This country-specific Q&A gives an overview of mergers and acquisition law, the transaction environment and process as well as any special situations that may occur in Thailand.
It also covers market sectors, regulatory authorities, due diligence, deal protection, public disclosure, governing law, director duties and key influencing factors influencing M&A activity over the next two years.
This Q&A is part of the global guide to Mergers & Acquisitions. For a full list of jurisdictional Mergers & Acquisitions Q&As visit http://www.inhouselawyer.co.uk/index.php/practice-areas/mergers-acquisitions/
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 Securities and Exchange Act B.E. 2535 (1992), as amended, (SEC Act) including various notifications (such as disclosure requirements and takeover regulations) issued under it - the Securities and Exchange Commission (SEC) is the regulatory authority for this legislation.
The Thai Public Limited Company Act B.E. 2535 (1992), as amended (PLC Act) – the Ministry of Commerce (MoC) is the regulatory authority for this legislation. The PLC Act is relevant where an acquiror or a target company is a public company.
The Thai Civil and Commercial Code, as amended (CCC) – 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 Foreign Business Act, B.E. 2542 (1999)(FBA) - the MoC is the regulatory authority for this legislation.
What is the current state of the market?
There is considerable activity in the market. Private negotiated transactions are common, both domestic and cross-border (inbound and outbound). There is no single underlying reason for the transactions. Foreign companies needing to deleverage have sold Thai businesses acquired by them in the past. Thai enterprises are expanding in the ASEAN area and some consolidation is evident in anticipation of the regional opportunities offered by the Asian Economic Community. Other companies are also re-organising assets with a view to fundraising and expansions.
Which market sectors have been particularly active recently?
Retail has been active, the largest transaction being the acquisition by Berli Jucker of Big C Supercentres through the negotiated acquisition of a controlling stake and subsequent tender offer. Other major transactions have included WHA Corporation’s acquisition of Hemaraj Land, in the logistics, warehouse and industrial estates field, and the low oil price has given rise to activity in the energy and renewable energy sectors. Real estate and real estate related transactions (hotels etc) are common.
What do you believe will be the three most significant factors influencing M&A activity over the next 2 years?
International economic conditions, the strength of the Thai Baht and the appetite of foreign investors, particularly Japanese investors for real estate and Chinese investors for assets generally.
What are the key means of effecting a merger?
The most common method of effecting a merger, in the broadest sense, is the acquisition of shares in the target company. In the case of a foreign acquirer this generally means a direct investment from outside Thailand, except where foreign ownership restrictions necessitate the establishment of a holding vehicle in Thailand. Such a vehicle will be structured to have the majority of its shares owned by Thai nationals to meet the requirements of the FBA but the foreigner will have control though the use of different classes of shares with weighted voting rights (and possibly also different economic rights).
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. Asset acquisitions directly by foreigners are not common and in most cases a foreigner will form a company in Thailand to acquire the assets.
A procedure for mergers in the strict sense does exist for private companies under the CCC and public companies under the PLC Act, involving a new company being created from at least two existing companies which are automatically dissolved on the merger (amalgamation) becoming effective (A+B = C). However, this is not much used as it is time consuming and objecting creditors 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?
Unlisted target company
Generally, information is not publicly available, except for basic corporate information such as corporate documents (e.g. directors’ names, shareholders’ names, authorised directors etc.), memorandum and articles of association and annual audited financial statements, which are available in Thai only.
There is no statutory obligation requiring a target company to disclose information to a potential acquirer. This is negotiated on a case-by-case basis.
Listed target company
Information that is available to the public is: -
- corporate documents (e.g. directors’ names, shareholders’ names, authorised directors etc.), memorandum and articles of association (in Thai and some in English);
- quarterly reviewed and annual audited financial statements (in both Thai and English);
- annual registration statement containing updated business information (in Thai);
- annual report (in both Thai and English); and
- public filings upon the occurrence of certain material events (in both Thai and English).
Like a private company, there is no statutory obligation requiring a listed target company to disclose 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.
To what level of detail is due diligence customarily undertaken?
Unlisted target company
Normally, extensive due diligence is undertaken, both legal and accounting/financial, but in the case of small family-owned targets there may be practical difficulties in obtaining all the information required (though all the more reason for trying to obtain it).
Listed target company
In the case of an acquisition of a publicly listed company, it will depend on the transaction (on 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 meeting.
For a secondary share sale, there is generally no requirement for approval from the target company, either from the board of directors or the 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 ¾ of the total number of votes of shareholders who attend the meeting and have the right to vote (or 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 which approves the issue 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 with 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 an opinion, which must be circulated to shareholders together with the directors’ opinion- see also paragraph 23. 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 a formal announcement of a tender offer until 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 per cent compared with 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 the business of the target company;
- conducting a share buy-back (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 or be consulted on a potential acquisition. Only if they are to be transferred from an existing employer to a new employer (e.g. on an assets acquisition or business transfer) is their consent required.
