and every 5% of the total voting rights of the target company. There is no disclosure requirement threshold under the laws for companies not listed on the SET.
Obligations of Acquiring Shareholders
Once an acquirer acquires at least 5% of the shares in a company, the acquirer has the duty to disclose such information by submitting a report on the acquisition or disposition of the securities (Form 246-2) to the SEC within three business days after such acquisition. Upon acquiring 25%, 50% or 75% of the total voting rights of the target company, the acquirer must state the purpose of the acquisition and its intention regarding the control of the target company by submitting (i) the announcement of the intention to make a tender offer form (Form 247-3) to the SEC within one business day after the acquisition that reaches the 25%, 50% or 75% threshold and (ii) the tender offer form (Form 247-4) to the SEC within seven business days after the submission of the announcement of the intention to make a tender offer form (Form 247-3).
The securities laws provide that in determining the above thresholds (5% or 25%, 50%, 75%), securities held by the following persons must also be taken into account:
Public companies are legally prohibited from restricting the transferability of their shares, although they are allowed to impose such restrictions as are necessary to ensure compliance with any foreign ownership restrictions to which they may be subject.
Dealings in derivatives are allowed.
The disclosure requirements under the SET’s disclosure regulations and the SEC’s tender offer rules apply to the acquisition or disposal of securities that have voting rights attached to them. In this sense, the acquisition or disposal of the derivatives in which the underlying assets have not yet been converted into shares (in the listed company) would not be subject to the filing/reporting obligations.
Currently, there are no specific provisions on derivative transactions. Whether the acquisition of derivatives will be subject to a pre-filing/notification obligation under the TCA depends on the transaction structure. For example, if the closing of the derivatives transaction will not result in any transfer of the underlying shares, such transaction will not trigger merger clearance in Thailand.
Shareholders have to make known the purpose of their acquisition and their intention regarding control of the company (see 4.2 Material Shareholding Disclosure Threshold).
Of relevance to a public takeover, merger control will apply to a share acquisition in the listed public company when criteria of the control test are met (ie, when any shareholder acquires the shares, warrants, or other convertibles by up to 25% or more of the total voting rights in another business operator at the end of any date pursuant to the terms and conditions under the relevant regulations issued under the TCA). Accordingly, the acquiring shareholder must proceed with the merger clearance process with the TCC (ie, submission for pre-merger filing approval or notification post-notification, as the case may be). In the case of pre-merger filing approval, the applicant shall provide details of the parties to the transaction, transaction structure and timeline, as well as the intention or purpose of the share acquisition.
As a general rule, the SET Information Disclosure Guidelines require the disclosure of a deal only when the deal is confirmed. In practice, therefore, a company should disclose the deal once the definitive agreement is signed. However, there are exceptions under which the company could prematurely disclose such information regarding a deal; for example, in the event that incorrect information that affects the stock price is leaked to the public.
Market practice on the timing of disclosure does not differ from legal requirements.
Full-scale due diligence – including legal, financial, accounting, HR and other relevant information – is usually required, except in certain circumstances where limited scope due diligence is preferable to the acquirer.
Generally, standstills and exclusivity agreements are demanded in the negotiation phase.
Documenting a tender offer in a definitive agreement is permissible and commonly employed.
The acquisition process usually takes more than two to six months to reach closure.
Under securities regulations, the acquirer must conduct a tender offer upon acquisition of 25%, 50% or 75% of the total voting rights of the target company.
Cash is the most common form of consideration in a business combination.
There are two types of tender offer. Firstly, there is a 'mandatory' tender offer, which is triggered once the acquirer acquires 25%, 50% or 75% of the total voting rights of the target company. The mandatory tender offer must be unconditional and must offer to buy all the shares of the target company. Secondly, there is a 'voluntary' tender offer, in which the acquirer may set conditions, usually a minimum percentage of shares it wishes to acquire. In this case, if the acquirer makes the tender offer, but the number of shares falls short of the minimum percentage, the acquirer may withdraw the tender offer.
Business combinations can be used as a condition, often as a condition precedent, in the financing agreement.
The minimum acceptance condition is usually set at a certain percentage of the total voting rights. The relevant control threshold in Thailand is more than 50% of the total voting rights. However, an acceptance condition is available only in a voluntary tender offer.
In the case of a mandatory tender offer, the offeror can only withdraw the offer if (i) circumstances for which the offeror is not responsible occur within the offering period and have caused or may cause serious damage to the status or assets of the offeree’s business, or (ii) an action is taken by the company during the offering period that results in a significant decrease in the share value.
