Contributed By Russin & Vecchi
The Vietnamese M&A market is expected to continue to expand in 2019. With the Comprehensive and Progressive Agreement on Trans-Pacific Partnership (CPTPP) that came into force on 30 December 2018 and the EU-Vietnam Free Trade Agreement (EVFTA) which is expected to be ratified in March-April 2019, Vietnam hopes to increase interest from foreign investors. These agreements are expected to result in a higher level of transparency from both the Vietnamese government and corporations, especially state-owned enterprises (SOEs). For example, the CPTPP requires Vietnam to publish a list of the SOEs which have annual revenues of more than USD500 million, and to enable investors from CPTPP member countries to access information regarding the revenues, governance structure and financial reports of SOEs and be informed of Vietnamese regulations, interest rates and subsidy programmes. The Vietnamese Government has committed to divest its interest in hundreds of SOEs from 2017 to 2020, notably in the scheduled equitisation of many high-profile SOEs, such as Vietnam Airlines, Airports Corporation of Vietnam and Vietnam Pharmaceutical Corporation. However, the government’s success in forcing equitisation has been disappointing in recent years. In 2019, the government will continue its effort to force reluctant SOEs to equitise.
In 2018, Asian-grown investors showed great interest in Vietnamese companies. Some prominent deals included the Government of Singapore Investment Corporation’s USD853 million acquisition of shares of Vinhomes JSC, the acquisition of more than 95% of Saigon Paper Corporation by Sojitz from Japan, Korea’s CJ Group entering into a strategic cooperation agreement worth USD85 million with logistics firm Gemadept, and ThaiBev’s successful acquisition of a majority interest in Saigon Beer-Alcohol-Beverage Joint Stock Corporation (Sabeco). In 2019, it is expected that investors from these countries will continue to look for opportunities in Vietnam.
According to the Vietnam Foreign Investment Agency, the top sectors for M&A in 2018 in terms of value included processing and manufacturing, retail, construction and science and technology. In 2019, it is expected that telecommunications, aviation and fast moving consumer goods will continue to see an inflow of foreign capital. E-commerce (such as online shopping and e-payment), fintech and other technology-based businesses have also emerged as fast-growing areas for M&A.
Acquisitions through public tender are not common. In 2018, there were only 11 offers registered with the State Securities Commission (SSC), only seven of which were reported to have been successful. M&A transactions in Vietnam have mostly been in the form of private equity investments, purchases of primary shares or private put-through transactions via the Vietnam Securities Depository (ie, without going through the public trading floor of a stock exchange). This trend will continue in 2019.
In 2019, the Vietnamese Government plans to divest about 35% of Vietnam Airlines and about 10% of the Airports Corporation of Vietnam. The aviation industry should receive significant interest from foreign investors. However, there is no guidance on how these SOEs will be priced, which will continue to cause issues in the privatisation process.
The banking industry could also pose opportunities for foreign investors following several large successes in the last few years, including the deal between Bank of Tokyo-Mitsubishi UFJ and Vietnam Joint Stock Commercial Bank for Industry and Trade (Vietinbank), the Mizuho and Joint Stock Bank for Foreign Trade of Vietnam (Vietcombank) transaction and, most recently, a deal involving Warburg Pincus and Vietnam Technological and Commercial Joint Stock Bank (Techcombank). The year has started with a newly announced acquisition of 15% of the Bank for Investment and Development of Vietnam (BIDV) by KEB Hana Bank of South Korea.
Since the beginning of 2018, e-commerce and fintech have received significant M&A interest. several prominent deals in this space are expected to happen in 2019. Other sectors such as retail, healthcare and real estate are also expected to continue this trend into 2019.
In Vietnam, a company can be either a public company or a non-public company. A public company is defined as a company that:
To acquire a non-public company, an investor can simply acquire all its shares or capital contributions from existing owners, subscribe for new shares issued by the target company (if the target company is a joint stock company) or make additional capital contributions to the target company (if the target company is a limited liability company).
A private sector M&A transaction does not require any public disclosure and involves rather straightforward government filings, mainly to obtain approval for share/capital acquisition and to update the business registration of the target company. The process follows Law No 67/2014/QH13 on Investment and Law No 68/2014/QH13 on Enterprises, both adopted by the National Assembly on 26 November 2014, and a number of supporting decrees and circulars as amended from time to time.
