Merger And Acquisition In Thailand

Mergers And Acquisitions

Legally speaking, a merger involves the combination of two companies into a single business organization, while acquisitions are derived from the term “acquire,” which means buying or purchasing a company to the extent of taking over.

Steps On Merging Companies:

1.     Two companies shall do individual Due Diligence and make sure they are legally bounded to do so based on their independent assessment and decision,
2.     Each company will call for a shareholders meeting at least 14 days before the meeting through registered mail or through a local newspaper and shall release a Special Resolution for Merger, which shall be voted by a majority. In Thai law, the majority in M&A should not be less than ¾ of the total shares of those who are present during the meeting.
3.     Within 14 days of obtaining a Special Resolution in the matter of merging, it shall be registered accordingly.
4.      The merging shall be published in any Thai Local newspaper. In case of any opposition to the Special Resolution, a written objection must be sent through registered mail within 60 days. In case of its approval, the merging companies must consider all the details of their agreements.
5.     The newly combined companies should be registered within 14 days.

Steps On Acquisitions:

1. Plan A Strategy For Acquisition 
The first step to executing an acquisition is to have a particular goal in mind. It is essential to have a clear picture of what you want to get from the acquisition. The initial interest generally involves tax advantages:

1. The utilization of remaining funds and group value increase
2. Decreased start-up costs
3. The value of the combined companies should ideally be higher than the respective companies alone.

Depending on the type of acquisition, two types of synergies exist:
1. If one company acquires a competitor, it is referred to as horizontal acquisition.
2.If a company acquires another company in order to grow more rapidly, it is referred to as a vertical acquisition. A noteworthy consideration includes whether the purchasing company is financial or industrial.

2. Determine The Search Criteria For The Acquisition Opportunity

The primary criteria companies must be identified:


Management- The acquirer can improve the management of another company.
Geography- The acquired company has to maintain responsibility for areas where the acquirer will not be involved.
Treasury- The acquired company lacks in its treasury, and the acquirer can bridge that gap for equity as payment.
Business areas- The acquirer grows areas of business that complement the business of the acquired company, and this business can easily be integrated and result in economies of scale.
Elimination of competition
International expansion 


3. Search for potential targets:
The following serve as alternatives:
1. A company can utilize professional services for its corporate finance.
2. By means of competence knowledge, a company can identify which prospects are suitable to acquire and their condition.
3.You may be granted opportunities by financial institutions such as banks.

4. Transaction Planning:
The purchasing company needs to contact multiple companies they may ultimately acquire. Such discussions are intended to provide the acquiring company with information to be able to assess the possible transaction that will occur.The relevant companies often sign a confidentiality agreement or enter into an NDA due to sensitive information being shared in order to promote the advancement of discussions.

5. Company Analysis
Opportunities that appear to be beneficial will involve a preliminary request sent to the company. This information is to be used to better assess the possible acquisition and entails the examination of audited financial statements without imposing prejudice against other companies.

6. Letter of Intent (LOI) and Negotiations
The offer that is first set forth is typically non-binding and clarifies the guidelines of the transaction. The two companies can begin negotiations in more detail once the first offer is proposed.

7. Due Diligence
The comprehensive procedures of Due Diligence commence once the Letter of Intent is accepted. The goal of due diligence is to rectify or confirm the assessment that the acquiring company has put forth to the company being acquired.
Some aspects that will be reviewed include:
• The review of the accuracy of financial figures and any adjustments made to the valuation of the company.
• Evaluation of the corporate aspects of the company's liabilities, assets, licences, insurance, customers, contracts, data protection, industrial and intellectual property, and more.
• Evaluation of the fiscal components and the potential contingencies.
• The labor aspects such as the workers' status.

The potential contingencies that may result from the acquisition are included in the Due Diligence report.