See 6.4 Common Conditions for a Takeover Offer.
Security measures such as break-up fees, non-solicitation provisions, and non-disclosure and confidentiality provisions are among the most commonly employed measures.
Minority shareholders may protect their position in a shareholders’ agreement.
Shareholders can vote by proxy in Thailand.
There is no squeeze-out mechanism under Thai law. In practice, after completion of a tender offer there are typically a small number of shareholders who cannot be traced or who have refused to sell. As long as these shareholders still hold shares in the target, delisting may not be achieved and the basic rights of these shareholders (including notice of, and to attend, speak and vote at general shareholders' meetings) must be respected. If a resolution to delist the target is passed following completion of a tender offer, this resolution triggers the making of a mandatory offer to the dissenting minority shareholders.
It is common for the potential acquirer to enter into an agreement to tender with the principal shareholder. Since a squeeze-out mechanism does not exist, the potential acquirer normally commences the negotiation and concludes the agreement with the principal shareholders prior to conducting the tender offer. Once an agreement is entered into, there is no exit mechanism for the shareholder unless the parties agree otherwise.
The bid must be made public when the acquirer triggers the minimum tender offer threshold (ie, at 25%, 50% and 75% of the total voting rights) within one business day after such triggering.
The bidder has to disclose the information in accordance with the tender offer rules; that is, by submitting the announcement of the intention to make a tender offer form (Form 247-3) and the tender offer form (Form 247-4) must be disclosed to the SEC.
For the tender offer, the bidder is required to produce and attach the reviewed financial statements in accordance with the country’s accounting principles and the consolidated financial statements (in the case of having a subsidiary) of the latest fiscal year in the tender offer form as evidence proving that it has sufficient funds to purchase shares in the target company.
It is not necessary to disclose the transaction documents in full, only a summary of the transaction is required in the process of a tender offer.
Directors have fiduciary duties to the company and the company’s shareholders, and must perform their duties responsibly, with due care and loyalty. Directors must also comply with all laws, the objectives and articles of association, the resolutions of the board of directors' meetings and the resolutions of the shareholders' meetings, in good faith and with care to preserve the interests of the company. A director is liable for any damage to the company resulting from his or her negligence, or non-execution of agency.
It is not common practice in Thailand for boards to establish special or ad hoc committees in business combinations.
There is no corporate judicial review in Thai law. However, when considering an alleged breach of care in relation to a fiduciary duty, the court often uses the 'business judgement rule' standard.
The board of directors usually seeks advice from financial advisers and legal counsellors in the case of a business combination. A decision made by a board of directors based on the advice of these professional advisers will be considered to be a decision made with due care.
Under Thai corporate law, a shareholder who has an interest in any matter is not allowed to vote on such matter. Failure to abide by this restriction does not render the resolution void. However, the resolution may be challenged in the appropriate court.
A director who has an interest in any matter is not allowed to vote on such matter. Failure to abide by this restriction does not render the resolution void. However, in the case that such failure causes damages to the company, the company is entitled to claim compensation from the director.
Hostile tender offers are permitted in Thailand. However, this tactic is rarely employed since there is no squeeze-out mechanism available under Thai law.
To date, the Thai government has not issued any rules prescribing the use of 'poison pills'. However, the obligation imposed on the target's directors to provide information and a recommendation to shareholders applies separately in respect of each offer, and the directors are under a general duty to act in the best interests of the company.
The board of the target must:
See 9.2 Directors' Use of Defensive Measures.
Directors’ use of defensive measures would have to be consistent with the board of directors' general duty to act in the best interests of the company and the company’s shareholders. While the use of poison pills is almost unknown in Thailand, as most takeovers usually have the support of the target company's board of directors, it would be possible for the board of directors of a target company to adopt the 'Pac-Man' defence of making a counter-offer to that of the bidder or to solicit a higher offer from a 'white knight'. Listed companies are prohibited by law from restricting the transferability of their shares with the exception of foreign ownership restrictions to which they may be subject.
Directors themselves cannot 'just say no' and prevent a business combination. The directors must present the proposal for a business combination to the shareholders’ meeting. It is at the discretion of the shareholders’ meeting to refuse or accept the deal.
Litigation is common in connection with M&A deals, especially on the issues of indemnity, breach of commitments and warranty claims.
Litigation usually occurs in the post-merger stage.
Shareholder activism is not a significant force in Thailand.
See 11.1 for relevant information.
See 11.1 for relevant information.