Shareholders will generally have approval rights in particular where the acquisition involves an issue/sale of primary shares. A shareholder approval by 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 24 below) unless a ‘whitewash’ approval (or approval from the SEC which is granted in very limited circumstance) is obtained from a shareholders meeting of the target company by 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.
What regulatory/third party approvals are required and what waiting periods do these impose, if any?
MoC in charge of the FBA
A share transfer may result in a target company becoming majority foreign-owned in which case, if the target engages in a business restricted to foreigners under the FBA, an application for a foreign business licence from the MoC may be required.
In some cases, a transfer may result in the change of the nationality of the major shareholders that ultimately own and control a company in Thailand which has obtained permission to operate a business in Thailand by virtue of a treaty to which Thailand is a party. In such a case, the target company may be required to submit an application for a foreign business licence from the MoC.
MoC in charge of the Trade Competition Act
The Trade Competition Act (TCA) prohibits the mergers of businesses that may result in a monopoly or unfair competition, as prescribed by the Trade Competition Commission (TCC), unless permission is obtained from the TCC. To date, however, no implementing regulations have been enacted so merger controls have not been enforced.
In July 2016, the Council of State completed its examination of a new draft of the Trade Competition Act (New Act). The New Act is being circulated to the relevant authorities for further consideration of the changes before introduction to the National Legislative Assembly. Although the general principles regarding abuse of dominant position, mergers, collusive conduct and unfair trade practices remain the same, the New Act aims to overhaul the TCA by transforming the TCC into an independent agency. Further, the New Act will criminalize overseas mergers which result in monopolies or unfair competition in Thailand. The New Act will increase the penalty to a fine of an amount not exceeding 20 percent of the offender’s income during the year of the offence, but will remove the imprisonment penalty under the TCA. There is no clear timeline for when the New Act will come into effect.
Other regulatory approvals
This depends on the business sector of the target company. For example if the target company is a financial institution, approval from the Bank of Thailand would be required for any person wishing to hold more than 10 per cent of the target company.
Third party approvals
Other third party approvals would depend on the existence of any change of control provision which requires the target company to obtain consent from a lender, major supplier, concessionaire or a joint venture partner prior to the transfer 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 conditions which may be imposed which would enable the acquirer to withdraw are very limited.
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 a seller breach) protects the seller. Break fees are possible to protect the acquirer, though the directors are not able to fetter their discretion and the payment of break fees on a transaction involving the take-over 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 issue 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 one from a financial adviser for liability reasons.
At what stages of an acquisition is public disclosure required (whether acquiring a target company as a whole or a minority stake)?
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 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 take-over 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 passes through 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.
Are there any circumstances where a minimum price may be set for the shares in a target company?
There is no requirement for a minimum price for the shares except in the following cases:
1) In the case the acquirer acquires shares in the target company resulting in its shareholding reaching 25, 50 or 75 per cent of the total voting rights in the target company, the acquirer is required to make a tender offer for all securities of the target company.
In the tender offer documents, the tender offer price must be not 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.
2) 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 has 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 five business days prior to the date on which (a) the board of directors of the target company resolves to propose for consideration by the shareholders meeting of the target company the delisting of the shares from the SET or (b) the date on which the shareholders meeting resolves on the delisting of the shares from the SET, whichever comes first;
- 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 the 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 as 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 to or exceeds 3 per cent of the net tangible assets 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 (or other offshore arbitration venue) arbitration 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 is it necessary for a buyer to produce in connection with the acquisition of a listed company?
Generally, the common forms are: -
- 247-3 - announcement of intention to make a tender offer – which is generally required where there is, among other things, a formal letter submitted by the acquirer to a major shareholder.
- 247-4 - the tender offer form.
- 246-2- the disclosure of shareholding interest form which is required when the acquirer acquires shares and increases the number of shares held by it to a number which reaches or passes a multiple of 5 percent.
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?
Not common. There have been only a few cases in the past 10 years.
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.
Nonetheless, the directors are obligated to give an 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 the case the acquirer acquires shares in the target company resulting in its shareholding reaching 25, 50 or 75 per cent of the total voting rights in the target company it is required to make a tender offer for all the 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 damages to the company and the company fails to take action against the directors.
Public Company (shareholder holding less than 25%)
- Request board of directors of the target company to call a shareholder 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 business by the board of directors of the target company (20%).
Publicly Listed Company (shareholder holding less than 25%)
- Block issuance of shares at below 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 (shareholder holding more than 25% but below 50%)
The following transactions require the vote of shareholders holding at least ¾ of the shares with voting rights attending a shareholders meeting. Thus, if a shareholder holds more than 25%, it 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 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 of the memorandum of association or articles of association.
- An issuance of debentures.
- An amalgamation.
- A dissolution.
Publicly Listed Company (shareholder 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.
- Class transaction.
- Connected party transaction.
Is a mechanism available to compulsorily acquire minority stakes?
There is currently no squeeze out mechanism available in Thailand.