8. Transactional Documents And Contract Drafting
The Due Diligence report is of high importance when it comes to drafting transaction documents and structuring a strategy. Some aspects that are worth considering include:

• Method of payment
• Guarantees
• Power sharing
• Rules that will govern the companies: Transmissions, governing bodies, decision making
• Retaining important people in the company

9. Finance for the operation:
The company that will execute the acquisition needs to plan for the funds that will be needed to execute the acquisition. The time at which the acquisition occurs often depends on the influx of funds from the company making the acquisition. The acquisition operation is leverageable, as is the case with Leveraged Buy-Outs.

The following requirements need to be met by the acquirer:
- Cash flow generation to resolve debt issues
- A slow-growing or stable company. If the company is fast-growing, it would require cash flow liquidity to develop.
- An experienced team
- The potential to lower costsLow unpaid debt
- The possession of non-strategic assets that can be sold to get liquidityAn undemanding investment program and reduced required working capitalDirectors that are company members (recommended)

10. Integration And Closing For The Acquisition:
There will be two timelines at this stage of the process:
1. The signing of the agreement of the operation: asset purchase, acquisition, merger, etc.

2. The integration of the two companies. There may be some complications involved as two companies merge into one. These complications are often related to personnel, internal functions, and computer applications. Such integrations are not easy, but they usually involve some planning before the contract is signed. Companies cannot halt their usual operations as this will lead to losses in value. The internal protocols and decision-making may change once the integration is complete. Therefore, the process of integration is typically well-designed and thought through before it commences.


Q&A On Mergers And Acquisitions

How are public mergers and acquisitions regulated, and who are the regulatory bodies?
The key legislation segments that dictate all public acquisitions and mergers are:

  • Securities and Exchange Act
  • Public Limited Company Act
  • Notifications of the Board of Governors of Thailand's Stock Exchange regarding Disclosure of Information along with Other Acts of Listed Companies regarding the Acquisition and Disposition of Assets.
  • Notification of the Capital Markets Supervisory Board regarding conditions, rules, and procedures concerning the Securities for Business Takeover.
  • Notifications of the Capital Market Supervisory board regarding the rules of entering into material transactions that are considered Acquisition or Disposal of Assets.
The regulators of this legislation include:
  • The Capital Market Supervisory Board
  • The Office of the Securities and Exchange Commission
  • Thailand's Stock Exchange
  • The Takeover Panel, which consists of 5 members as nominated by the Capital Market Supervisory Board and designated by the Securities and Exchange Commission
Specific regulators regulate Merger and Acquisition in particular industry sectors:
  • The Bank of Thailand regulates banking and financing businesses.
  • The Office of the Insurance Commission regulates the insurance business.
  • The National Telecommunications Commission regulates the telecommunication industry. The National Telecommunication Commission instated regulations on measures to prevent unfair competition or anti-competitive conduct in telecommunications service to maintain a fair, competitive environment by demanding that an operator notifies the NBTC if a new competitor enters the same market.
  • The Energy Regulatory Commission regulates the power industry.
The Foreign Business Act governs foreign investment, and the Ministry of Commerce is the regulator. According to the Foreign Business Act, there are some prohibitions on foreign companies regarding the business they are allowed to conduct in Thailand. A foreign entity requires a foreign business licence and explicit permissions to conduct business in Thailand. Furthermore, the Land Code dictates that any foreign entities are forbidden from owning land in the Kingdom. The exception to this prohibition is if the Board of Investment grants a foreign entity an Investment Promotion certificate.

The primary law that governs anti-trust issues in Thailand is the Trade Competition Act, which regulates all mergers and acquisitions and established the Trade Competition Commission. The Trade Competition Act created the trade Competition Commission with the purpose of regulating competition, exercising merger control, and supervising acquisition activities that could potentially lead to a monopoly or establish only one business operator as the dominator across the market.

What is the outline of the competition law that applies to private acquisitions?
The primary merger control legislation in Thailand is the Trade Competition Act. Specific business industries are subject to regulation by particular merger legislation. Such industries include financial institutions, broadcasting, television, energy sectors, and insurance.