To acquire a significant interest in a public company, the only method available for an investor is to go through the process of public tender offer in accordance with Law on Securities No 70/2006/QH11 adopted by the National Assembly on 26 June 2006, as amended by Law No 62/2010/QH12 adopted by the National Assembly on 24 November 2010 (collectively the 'Law on Securities') and the various guidance and supporting documents of the Government and particularly the Ministry of Finance.
Private M&A activity is primarily regulated at the provincial level by the provincial Department of Planning and Investment (DPI), under the general supervision of the Ministry of Planning and Investment (MPI). M&A involving public companies, however, is regulated by the central government through the Ministry of Finance (via the SSC).
When Vietnam joined the WTO, it signed a Schedule of Specific Commitments in Services. This protected many Vietnamese service sectors. However, most restricted sectors are now open to foreign investment. Only a few industries, such as aviation and telecommunications, retain foreign ownership limits. For certain sectors, such as banking and insurance, while full foreign ownership is permitted for a new establishment, foreign acquisition into an existing local company is capped.
The Law on Investment requires a foreign investor that wishes to acquire shares in a non-public company to obtain approval from the provincial DPI if the target company operates in a conditional business line. A list of 18 business sectors to which this applies is published on the Portal of the Foreign Investment Agency in accordance with Decree 118/2015/ND-CP of the Government dated 12 November 2015, and the Law on Investment. Approval is also required if a foreign investor wishes to acquire more than 51% of the target company, whether or not the target company’s business is conditional.
Antitrust and anti-competition are regulated by Law No 27/2004/QH11 on Competition, adopted by the National Assembly on 3 December 2004, as amended from time to time. A new Law No 23/2018/QH14 on Competition was adopted by the National Assembly on 12 June 2018 and will take effect on 1 July 2019.
If an M&A transaction results in the participating companies having a combined market share ranging from 30% to 50% of any relevant market, then the transaction must be notified to the Vietnam Competition Authority, which will be replaced by the National Competition Committee (NCC) under the new Law on Competition. If the combined market share exceeds 50% then the transaction is prohibited, except as otherwise approved by the NCC. The NCC will examine the calculation of the market shares by the applicant and will decide whether it agrees.
In Vietnam, there are no labour law regulations that will prevent or impede an acquisition. Labour matters are more relevant post-M&A.
Vietnamese labour laws are employee-friendly and it is usually challenging to dismiss or lay off employees. The Labour Code provides that an employer may dismiss an employee for unexplained consecutive absences from work, repeated offences during a disciplinary period, theft, embezzlement, gambling, intentional violence, use of drugs in the workplace, unauthorised disclosure of business secrets or technology secrets or other activities that cause or may cause serious damage to the employer.
The law, however, provides no threshold of damages which would permit dismissal. Additionally, the procedure to dismiss an employee is complicated and failure to comply may result in a law suit for wrongful dismissal.
Laying off employees as a result of internal restructuring or technological change is possible, and can be relevant post-M&A. There are specific steps to be taken, and the company’s internal trade union and labour authorities will also be involved along the way.
Regulations on minimum wages, compulsory social security (social, health and unemployment insurance) contributions, internal labour regulations and limitations on non-compete undertakings are among the legal matters of relevance.
There is no national security review of acquisitions in Vietnam.
The new Law on Competition, which will take effect on 1 July 2019, will generally prohibit any M&A transaction that “causes or may potentially cause significant competitive restraints in the Vietnamese market.” The National Competition Committee will replace the existing Vietnam Competition Authority in determining whether or not a transaction causes or may cause significant competitive restraints based on a number of factors, including:
There have been no significant changes to takeover law in 2019. Neither is there a clear indication of changes that will occur in the coming 12 months.
It is not customary practice for a bidder to build a stake in the target prior to launching an offer, or to otherwise accumulate shares outside of the offer process. Most offers in 2018 were to purchase shares issued by the target and not to build a stake in the target from other stakeholders.
The requirements for disclosure and filings are provided in the Law on Securities and Circular 155/2015/TT-BTC of the Ministry of Finance dated 6 October 2015 on guidelines for information disclosure in the securities market ('Circular 155'). In certain circumstances there are disclosure and filing requirements for substantial shareholders, founding shareholders and internal shareholders of a public company.
