Mergers & Acquisitions - Mackrell International

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izconsult law LLCVietnam• using inside information to purchase or sell securities for oneselfor for a third party; disclosing or supplying inside informationor advising another person to purchase or sell securities on thebasis of inside information;• colluding in the purchase and sale of securities aimed at creatinga false supply and demand; trading securities in the form of colludingwith or persuading others to continuously purchase andsell in order to manipulate the price of securities; combining theaforementioned methods or using other trading methods in orderto manipulate the price of securities; or• implementing the securities trading activities without the SSC’sapproval.8 Approval and appraisal rightsWhat approval rights do shareholders have over businesscombinations? Do shareholders have appraisal or similar rights inbusiness combinations?Under the Law on Enterprises, any proposals for the issuance of newshares or disposing of assets of material amounts of the company, ora merger or consolidation shall require the approval of shareholderspresent and voting in person or by proxy representing at least 75 percent of the voting rights.An offer price for shares of a public company must not be lowerthan the average price of the shares published by the stock exchangeduring the 60 days preceding the submission of the offer to the SSCor the average prices of the shares listed by at least two securitiescompanies in the 60 days preceding the submission of the offer tothe SSC.Where a transaction involves state-owned companies, the transactionprice for a strategic investor must not be lower than the averagesuccessful auction prices. Assets of state-owned companies willneed to be appraised in accordance with strict procedures and determinedthrough a competitive method, such as auction or bidding.9 Hostile transactionsWhat are the special considerations for unsolicited transactions?The recently amended Securities Law establishes three situationswhere the investor acquiring voting shares, fund certificates of thepublic company or closed-end fund must tender a general offer toacquire:• if the proposed acquisition results in the investor owning 25 percent or more of voting shares, fund certificates that are issuedand outstanding;• organisations or individuals and related persons holding 25 percent or more of voting shares, fund certificates to purchase 10per cent or more of voting shares or fund certificates, which areissued and outstanding; and• organisations or individuals and related persons holding 25 percent or more of voting shares, certificates of closed-end fund tocontinue the purchase of 5 per cent to less than 10 per cent ofthe voting shares, fund certificates in less than one year after thecompletion of a previous general tender offer.In addition, the amended law provides for six exempted situationsthat are not subject to public offering:• if the proposed acquisition results in the investor owning morethan 25 per cent or more of the newly issued voting shares, fundcertificates according to the issuance plan already passed byGSM of the public company or fund representative board of theclosed-end fund;• if the proposed acquisition results in the investor owning 25per cent or more of the voting shares, fund certificates that arealready approved by GSM of the public company or fund representativeboard of the closed-end fund;• internal transfer of shares between holding company andsubsidiaries;• gift, inheritance or share certificates;• transfer under the court’s decision; and• other transactions as provided by the Ministry of Finance.Generally, the investor must follow the following process in atakeover:• submit a tender offer to the SSC and send a copy to the target;• the target makes an announcement of the offer within three days;• the SSC gives its opinions within seven days;• the board must send its opinions regarding the offer to the SSCand shareholders of the target within 14 days. The board’sopinions must be in writing and signed by two-thirds of theboard members;• the investor must make an announcement in three consecutiveissues of a printed or online newspaper and the website of thestock exchange where the shares are listed, within seven daysfrom its receipt of the SSC’s opinion;• the investor must report the results of the offer to the SSC within10 days from completion of the offer and at the same time makea public announcement on the result of the offer;• the investor must appoint a securities company as an agent conductingthe offer; and• the offer period must be no shorter than 30 days and no longerthan 60 days.It is noted foreign ownership of shares of a public company is cappedat 49 per cent. In addition, where an investor acquires newly issuedshares of a company in a private share placement the investor isrestricted from selling the shares within one year.10 Break-up fees – frustration of additional biddersWhich types of break-up and reverse break-up fees are allowed?What are the limitations on a company’s ability to protect deals fromthird-party bidders?Vietnamese law does not prohibit or otherwise regulate break-upfees and reverse break-up fees. Generally, the parties may agree onthe fees, but the amounts may not be more than 8 per cent of thetransaction value if they are considered as a penalty. Furthermore, theaggrieved party can request for damages for loss. The value of damagesfor loss shall comprise the value of the actual and direct loss thatthe aggrieved party has suffered due to the breach as well as the directprofits the aggrieved party would have earned had such breach notbeen committed. Additionally, though not specifically regulated, thefees should be fully disclosed in the offer document that is registeredwith the SSC and the offer announcement. The break-up fees wouldalso be approved by the shareholders of the target. Where the transactionis between affiliated companies, issues such as transfer pricingand related-party transactions should be considered. If the fees are tobe paid to a foreign party it will raise foreign exchange issue as well.We are not aware of any provisions that prohibit or restrictfinancial assistance in business combinations.Vietnamese law does not place limitations on a company’s abilityto protect deals from third-party bidders. As mentioned above, theboard of the target must send its opinions regarding a takeover offerto the SSC and shareholders within 14 days. The board’s opinionsmust be in writing and signed by two-thirds of the members of theboard. If the board objects to the offer, it is unclear whether the dealcan proceed or be aborted. We note that except for some special circumstances,shareholders are not restricted from selling their shares.www.gettingthedealthrough.com 413