A merger will be subjected to the Trade Competition Act if they conform to the following definitions:

  • A merger between two manufacturers, two distributors, a distributor with a manufacturer, and between two service providers, leaving one business standing and the other terminated, or, alternatively, the formation of a new business.
  • Acquisition of over 50% of both the tangible and intangible net asset value of a business with the goal of gaining control over the business administration policy or management.
  • Acquisition of over 50% of all the voting rights of a private company with the goal of gaining control over the business's administration policy or management.

If a merger occurs with the goal of business restructuring between business affiliates and a business operator that exists as a single economic entity, the merger is not subjected to mandatory filing.

Triggering thresholds

e-merger filing

Pre-merger filing is a requisite when a merger creates:

A monopolous market where only one business operator possesses complete control and has the power to determine the supply and products of the services or products it offers, and the business operator has a total sales turnover of a minimum of THB one billion annually.

Any business operator that has a dominant market power described as:
- A single business operator with over 50% market share and a minimum of THB one billion annual sales turnover.
- The top three business operators in a market possessing a total market share of 75% and has a minimum of THB one billion annual sales turnover. This excludes a business operator with less than 10% market share the previous year.

Post-merger notification
A post-merger notification is a requisite if a merger involves a business operator or multiple business operators conducting a merger that has a sales turnover of over THB one billion annually but doesn't result in a one business operating gaining dominant market power.

Regulatory Authorities and Notifications
The regulating authority of the Trade Competition Act is the Trade Competition Commission. This entity is responsible for issuing regulations on merger control rules and finalizing decisions concerning pre-merger filing as well as post-merger notifications. Furthermore, this authority also imposes sanctions and fines.

The Trade Competition Commission must approve a merger before the transaction can be completed. The Commission must finalize the approval within ninety days from the time of submission, with a grace period of fifteen days.

The submission of the post-merger notification must be finalized within a week after the completion of the transaction.

Substantive test
This test is used when a pre-merger filing is reviewed and identifies whether the merger satisfies all of the following:
- The merger is beneficial for promoting a business.
- The merger is relatively necessary for the relevant business.
- The merger does not involve potential harmful effects on Thailand's economy.
- The merger doesn't have any material implications regarding the due interest of Thai consumers.

What other regulatory approvals are required for mergers, such as banking and merger control, and what implications are involved in acquiring such approvals on the public offer timetable?

Requirement of a Foreign business licence
If the transfer of shares results in the majority of the company shares being held by foreigners and the company participates in business activities that the Foreign Business Act prohibits, the target company may require a foreign business licence obtained from the Ministry of Commerce.Share transfers cause the nationality of the major shareholders, who essentially control and own a business in Thailand, to change. The shareholders can then benefit from operating a company in Thailand under a Thai treaty. The target company may then be required to acquire a foreign business licence.

Other approvals from regulators
Any other approvals that may be required largely depend on the industry sector of the target company. For instance, approval from the Bank of Thailand may be required if the target business is a financial institution where an individual wants to possess over 10% of the shares.

Third-party approvals
The state of any potential control or change provision requiring the target company to acquire consent from a supplier, lender, joint venture partner, or concessionaire before a particular number of shares can be transferred will determine the approvals that will be required from thrid-parties, such as a joint venture company.

What foreign ownership restrictions are there regarding shares, and what approval requirements are there?

Foreign Business Act

The Foreign Business Act restricts particular Thai businesses operated by foreign entities according to the administration of the Ministry of Commerce. For FBA restrictions purposes, a foreign person, a business incorporated in a different country than Thailand, and a company operated in Thailand with 50% or more foreign ownership by foreign companies or persons are classified as foreign.

There are three business categories that are subject to restrictions or prohibitions directed at foreign nationals according to Thai corporate law. Foreign nationals are not allowed to participate in business operations listed under the first category, which involves broadcasting, antique trading, forestry, and farming.