A substantial shareholder is an individual or an organisation which – together with its ‘related persons’ – holds more than 5% of the voting shares of a public company. A substantial shareholder of a company must disclose and report to the SSC and the stock exchange (where the company’s shares are listed) when:
The Law on Securities defines ’related persons’ to include persons (entities or individuals) with the following relationships:
A founding shareholder (ie, a shareholder that participates in formulating, approving and signing the original charter of a joint stock company) is not permitted to transfer its shares for three years from the date the company was established without the consent of the other founding shareholders. A founding shareholder of a public company is required to disclose and report to the SSC before and after any transaction in relation to its shares within the three-year lock-up period. A founding shareholder of a non-public company is not subject to the same disclosure requirement but the company must register to adjust its shareholding status regarding the founding shares after the completion of any such transaction.
Internal shareholders of a Vietnamese public company are defined as including shareholders that are members of the board of directors, members of the board of controllers, the general director/director, deputy general director/deputy director, chief financial officer, chief accountant and their ‘related persons’. A transaction that involves an internal shareholder needs to be disclosed at least three working days prior to the date of the transaction. The date of the transaction can be a period of time rather than a definitive date provided that such period does not exceed two months from the notification date. The disclosure need not contain information on the potential purchaser nor the purchase price.
Generally speaking, a company cannot introduce different rules regarding the reporting/disclosure thresholds in its charter, other than the rules required by applicable law. As mentioned above, stakebuilding before a tender offer is not common. Most tender offers in 2018 were launched by shareholders that were major shareholders of the target companies, and were mostly done by way of purchase of shares issued by the target companies.
Dealings in derivatives are allowed. Derivatives available for trading in Vietnam include future contracts, options and forward contracts. However, dealings in options or convertible bonds issued by a target company are not allowed once a tender offer for shares of the target company has been registered with the SSC.
There are no filing/reporting obligations for derivatives under securities disclosure and competition laws. However, in order to deal in derivatives, an investor must open a transaction account at a licensed trading member and a margin account at a registered clearing member of the stock exchange.
A licensed trading member of the stock exchange is a securities firm licensed to undertake derivatives trading operations and to provide brokerage services. A clearing member is a securities company, commercial bank or branch of a foreign bank licensed to process clearing and settlement for derivatives transactions.
There is no requirement for a shareholder to make known the purpose of their acquisition and their intention regarding control of the company.
A deal to purchase shares of a public company can trigger the disclosure requirements of the target company for ‘extraordinary events’ or ‘price-sensitive information’.
Circular 155 provides a list of ‘extraordinary events’ that a public company must disclose within 24 hours or 72 hours (as the case may be) of its occurrence. Among the events identified, a transaction to purchase shares of the company can be classified to be ‘an event that significantly affects the company’s production, business or management’. It is arguable that while a transaction might have such an effect, the disclosure requirement need not be fulfilled until the transaction ‘occurs’, ie, after the completion of the transaction.
Circular 155 also requires the target company to confirm or correct information that affects its share price within 24 hours of receiving indicative information or at the request of the SSC or the stock exchanges. However, there is little guidance on what information is considered price-sensitive information. It is reported informally that no public company has ever made a disclosure that may be classified as price-sensitive information as contemplated in Circular 155.
A transaction to acquire a non-public company does not generally trigger any disclosure requirement, except for the transfer of shares of a founding shareholder within the statutory lock-up period (see 4.2 Material Shareholding Disclosure Threshold, above).
There is no market practice on timing of disclosure. Bidders largely follow legal requirements.
Due diligence reviews to address all key aspects of the target company’s background (including incorporation and licences, governance and management, business processes, assets and financial liabilities, litigation, employee issues, etc) are common in M&A transactions. It is also important when an investor subscribes for additional capital issued by the target, or acquires a majority or controlling interest in the target. In a tender offer, a bidder may only rely on information provided by the selling shareholders and, to a lesser extent, information that is available in the public domain. In Vietnam, only general and basic information concerning the target company, such as incorporation details, tax registration, intellectual property rights and encumbrances, may be in the public domain. A large part of the due diligence process usually relies on documents provided by the counterparty and/or target company. Independent searches for lawsuits, for example, are virtually unfeasible. Background checks in respect of individuals or corporates cannot be done officially.
Both standstills and exclusivity are usually demanded by a bidder or a purchaser in an M&A transaction in Vietnam.
