This country-specific Q&A provides an overview to M&A laws and regulations that may occur in Thailand.
This Q&A is part of the global guide to Mergers & Acquisitions. For a full list of jurisdictional Q&As visit http://www.inhouselawyer.co.uk/practice-areas/mergers-acquisitions-3rd-edition/
What are the key rules/laws relevant to M&A and who are the key regulatory authorities?
The following are the Thai laws which are generally relevant in M&A activities and the governmental authorities in charge of them:
- The Thai Civil and Commercial Code, as amended (the “CCC”) - The Ministry of Commerce (the “MoC”) is the regulatory authority for this legislation. The CCC is relevant where an acquirer or a target company is a private company;
- The Thai Public Limited Company Act B.E. 2535 (1992), as amended (the “PLC Act”) - The MoC is the regulatory authority for this legislation. The PLC Act is relevant where an acquirer or a target company is a public company;
- The Securities and Exchange Act B.E. 2535 (1992), as amended, including various notifications (such as disclosure requirements and takeover regulations) issued under it - The Securities and Exchange Commission (the “SEC”) is the regulatory authority for this legislation;
- The Foreign Business Act B.E. 2542 (1999) (the “FBA”) - The MoC is the regulatory authority for this legislation. The FBA contains the limitations and restrictions for a foreigner to conduct business in Thailand; and
- The Trade Competition Act B.E. 2560 (2017) including notifications issued under it - The Office of Trade Competition Commission is the regulatory authority for this legislation.
In addition, there are other different regulators for each business sector who have power to regulate each relevant business sector.
- The National Broadcasting and Telecommunications Commission is the regulatory authority for the business in telecommunications and broadcasting and television sector;
- The Energy Regulatory Commission is the regulator for mergers of businesses in the energy sector;
- The Bank of Thailand is the regulatory authority for mergers of financial institutions; and
- The Office of Insurance Commission is the regulator for mergers among insurance companies.
- The Investment Promotion Act B.E. 2520 (1977), as amended, including various notifications issued under it. The Board of Investment of Thailand is the regulatory authority for this legislation.
What is the current state of the market?
2018 was another active year for the M&A activity in Thailand, which was driven largely by stronger economic growth and a more stable political environment. Moreover, the government has established and promoted the Eastern Economic Corridor (EEC) as Thailand’s new flagship investment zone. The EEC is expected to be a new important hub for trade, investment, regional transportation and a strategic gateway for Asia. Furthermore, there are numerous megaprojects relating to infrastructure in Thailand which are Public-Private Partnerships (PPP). The promotion of investment in the EEC and PPP projects stimulates macro-economic growth in Thailand, and there are several M&A projects with both direct and indirect investment relating to them.
Which market sectors have been particularly active recently?
PPP Projects relating to infrastructure in Thailand have been active, the largest transaction being the financing for Northern Bangkok Monorail Company Limited and Eastern Bangkok Monorail Company Limited in respect of the new mass transit Pink Line and Yellow Line monorail systems for THB 31,680 million (approximately USD 950 million), with facilities of THB 63,360 million (approximately USD 1,900 million) in total. BTS Group Holdings Public Company Limited, Sino-Thai Engineering & Construction Public Company Limited and Ratchaburi Electricity Generating Holding Public Company Limited have jointly invested in these two monorail companies. Our firm was engaged by the Office of the Eastern Economic Corridor of Thailand to advise on the draft law governing PPPs in the EEC area, and is engaged by the State Enterprise Policy Office (SEPO) of the Ministry of Finance to assist in the drafting of the new Public Private Partnership Act in Thailand to replace the Private Investment in State Undertaking Act B.E. 2556 (2013), including its subordinate legislation, regulations and guidelines for PPP mechanisms.
Elsewhere, the e-commerce sector is becoming increasingly active, for example, Grab’s acquisition of Uber in Southeast Asia, including Thailand. The low price of oil has given rise to heightened activity in the energy and renewable energy sectors. Real estate transactions (hotels, multi-use developments etc.) are also commonplace in the current market.
Further, in July 2017, the group business of PTT Public Company Limited, which is one of the largest corporations in Thailand engaged in the oil and gas industry, restructured and spun off its USD 4 billion oil retail business. PTT Public Company Limited also restructured certain petrochemical businesses, its propane business chain and bioplastic business chain, including related service businesses, through transfer to PTT Global Chemical Public Company Limited. Collectively, the total share and asset transfers were valued at THB 26.3 billion (approximately USD 771 million).
What do you believe will be the three most significant factors influencing M&A activity over the next 2 years?