Furthermore, foreign nationals aren't allowed to participate in industries that relate to arts, tradition, national security, culture, folklore, customs, natural resources and environmental issues, and handicraft. These industries are described under the second category. Foreign nationals are exempt from these prohibitions if the Foreign Business Act grants them permission from the Ministry of Commerce as well as approval from the Thai Cabinet.

Moreover, foreign nationals are restricted in their participation in any business industries under the third category unless the Ministry of Commerce grant them permission. The third category includes a list of 21 restriction categories, which includes construction, engineering, accountancy, wholesaling and retailing, hotel operations (excluding hotel management), Food and beverage sales, tour guiding, and another category referred to as "other services." Whether or not it will be possible to get permission from the Ministry of Commerce depends on the restriction category.

It is worth noting that certain service businesses are not subjected to the FBA due to Ministerial Regulations. Such businesses include:

  • Bank representative offices
  • Commercial banking business and any related company of commercial banks
  • Asset management company business
  • Any life insurance as well as non-life insurance companies
  • Any securities business or other business under the securities law
  • Any business where a state enterprise or government unit is a participating party

Board of Investment
If a foreign entity participates in restricted business, it can be excused from the FBA requirements if the Board of Investment grants them an investment promotion, if it is eligible according to an international treaty, or if they have permission from the Industrial Estate Authority of Thailand to run an export or industrial business.

If this is the case, the situation must be conveyed to the Ministry of Commerce, and the foreigner is required to obtain a foreign business certificate. The administrative procedures for obtaining such a certificate are generally less burdensome than acquiring a foreign business licence. The Board of Investment provides several tax and non-tax benefits, like giving foreigners permission to own land or be exempt from corporate income tax.

The 1954 Land Code defines foreigners in a more precise manner and restricts businesses with lower than 51% of all the registered capital owned by Thai nationals and with fewer than 50% of the total shareholders being nationals of Thailand from owning land in the Kingdom.

Therefore, if a company wants to own any land and operate its business in Thailand, they are required to meet the requirements of foreign shareholding under the Land Code as well as the FBA.

There are some other specific foreign ownership restrictions for highly regulated business industries in Thailand beyond the foreign shareholding restrictions. Such restrictions include telecommunications, financial institutions, shipping and transportation, and insurance businesses.

Insurance Business Or Financial Institution
Foreigners are commonly restricted from owning over 25% of all the voting rights in an insurance company or financial institution. However, the Office of Insurance Commission or the Bank of Thailand may allow foreigners to have over 49% of voting rights. Furthermore, the Minister of Finance can allow foreign nationals to hold over 49% of voting rights if financial institutions are in distress or if a foreign shareholder can contribute to the stability of the company if it is so recommended by the Office of Insurance Commission or the Bank of Thailand.

Telecommunications Business Operators
A company owned by foreigners and incorporated under Thai law that wants to instate telecommunications business operators is required to have less than 50% of its shares that have foreign-owned voting rights in order to be eligible to apply for a licence to be allowed to offer particular services in the telecommunications industry. There are, however, no restrictions imposed on the directors of telecommunications businesses.

Shipping Companies
The Thai Vessel Act dictates that a business that owns a vessel that operates in Thai territorial waters is required to have a minimum of 70% of paid-up shares possessed by entities in Thailand, and at least 50% of the directors have to be Thai nationals. 51% of shares of a Thai vessel owning company involved in international marine transport are required to belong to Thai entities, with a minimum of 50% of the directors also being Thai.

Land Transport Companies
Suppose a company wants to operate a private or public transport business. In that case, they are required to be incorporated in the Kingdom, and Thai entities must hold at least 51% of the paid-up capital unless the land transport supervision committee allows otherwise based on special circumstances.

How does one obtain control of a public company?

Tender offers take three forms:

  • Mandatory
  • Voluntary
  • Partial

A tender offer can be proposed voluntarily, whereas a mandatory tender offer is triggered when the holding of shares of the securities of a listed company either reaches or surpass particular points.

Such thresholds include 25%, 50%, or 70% of all the voting rights of a listed company.

