Under the pressure of competition and profit, M&A transactions (Mergers and Acquisitions) become more and more popular and have a significant impact on the market. Besides the positive effects that M&A transactions make upon enterprises and the economy, many M&A transactions have negative impacts on competition, in the other words, anti-competitive effects. Hence, Competition law has provisions to control this activity, protect the competition environment on the market. This article shall analyse competition law aspects of M&A transactions.
What does “M&A” mean?
M&A stands for and is translated as “Mergers and Acquisitions”. It is a general term that refers to purchasing, merger, consolidation, stock acquisition so as to form an enterprise that has a more extensive market power and competitiveness.
Under the aspect of competition law, M&A is economic concentration. The 2018 Competition Law does not provide for a brief concept of economic concentration, but provides categories of this term. Accordingly, economic concentration includes merger, consolidation, acquisition, joint ventures between/among enterprises and other categories of economic concentration (Article 29 of the 2018 Competition Law).
M&A transactions under Competition Law
Firstly, the subject matter of M&A transactions is primarily enterprises, two or more than two enterprises shall engage in M&A transactions. Not only are they on the same relevant market (horizontal M&A), such enterprises also engage in vertical M&A (For example, M&A transactions between Mirae JSC. and Mirae Fiber JSC. etc.), or conglomeration (For example, when Vingroup started its engagement in retail market, it had acquired a 70% of the total stake in Ocean Retail Group in 2014 to become owner of the supermarket chain Ocean Mart and renamed it VinMart)
Secondly, the sphere of M&A transactions. Current Competition law governs both M&A transactions in Vietnam territory and outside Vietnam territory that cause or may cause anti-competitive effects on Vietnamese market, for example Thailand’s giant retail Central Group acquired supermarket chain Big C Vietnam for US$1,05 billion from French Casino Group.
Thirdly, types of M&A transactions include merger, consolidation, acquisition and joint venture.
– Merger of enterprises means an act whereby one or several enterprises transfer all of its/their property, rights, obligations and legitimate interests to another enterprise, and at the same time terminate the existence of the merged enterprises.
– Consolidation of enterprises means an act whereby two or more enterprises transfer all of their property, rights, obligations and legitimate interests to form a new enterprise and, at the same time, terminate the existence of the consolidating enterprises.
– Acquisition of enterprises means an act whereby an enterprise acquires the whole or part of property or shares of another enterprise sufficient to control or dominate all or one of the trades of the acquired enterprise.
– Joint venture between enterprises means an act whereby two or more enterprises jointly contribute part of their property, rights, obligations and legitimate interests to the establishment of a new enterprise.
Controlling M&A transactions under Competition law.
Prohibited M&A transactions
According to Article 30 of the 2018 Competition Law, if economic concentration, or M&A transaction causes or probably causes substantial anti-competitive effects on the Vietnamese market, it shall be prohibited.
To assess the anti-competitive impacts of such activity, the 2018 Competition Law and Decree No.35/2020/NĐ-CP dated 2020, March 24 of the Government providing guidelines on Competition Law (hereinafter referred to as “Decree No.35”) have given out some criteria as follows:
– Combined market share of enterprises on the relevant market;
– The degree of concentration on the relevant market before and after M&A transaction;
– The relationship of the parties in the production, distribution or supply chain for a certain kind of goods/service or the business lines of the parties which are inputs of or complementary to one another;
– Competitive advantage brought about M&A transaction in the relevant market;
– The ability of enterprises after M&A transaction for increasing significantly their prices or return on sales;
– The ability of enterprises after M&A transaction for removing or preventing other enterprises from market entry or expansion;
– Particular factors in the sectors and domains where enterprises are engaging in M&A transactions.
Conditional economic concentration
Vietnamese Competition Law permits enterprises engaging in M&A transactions if they have taken one or some of the following measures:
Firstly, total or partial division, resale of partial capital holding of enterprises engaging in economic concentration;
Secondly, control of the content related to the purchase and sale prices of goods, services or other trading conditions in business contracts of enterprises formed after the economic concentration;
Thirdly, remedies to rectify the probability of causing adverse effects on competition on the market;
Fourthly, other measures to enhance the positive effects of economic concentration.
Notification of economic concentration
Before initiating in a M&A transaction, enterprises may file a dossier of economic concentration notification to the National Competition Commission if they reach the notification threshold. The National Competition Commission shall appraise and decide whether their M&A transaction is conducted or not.
The notification threshold shall be determined based on total assets, total turnover, the transaction value, combined market share of enterprises. For instance, with respects to normal enterprises, the notification threshold shall be determined based on one of the following criteria:
– Total asset available in the Vietnamese market may be worth VND 3,000 billion or more in the fiscal year preceding the planned year of M&A transaction;
– Total sales or purchase volume arising in the Vietnamese market may be worth VND 3,000 billion or more in the fiscal year preceding the planned year of M&A transaction;
– Value of all M&A transactions may be worth at least VND 1,000 billion;
– The joint market share of enterprises may account for at least 20% of total share of the relevant market in the fiscal year preceding the planned year of M&A transaction.
Besides, with respect to credit institutions, insurance companies or securities companies, the notification threshold is determined in accordance with Clause 2 Article 13 of Decree No.35.
This is the article advising on “Vietnamese Competition law aspects of M&A transactions” by Apra Law Firm. If you have any questions or concerns, please contact the hotline for further advice and support.
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