In our opinion, the three most significant factors that will influence M&A activity in Thailand over the next 2 years will be (1) the attractiveness of the investment environment and privileges and political stability in Thailand; (2) the development and expansion of Thailand’s infrastructure; and (3) international economic conditions, including the expansion of Chinese investment in Thailand.
What are the key means of effecting the acquisition of a publicly traded company?
The most common method of effecting a merger, in the broadest sense, is the acquisition of shares in the target company. Asset or business transfers of assets (e.g. through asset acquisitions, entire business transfers and partial business transfers) are also common but are cumbersome. In certain cases, the transfer can be carried out on a tax-free basis (e.g. entire business transfer), provided that certain conditions are satisfied. However, asset acquisitions made directly by foreigners are not common and in most cases a foreigner will form a company in Thailand in order to acquire the assets.
A procedure for mergers in the strict sense does exist for public companies under the PLC Act, involving a new company being created from at least two existing companies which are automatically dissolved upon the merger (amalgamation) becoming effective (A+B = C). However, this is not commonly used as it is time-consuming and creditors who object to such amalgamation have the right to be paid out or have their debts secured.
What information relating to a target company will be publicly available and to what extent is a target company obliged to disclose diligence related information to a potential acquirer?
For limited liability companies, only certain information is publicly available, for example, its audited financial statements, constitutional documents, such as its memorandum and articles of association, as well as the key information on shareholders, directors, registered office(s) and share capital of the company. In addition, basic information on the registered intellectual property is also available to the public. Basic information relating to business security has also been publicly available since 2018. With regard to litigation searches, the Thai court system has a database that allows the public to search as to whether the target company is a first defendant or plaintiff in any litigation proceedings at these particular courts.
However, there is no statutory obligation requiring a target company to disclose any specific diligence information to a potential acquirer. This is negotiated on a case-by-case basis.
Listed companies in Thailand are generally required to disclose the following information and make it available to the public:
- corporate information, such as registered office(s), main shareholders’ names, directors’ names, memorandum and articles of association of the company in Thai and certain documents in English;
- quarterly reviewed and annually audited financial statements in both Thai and English;
- annual registration statements containing updated business information in Thai;
- annual reports in both Thai and English; and
- public filings upon the occurrence of certain material events in both Thai and English.
Like private companies, the target company is not obliged to disclose due diligence-related information to a potential acquirer. If a potential acquirer wishes to acquire more in-depth information, this will be negotiated on a case-by-case basis. In addition, the target's board of directors may be prepared to provide confidential information to the bidder and any competing bidders with a view to maximizing the offer to shareholders. Doing so would be in line with the directors' general obligations under the Public Limited Companies Act to act in the best interests of the company. Moreover, such disclosures may be made despite the restrictions outlined in both the Securities Act and the SEC's Rules regarding the disclosure of price-sensitive or 'insider' information. However, the following factors would need to be carefully considered when determining what information is to be disclosed:
- whether the information is market-sensitive such that its disclosure may constitute a criminal offence under Thailand's insider trading laws in the case where the bidder subsequently buys shares or makes an offer in reliance on such information;
- whether the information is commercially sensitive; and
- whether such information would normally only be disclosed on a confidential basis to persons with whom the target is negotiating and who have signed confidentiality undertakings.
To what level of detail is due diligence customarily undertaken?
In most of the M&A transactions, extensive due diligence is undertaken, which involves both financial / accounting and legal due diligence on the target company. The level of detail of the due diligence will depend on various factors, ranging from the nature of the target company to the size of the transaction. Usually, the acquirer will prefer a high-level due diligence analysis on the target company in order to identify red flags or deal-breakers.
In the case of an acquisition of a publicly listed company, it will depend on the transaction (with an auction, due diligence will probably not be possible) and the level of control the selling shareholder has in practice over the company. Very large acquisitions have been completed with reliance only on publicly-available information.
What are the key decision-making organs of a target company and what approval rights do shareholders have?
The key decision-making organs of a target company are the board of directors and the shareholders meetings.
For a secondary share sale, there is generally no requirement for approval from the target company, either from a board of directors or shareholders meeting, unless the articles of association of the target company specify otherwise.
For a primary share issue/sale, shareholder approval by a majority of not less than three-fourth of the total number of votes of shareholders who attend the meeting and have the right to vote (or a higher proportion of votes specified in the company’s articles of association) (special resolution) is required for an increase of capital and allotment of new shares. Further, a private company cannot issue new shares directly to persons who are not already shareholders, so the acquirer must first obtain a small shareholding before the shareholders meeting is held to approve the issuance of new shares to the acquirer.
