This article was first posted on International Financial Law Review (Dec 2018)
Under the current Competition Law, an M&A transaction needs to be notified to the competent authority if the concerned parties’ combined market share reaches between 30% and 50%. However, the new Competition Law which will take effect from July 1 2019 prescribes the value of the M&A transaction as a trigger of the merger filing requirement.
The new law allows the government to set the specific amount of the triggering value. In the most recent draft of the governmental decree, a contemplated merger, acquisition or joint venture whose value is VND 500 billion (approx. $21.7 million) or more will need to be notified to the National Competition Commission and may only proceed after getting the green light from this authority.
This value-based approach allows the parties concerned to easily determine whether they should wait for antitrust clearance, which may take up to five months depending on the complexity of the case, before moving ahead with the closing. However, if the threshold value is as low as the amount specified in the draft, it will definitely delay high value transactions, as deals valued at hundreds of millions of dollars are no longer rare in Vietnam.
The new rule should worry investors seeking to acquire big stakes in Vietnam-based companies, especially by taking part in the privatisation of state-owned conglomerates. In general, shares divested by the state must be sold via auction. It may not be cost-efficient for the investors to obtain antitrust clearance without being assured that they will win the auction. On the other hand, the current legal framework is not designed to have the closing of the auction sale conditional upon the antitrust clearance. Splitting the sale into multiple tranches would not be an option that the government will be willing to take as only a share sale in bulk may deliver high return.
Obviously, the value of the deal does not decide the post-closing market share or power of the involved companies. What the government can do now is set a very high value threshold though this may undermine the purpose of the new law. At a recent public conference discussing the new law, the above concerns were raised to the government’s representatives who promised to take them into consideration when finalising the draft decree.
Truong Huu Ngu & Tran Duy