There are limits on the rights to cancel throughout a mandatory tender offer. These limits are implemented when: 
- The assets or the status of the listed target company is significantly harmed. The damage may not be the consequence of the actions of the buyer.
- The target company pursues actions that severely decrease the value of the company's shares.

A voluntary tender offer is much more flexible in its allowances than mandatory tender offers. The buyer can generally propose the conditions, which usually involve the minimum portion of shares they want to obtain. The buyer then also has the right to withdraw from the tender offer if their minimum percentage shares are not met.

If the prospective buyer wishes to obtain a partial shareholding, the rules of the tender offer have to include a requirement that the buyer's shares after the application of the partial tender offer may not surpass 50% of all the voting rights of the target company. Furthermore, the buyer is required to apply with the Securities and Exchange Commission for a waiver for the partial tender offer, and the holders of the target company's shares must approve the waiver.

In accordance with the Public Limited Company Act, the shareholders of a public company must approve the direct acquisition of the target company by special resolution, whether a privately or publicly listed company. However, this rule can be bypassed by the buyer of the public company through a wholly-owned subsidiary.

If the acquisition of a listed company is of a material size in comparison with the company's size, a special resolution from the shareholders may be required.

Are the seller and the seller's advisors held liable if there are any pre-contractual misinterpretations or misleading statements?

The seller and their advisors will not be liable for any misleading statements or misinterpretations in the pre-contractual agreements unless a bona fida or fraudulent act is involved, according to the Civil and Commercial Code. A fraudulent act occurs when an individual knowingly makes an incorrect statement.

Such a transaction is deemed voidable if the relevant buyer can provide evidence of:

  • An error concerning a crucial element of the legal agreement, such as the property relevant to the legal act or the individual party involved in the legal action, is not the fault of the buyer. If this is the case, all the parties involved return to their position had the transaction never occurred. For instance, the buyer gives the shares back to the seller, and the seller is refunded the purchase price.
  • A misleading representation regarding the quality of the property, which is the object of the whole transaction and without which the transaction would have never occurred. If this is the case, the buyer can dismiss the transaction and obtain a full refund of the purchase price.

Which tax exemptions can be applied to the sale of shares and assets, and what are the common ways to mitigate tax liability?
If the sale of an asset meets these conditions for an entire business transfer, particular tax exemptions may be applicable:

  • The person executing the transfer of a business must register the transfer's dissolution within the same timeframe as the relevant transfer.
  • It needs to be an entire business transfer executed between businesses incorporated under Thai law.
  • The company executing the transfer is required to submit a comprehensive list of all the shareholders, along with the number and value of all the shares of both the transferee and the transferor, to the Revenue Department's Director-General within thirty days of the transfer registration.
  • Neither the transferor nor the transferee can have any outstanding, unpaid taxes at the time that the transfer occurs unless the Revenue Department is provided a form of security, such as a bank guarantee.

What regulations offer a minimum standard of consideration?
There are generally no particular requirements for a minimum standard for consideration. The following cases are the exception:

  • If a mandatory or voluntary tender offer is made, the tender offer price needs to be less than the highest price the buyer or any other involved party has paid for the target company's securities within the ninety days leading up to the day that the documents of the tender offer were submitted to the Securities and Exchange Commission.
  • If there is a tender offer that is de-listed, the tender offer price is required to be higher than the highest value of the following:
    • The highest amount paid for company shares obtained by the buyer or other participating parties within ninety days leading up to the submission of the tender offer documents.
    • The weighted average market price of company shares within the five business days leading up to the time at which the board of directors of the target company settles to put forward consideration by the shareholders' meeting the list of shares that will be delisted from the Stock Exchange or, alternatively, the time at which the shareholders' meeting puts forward the de-listing of company shares from the Stock Exchange.
    • The adjusted net asset value of the target company is computed according to the book value to better reflect the liabilities' and assets' market value.
    • The value of the target company's shares as defined by an independent financial adviser.