Under Section 107 of the PLC Act, the direct acquisition of a business of another company (which includes the acquisition of shares in another company which becomes a subsidiary as a result of the transaction) requires approval by a special resolution. This requirement does not apply if the acquisition is done by a subsidiary.
In addition, in the case of a listed company, if the acquisition is of a material size compared to the size of a listed company (various tests are applied) it may require shareholder approval by a special resolution.
In the case of an acquisition of primary shares (i.e. newly-issued shares) of a listed company, the issuer will require shareholder approval for the increase of capital (by a special resolution) and allotment of new shares (by a simple majority vote) (ordinary resolution).
What are the duties of the directors and controlling shareholders of a target company?
There are generally no statutory duties imposed on the controlling shareholders of a target company in the event of a potential acquisition.
The directors of a listed target company must give their opinion on a tender offer and appoint a financial adviser to give opinion, which must be circulated to shareholders together with the directors’ opinion (see also paragraph 24). The directors have a duty of loyalty but this is owed to the company, not to the shareholders individually.
There are statutory duties imposed on the listed target company in the event of a potential acquisition. During the period from the formal announcement of a tender offer until the completion of the tender offer, the target company is generally restricted from undertaking the following activities unless approval is obtained from its shareholders meeting by the specified majority (which varies according to the transaction):
- offering new shares or convertible securities;
- acquiring or disposing of assets which are of material size or necessary for the operation of the business of the target company (including IP rights) having a value of more than 10 percent compared to the criteria specified in the SET’s class transaction notification;
- incurring debts or entering into, amending or terminating a material agreement other than in the ordinary course of business of the target company;
- conducting a share buyback (treasury stock) or supporting or influencing its subsidiary or affiliate company in the purchase of its own shares; and
- declaring and paying interim dividends to the shareholders other than in the ordinary course of business.
Do employees/other stakeholders have any specific approval, consultation or other rights?
Employees of the target company do not generally have any specific rights to approve of or be consulted on a potential acquisition. Only if they are to be transferred from an existing employer to a new employer (e.g. as part of an assets acquisition or business transfer) is their consent required. There are no statutory requirements for consultation with unions or work councils concerning acquisitions, disposals or mergers. However, employees of an entity whose business is discontinued on its sale have certain statutory rights as regards the buyer. Prior consultation concerning acquisitions, disposals or mergers is a common contractual requirement in collective agreements with recognized trade unions.
Shareholders will generally have approval rights, particularly where the acquisition involves an issue/sale of primary shares. A shareholder approval by a special resolution is generally required for a target company to increase its share capital and by ordinary resolutions to allot its newly issued shares.
If the acquisition is of primary shares of a listed company, a mandatory tender offer requirement may be triggered (see also paragraph 25 below) unless a ‘whitewash’ approval (or approval from the SEC which is granted in very limited circumstances) is obtained from a shareholders meeting of the target company by a special resolution.
Other stakeholder consent would depend on the existence of any change of control provision in a contract or permit of the target company which requires consent from a lender, major supplier, concessionaire or a joint venture partner before the acquisition of a certain number of shares in the target company.
To what degree is conditionality an accepted market feature on acquisitions?
Apart from conditions relating to the absence of a breach of warranty or material adverse change, the most frequently encountered condition is for shareholders’ approval of the acquirer.
In a public tender offer, the conditions which may be imposed that would enable the acquirer to withdraw are limited to (1) a material adverse event affecting the target and (2) where the target takes action which significantly reduces the value of its shares or delists the shares. The acquirer may withdraw the tender offer only pursuant to any of the following events and such acquirer must have clearly stated such events in the offer document:
- an occurrence of any event or action after the offer document has been submitted to the SEC but during the offer period which causes or may cause serious damage to the status or assets of the acquirer, and such events or actions do not result from the acts of the acquirer or any act for which the acquirer is responsible; or
- the taking of any action by the acquirer after the offer document has been submitted to the SEC but during the offer period which results in a significant decrease in the share value.
What steps can an acquirer of a target company take to secure deal exclusivity?
It is common for a memorandum of understanding or letter of intent to contain an exclusivity period given by either the major selling shareholder (in case of secondary share sale) or the target company (in case of primary share sale).
What other deal protection and costs coverage mechanisms are most frequently used by acquirers?
A non-refundable deposit, or a deposit only refundable if the acquirer does not close as a result of the seller’s breach, protects the seller. Break fees can also be used to protect the acquirer although the directors of the company are not able to fetter their discretion and the payment of break fees on a transaction involving the takeover of a listed company is an undeveloped area.