A tender offer’s terms and conditions may be documented in a definitive agreement. Insofar as an acquisition of shares in a public company is concerned, the purchaser must register the tender offer and obtain approval from the SSC. This process generally requires the purchaser to document the terms and conditions of its tender offer.
To register a tender offer with the SSC, the following documents must be filed with the SSC:
In terms of timing, the SSC approval can be a condition precedent to the completion of the transaction and can be obtained after the definitive transaction agreements are signed.
The length of the process for acquiring or selling a business varies depending on a number of factors, including the size and type of assets in the business to be acquired or sold, the type of the target company (whether public or private), the level of due diligence required, restrictions on foreign ownership, the extent of regulatory procedures involved, etc. Six to eight months would not be unusual.
A purchase of shares from existing shareholders in a public company will trigger the requirement for a tender offer in the following cases:
A tender offer, however, is not required if:
In addition, a tender offer is not applicable to an acquisition of shares in a company that is not a public company.
By law, consideration for a share acquisition can be in the form of cash (either Vietnamese or foreign currency), gold, land use rights, value of intellectual property rights, technology, technical know-how, stocks/shares or other assets, as long as such assets can be valued in Vietnamese Dong.
In practice, cash is of course more commonly used as consideration in share acquisition transactions.
The general requirements for a tender offer are provided in the Government’s Decree 58/2012/ND-CP dated 20 July 2012 guiding the Securities Law, as amended by Decree 60/2015/ND-CP dated 26 June 2015 ('Decree 58'). They are:
There are no regulatory restrictions on the use of offer conditions, other than these requirements.
Under the Enterprise Law, the statutory voting thresholds for a public company’s GSM are 65% for reserved matters and 51% for all other shareholder resolutions. The quorum to hold a GSM is 51% of eligible voting shares.
In other words, an investor will generally be able to control a public company with a 51% stake.
There is no regulatory restriction on a bidder including a condition that the tender offer is dependent on its ability to obtain financing for the purchase, although this is uncommon. Such a condition could jeopardise a tender offer.
Vietnamese law does not prohibit or otherwise regulate a bidder’s ability to seek deal security measures.
Generally, breaches of deal security measures may lead to contractual penalties whereby the breaching party must pay a pre-determined amount to the other parties. Vietnamese law provides for two types of monetary remedies for breach of contract, namely:
A bidderdoesnot have to hold 100% ownership of a target company in order to control it. As discussed in 6.5 Minimum Acceptance Conditions, above, the thresholds for decision-making in a public company are 51% of the voting shares for ordinary matters and 65% for special or reserved matters.
If a bidder does not seek to reach such thresholds, it may still want to have the right to nominate members of the board of management (BOM) (equivalent to the board of directors in many jurisdictions). By law, a shareholder or a group of shareholders holding at least 10% of the voting shares (or a lower ratio if so provided in the company’s charter) for a period of six consecutive months or more are entitled to nominate one or more candidates for election to the BOM, and the board of controllers veto rights over certain material matters can be requested, but are rarely granted in a public company.
A shareholder may vote by proxy in Vietnam. A proxy is only required to present the proxy appointment letter issued by the principal when it registers for the GSM.
A proxy is also allowed for BOM’s meetings, provided that it is approved by a majority of the BOM members.
Vietnamese law does not regulate situations or mechanisms that can be deployed to squeeze out minority shareholders or to buy shares from shareholders that have not tendered following a successful tender offer.
A merger requires only the votes of 65% of the voting shares of the target company (unless a lower threshold for the GSM’s approval of a merger is provided for in the charter of the target company). If the merger is approved by the GSM, those shareholders that have voted against the merger have the right to request that the target company buy back their shares at a fair market price. This request must be made to the company in writing within ten days of the GSM that approved the merger. After receiving the request, the target company must buy back the shares of the dissenting minority shareholders at the fair market price within 90 days of its receipt of the request. If no mutual agreement is reached between a dissenting shareholder and the target company, a professional valuer must be engaged to determine the fair market price.
A shareholder can refuse to sell the shares to an offeror. According to Article 50 of Decree 58, a shareholder is even entitled to withdraw its intention to sell its shares at any time during the offer process, if the conditions of the offer change or when there is another offer from another offeror. A shareholder also has the statutory option to request the bidder to buy its shares at the announced offer price (of the tender offer) if, as a result of such tender offer, the bidder owns more than 80% of the outstanding shares of the target.