Vietnambizconsult law LLC11 Government influenceOther than through relevant competition regulations, or in specificindustries in which business combinations are regulated, maygovernment agencies influence or restrict the completion of businesscombinations, including for reasons of national security?The Vietnamese government may restrict or bar certain cross-bordertransactions for reasons of national security or public policies ofVietnam.Cross-border M&A transactions shall comply with the commitmentsof Vietnam upon accession to WTO. Transactions involvinga Vietnam-incorporated company active in multiple businesses usuallyrequire appraisals of various line ministries and satisfaction ofnumerous industry specific conditions. Business lines that are notrequired to be to open to foreign investment under the WTO frameworkare subject to the sole discretion of the Vietnamese authorities.Due to the workload in some big cities, a lack of inter-agency coordinationand a lack of implementing regulations in several sectors,these reasons may break deals or delay business combinations insome situations.12 Conditional offersWhat conditions to a tender offer, exchange offer or other form ofbusiness combination are allowed? In a cash acquisition, may thefinancing be conditional?A tender offer must ensure that:• all conditions specified in a tender offer must apply equally to allshareholders in the target company;• the relevant parties can fully access the tender offer information;• the right of the shareholders to sell the shares of the target companyis fully respected; and• the Securities Law is observed.A tender offer must be between 30 and 60 days. A tender offer maybe supplemented or revised with terms no less favourable than thoseof the previous offers.During a tender offer process, the offeror shall not:• directly or indirectly purchase or undertake to purchase the subjectshares of the offer outside the offer tranche;• sell or undertake to sell the subject shares of the offer;• treat shareholders holding the subject shares unfairly; or• supply separate information to a sub-group of shareholders orprovide a different level of information to different groups ofshareholders or at different times.After making a public announcement, the offeror may only withdrawthe offer in the following circumstances:• the total number of shares registered to sell is less than thatintended to be purchased by the offeror as announced;• the target company increases or reduces the number of its votingshares via a share split, share consolidation, or conversion ofpreference shares;• the target company reduces its shareholding capital;• the target company issues additional securities to increase chartercapital; or• the target company sells all or a part of its business or assets.In a cash acquisition, the purchaser must specify in its disclosurereport to the SSC the sources of funds it uses for the acquisition.13 FinancingIf a buyer needs to obtain financing for a transaction, how is this dealtwith in the transaction documents? What are the typical obligations ofthe seller to assist in the buyer’s financing?First, the buyer should provide in the transaction documents the requisiteapproval of the financing entity, this being a condition precedentupon closing of the transaction. Second, the payment schedulemust be commensurate with that of the financing arrangementbetween the buyer and the financing entity. Third, with respect toonshore transactions, the payment should be directed to an indirectinvestment capital Vietnamese dong account opened by the buyerwith a licensed bank in Vietnam, from which the purchase price willbe paid to the seller’s designated account.The Vietnamese authorities require evidence of payment beforean approval is granted. The approval, however, is usually one of theconditions required by the financing entity before the disbursement.This conflict maybe solved in practice in a number of ways, suchas escrow arrangements, payment guarantees or the buyer grantingsecurity over the equity in the target to the seller from the date ofissuance of the approval until the payment of the purchase price.It appears that a Vietnamese-incorporated company is not prohibitedfrom giving financial assistance (directly or indirectly) to thepurchaser in an M&A transaction, such as giving security to thebank loan obtained by the purchaser to finance the acquisition ofshares in itself or its holding company.Vietnamese law is silent on the seller’s obligations to assist thebuyer’s financing in an M&A deal. In practice, the seller may, uponmutually agreement by the parties, assist the buyer in its financing byrecommending some sound financing entities to the buyer or signingnecessary documents relating to the buyer’s financing purposes. Theseller may also give security to the bank loan obtained by the buyer incase the buyer wishes to use the acquired shares or assets as securedassets for the bank loan.14 Minority squeeze-outMay minority stockholders be squeezed out? If so, what steps mustbe taken and what is the time frame for the process?Vietnamese law does not specifically regulate situations where minorityshareholders are squeezed out. Since the law does not require theconsent of all shareholders, a business combination may still occuragainst the will of the minority shareholders. In the case of a mergerwhere it is approved by a supermajority in number representingthree-quarters of the voting rights of the shareholders present or byproxy, the merger plan will be binding on all the shareholders. If themerger plan calls for the transfer of all of the company’s shares, thenthe entire share capital of the company will be transferred to theacquirer (including the shares of any dissenting shareholder). Thereare no regulations specifying the steps to be taken and time frame forthe process in this particular minority squeeze-out.The minority shareholders of a public company are neverthelessprotected in a takeover situation where they can refuse to sell theshares to the offeror or are even entitled to withdraw the subjectshares at any time during the offer process. They also have the putoption to compel the acquirer to buy their shares at the announcedtransaction price if, as a result of the acquisition, the acquirer ownsmore than 80 per cent of the outstanding shares of the target.15 Cross-border transactionsHow are cross-border transactions structured? Do specific laws andregulations apply to cross-border transactions?Cross-border transactions may be structured as an asset or equitydeal.Asset acquisitions usually involve the establishment of a whollyowned entity specifically for the purpose of acquiring the business414 Getting the Deal Through – <strong>Mergers</strong> & <strong>Acquisitions</strong> 2013
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