Which forms of consideration are most commonly used?
In most cases, cash is the form of consideration. There are also cases where consideration is shares in another company (i.e. share swap), but these cases are rare. A share-for-share acquisition involving the issuance of new shares by an acquirer for a non-cash consideration does not as a matter of law require a valuation but directors of a listed company (as a practical matter) will obtain a valuation from a financial adviser for liability reasons.
At what ownership levels by an acquiror is public disclosure required (whether acquiring a target company as a whole or a minority stake)?
There is no statutory obligation requiring a private company or public company to publicly disclose information when acquiring a target company.
However, an acquisition of shares at every 5 percent of the voting rights in a listed company is required to be publicly disclosed. The acquirer needs to submit an acquisition form (the Report of the Acquisition or Disposition of Securities in a Business, or Form 246-2) to the public via the SEC system. This excludes certain types of acquisition, such as rights offerings, securities borrowing and lending, or Non-Voting Depository Receipt (NVDR), etc.
An acquisition of shares which reaches or exceeds 25 percent, 50 percent, or 75 percent of the voting rights in a listed company is subject to tender offer and disclosure of information to the public via both the SEC system the portal of the Stock Exchange of Thailand (the “SET”). Please see more details in the answer in item 18.
At what stage of negotiation is public disclosure required or customary?
Public disclosure is not required.
Publicly Listed Company
The Stock Exchange of Thailand (“SET”) requires the board of directors of a target company which has been contacted by an offeror, whether or not an agreement has been reached on the making of a tender offer, to keep information which has not been disclosed to the public strictly confidential, to ensure that the persons concerned with negotiations keep the information regarding the negotiations confidential, and to ensure that the persons who act as representatives, intermediaries or financial advisors perform their duties responsibly and keep the information confidential. The target company is required to contact the SET immediately if it concludes that there may have been disclosure of the information on the negotiations which has not yet been officially announced to the public. If the information relating to the takeover is leaked, the target company is required immediately to disclose the information to the SET.
In the case of an acquisition of a minority stake and a secondary share sale, the target company is required to make public disclosure if there is a change, directly or indirectly, of its major shareholders (the term “major shareholder” is defined to mean a shareholder holding more than 10% of shares in the target company). This normally takes place upon completion of the acquisition.
In addition, when an acquirer has carried out one of the following transactions so that the number of securities held by it reaches or surpasses 5 percent or a multiple of 5 percent of the target company’s shares (there are complicated rules applicable to disclosure in the case of the acquisition of convertible securities or warrants), the acquirer is required to report the transaction to the SEC:
- direct acquisition or disposal of shares or convertible securities of the target company;
- becoming or ceasing to be a related person; or
- becoming or ceasing to be a concert party.
Is there any maximum time period for negotiations or due diligence?
There is no maximum time period for negotiations or due diligence to take place.
Are there any circumstances where a minimum price may be set for the shares in a target company?
In the case of a private company, there is no requirement for a minimum price for the shares in a target company.
For a public company, there is no requirement for a minimum price except in the following cases:
- In the case that the acquirer acquires shares in the target company resulting in its shareholding reaching or exceeding 25, 50 or 75 percent of the voting rights in the target company, the acquirer is required to make a tender offer for all securities of the target company. In such case, the tender offer price must not be lower than the highest price for the shares of the target company paid by the acquirer or any of its related persons during a period of 90 days prior to the date on which the tender offer documents are submitted to the SEC.
- In the case of a delisting tender offer, the offer price must not be less than the highest price calculated on the following bases:
- The highest price paid for the shares which have been acquired by the acquirer or any of its related persons during a period of 90 days prior to the date on which the tender offer documents are submitted to the SEC;
- The weighted average market price of the shares during a period of 5 business days prior to the date on which the board of directors of the target company resolves to propose its shareholders’ meeting to consider delisting the shares from the SET;
- The net asset value of the target company calculated based on the book value which has been adjusted to reflect the latest market value of the assets and liabilities of the target company; and
- The fair value of ordinary or preference shares of the target company as appraised by a financial advisor.
Is it possible for target companies to provide financial assistance?
Financial assistance is generally not restricted except in the case of a listed target company where the financial assistance constitutes a connected party transaction due to the fact that it is a transaction between the target company and its related persons. Shareholder approval by special resolution is required if the amount of the financial assistance equals or exceeds 3 percent of the net tangible asset value of the target company.
Which governing law is customarily used on acquisitions?
Thai law. This is the case for all domestic transactions and some cross-border ones. In a cross-border transaction, Singapore arbitration (or another offshore arbitration venue) is commonly specified as a dispute resolution mechanism. Thailand does not enforce foreign judgments, but is a party to the New York and other arbitration conventions.