A bidder may seek to negotiate with the principal shareholders of the target company for their irrevocable commitment to tender or vote for the merger before a tender offer is made. The bidder and the principal shareholders are free to negotiate these commitments, including the right to opt out for the principal shareholder if a better offer is made. There is no market norm or practice for this kind of arrangement.
A tender offer must be registered with the SSC. The tender documents must be filed with the SSC for approval and, at the same time, must be sent to the target company. The target company must publish its receipt of the tender offer within three days (via its website and the website of the stock exchange where the target company is listed).
The SSC will review the tender documents and will issue its opinion within 15 days. The bidder must make the tender offer public within seven days of receipt of the SSC’s opinion via public media. If the target company is a listed company, the bidder is also required to publish the tender offer on the website of the stock exchange where the target company is listed.
The length of the offer period must be between 30 and 60 days. The bidder will report the results of the tender to the SSC and make the results public via the website of the stock exchange where the target company is listed within five days of completion.
If a business combination, as a result of the completion of a tender offer, triggers the need for the target to issue new shares, the issuance must be disclosed within 24 hours of its results being reported. Generally, the required disclosure information includes:
In order to prove that it has sufficient funds to implement a tender offer, a bidder is required to produce its financial statements for the preceding year. The financial statements must be prepared in compliance with Vietnamese Accounting Standards and must be audited.
A bidder is not required to disclose any transaction documents. However, information on the bidder’s identity and the basic terms of the deal (including volume of purchased shares, purchase price, timeline of the offer, etc) must be made public, as discussed in 7.1 Making a Bid Public, above.
A public company’s internal governance structure comprises:
According to Article 14 of the Government’s Decree 71/2017/ND-CP, in addition to the general duties mentioned above, a BOM member also has the following duties:
A BOM member is also subject to a duty of loyalty and the duty to avoid conflict of interest. Specifically, a BOM member is required:
If public or private company engages in a transaction that may benefit a BOM member, that member will not be allowed to vote on the transaction. It is not a common practice in Vietnam that the BOM of a private company establish a special or ad hoc committee under the BOM in business combinations. Setting up special committees under the BOM and delegating certain powers of the BOM to such committees are more frequently seen in public companies, but are not common even there. A very few companies are beginning to use special ad hoc committees under the BOM for reasons such as to address special issues that arise.
There is no legal concept in Vietnam similar to the business judgement rule in the US. There is no precedent in relation to courts deferring to a decision by the board of directors in takeover situations.
In general, Vietnamese courts rarely interfere with a commercial decision by a board of directors seen to be acting in the best interests of the company, as long as the decision does not run afoul of the law.
Vietnamese law does not oblige the directors (ie, the BOM members) to seek independent, outside advice, but it is common practice for directors to seek financial, tax and legal advice from external experts.
No specific judicial or other scrutiny on conflicts of interest of managers and shareholders, other than under the rules on regulatory disclosures (eg, related interests and related party transactions), currently exist. However, as of 1 August 2019, a BOM member of a public company will not be allowed to be a BOM member of more than five companies.
For external advisers, there are certain regulatory rules on avoidance of conflict of interests to which lawyers, tax consultants, auditors, etc, are subject.
Hostile tender offers are not specifically defined or regulated under Vietnamese law, nor is there any express prohibition on this type of transaction. It seems that no notable hostile tender offer has occurred in Vietnam.
Defensive measures by directors in a takeover situation are neither regulated nor prohibited in Vietnam.
In Vietnam,stock repurchase and white-knight defence (ie, a friendly acquirer with the support of a target firm in the case of a hostile takeover attempt by another firm) are the most common defensive measures used against a hostile takeover.
Directors generally have the duties discussed in 8.1 Principal Directors' Duties, above. There are no separate duties required of a director in a takeover situation. In addition, actions such as issuance of shares, granting of options or convertibles, sale or acquisition of assets of a material amount, or the entry into contracts outside the ordinary course of business require the approval of the GSM and, in these cases, directors may not take action without such approval.
Directors can 'just say no' and may take action that prevents a business combination. Of course, to do so, the action must be approved by the GSM and must be consistent with the scope of the directors’ authority.
There have been some but not many lawsuits in connection with M&A deals in Vietnam.
See 10.1 for relevant information.
Shareholder activism is not common in Vietnam.
See 11.1 for relevant information.
See 11.1 for relevant information.