Controlling M&A Activities

The control of acquisitions and mergers (M&A) is essential to inhibit the creation of “powers” on the market.

 

The Vietnam Competition Authority, which comes under the Ministry of Industry and Trade, said the number of M&A in Vietnam have been on the sharp rise in the past years. The market saw 38 cases in 2006, 108 cases in 2007 and 345 cases with a record value of US$1.75 billion in 2010. M&As drew the strong participation of foreign investors (both multinational corporations and private equity funds). Most were medium and small deals (deals with an individual value of US$5-20 million accounted for 50-55 percent and with value under US$5 million make up 30-35 percent). There are two forms of M&A: Foreign companies acquired Vietnamese companies and Vietnamese companies buy into other Vietnamese ones, each type accounting for 40 percent.

 

Vietnam started to see many horizontal M&As from 2010 as buyers aim to control the supply of raw materials and restructure purchased enterprises to focus on core business fields. (A horizontal M&A denotes the merging of two competitors that share the same product lines and markets. A vertical M&A on the other hand, represents the merging of two companies that reflect a customer-company or company-supplier relationship.)

 

Remarking on this activity, Mr Bui Nguyen Anh Tuan, a member of Competition Supervisory and Management Board (the Vietnam Competition Authority) said: In the coming years, M&A will be a form that many companies will apply when they meet with difficulties. More and more foreign companies enter the Vietnamese market by way of M&A. Professional consultants and brokers will play an increasingly important role in connecting transactions. In addition, M&A methods will be more and more diverse and complex. M&A cases that lie in the zone of reporting or prohibition began to appear and tended to increase.

 

Mr Bach Van Mung, General Director of Vietnam Competition Authority, said that, in a market economy, M&A activities are very vigorous and associated with the process of boosting production and investment or the process of restructuring during both economic boom and recession times. In other countries, particularly those perfect market economies, laws on M&A behaviours are very strict and the process of monitoring and implementation is also very fundamental. Controlling the process of M&A is aimed to facilitate companies expand business, production and restructuring activities, but it also helps State agencies check M&A activities which may lead to the creation of “powers” on the market, monopoly or domination.

 

In Vietnam, the Law on Competition 2004 provides relatively detailed regulations on supervising this activity. However, many cases are new to Vietnamese ruling.

According to the Law on Competition, centralised economic dealings are prohibited if the combined market share of such stakeholders is greater than 50 percent, and companies formed following centralised economic dealings are not rated small and small. However, this ruling may not be applied to centralised economic dealings if one or more stakeholders is in danger of dissolution or bankruptcy; or they help export expansion or socioeconomic development or technological advancement.

Besides, Vietnam's Law on Competition only applies measures to deal with subsequence when violations are treated. For prohibited centralised economic dealings, violators may be fined 10 percent of total revenues of the preceding fiscal year. They may be added fines and subjected to subsequence-repairing measures like splitting merged companies or coercively selling acquired companies. If they do not report their centralised economic dealings to authorities as stipulated by the laws, they will be imposed a fine equal to 1-3 percent of total revenue in the fiscal year preceding the year of committing of violations.

 

According to Mr Tuan, from the angle of State management, M&A is considered a form of investment that facilitates the market entry of companies. But, to support and manage it effectively, it is necessary to clarify and unify the definition M&A in accordance with international practice in legal documents (especially the Law on Enterprises and Law on Investment).