What public-facing documentation must a buyer produce in connection with the acquisition of a listed company?
The key public-facing documentation that a buyer must produce in connection with the acquisition of a listed company is comprised of:
- The Report of the Acquisition or Disposition of Securities in a Business (Form 246-2);
- The takeover statement (Form 247-3);
- The tender offer for securities (Form 247-4);
- Form for revising / adding information in a tender offer statement (for amendment to the duration of the tender offer period and proposal of tender offer) (Form 247-6 Kor); and
- The Report on the Result of the Tender Offer for Securities (Form 256-2)
What formalities are required in order to document a transfer of shares, including any local transfer taxes or duties?
A share transfer instrument is required to be entered into between the transferor and the transferee and witnessed by at least one witness.
The share transfer instrument is subject to stamp duty calculated at the rate of 0.1% of the greater of the sale price of, or the amount paid up on, the shares, if it is executed in Thailand or executed overseas and subsequently brought into Thailand.
Unless agreed otherwise by the parties, the stamp duty is payable by the seller of the shares.
Publicly Listed Company
There is currently no stamp duty payable in the case of a transfer of listed shares.
Are hostile acquisitions a common feature?
These are not common. There have been only a few cases in the past 10 years. Thai law does not provide for any difference in procedure for recommended and hostile offers.
What protections do directors of a target company have against a hostile approach?
There is generally no specific protection afforded to the directors when there is a hostile takeover.
On the contrary, directors are restricted from undertaking certain activities during a takeover, as outlined above in paragraph [question] 9.
Nonetheless, the directors are obligated to give opinion to the shareholders on each of the tender offer documents of each acquirer together with the opinion of an independent financial adviser.
Are there circumstances where a buyer may have to make a mandatory or compulsory offer for a target company?
In a private M&A transaction, there is no requirement to make a compulsory offer for a target company unless it is specified in a shareholders’ agreement.
In the case the acquirer acquires shares in the target company, which is a listed company, resulting in its shareholding reaching or exceeding 25, 50 or 75 percent of the voting rights in the target company, the acquirer is required to make a tender offer for all securities of the target company.
If an acquirer does not obtain full control of a target company, what rights do minority shareholders enjoy?
Under the general law, the only right of minority shareholders is to inspect the books and records of the target company unless special rights are included in the target company’s articles of association, as well as the right to take action against directors if the directors cause damage to the company and the company fails to take action against the directors.
Public Company (shareholders holding less than 25%)
- Request that the board of directors of the target company calls a shareholders meeting (20%).
- Institute proceedings against directors before the court (if the target company refuses to do so) for breach of fiduciary duties, the articles of association, shareholders resolutions or applicable law (5%). Given the new class rights legislation, which came into force at the end of last year, shareholders can easily gather and take legal action against the directors before the court.
- File a motion before the court for cancellation of resolutions adopted at a shareholders meeting convened or passed in violation of the articles of association or applicable law (20%).
- Submit a written application to the MoC requesting the appointment of an inspector to inspect the business operations and financial conditions of the target company, as well as the conduct of the business by the board of directors of the target company (20%).
Publicly Listed Company (shareholders holding less than 25%)
- Block an issuance of shares at a price below the current market price (10%).
- Block a delisting resolution (10%).
- Propose matters for consideration at the annual general meeting (AGM) or an extraordinary general meeting (EGM) (5%).
Public Company (shareholders holding more than 25% but below 50%)
The following transactions require the vote of shareholders holding at least three-fourths of the shares with voting rights attending a shareholders meeting. Thus, if a shareholder holds more than 25%, the shareholder can veto such a transaction.
- An increase or decrease of registered capital.
- A sale or transfer of the whole or substantial parts of the business of the target company to other persons.
- A purchase or an acceptance of transfer of the business of others by the target company.
- An entry into, amendment to or termination of a contract concerning the lease of the whole or substantial parts of the business of the target company, transfer of the management of the business of the target company to others, or a consolidation of the business with others for the purpose of profit and loss sharing.
- An amendment to the memorandum of association or articles of association.
- An issuance of debentures.
- An amalgamation.
- A dissolution.
Publicly Listed Company (shareholders holding more than 25% but below 50%)
- An issuance and offer for sale of securities to directors and employees of the target company (ESOP).
- A “whitewash” approval.
- A class transaction.
- A connected party transaction.
Is a mechanism available to compulsorily acquire minority stakes?
Currently, there is no squeeze-out mechanism available in Thailand.