Question:
Company A intended to buy 55% the total charter capital of Company B which is now being held by Company C. All of the 03 enterprises are operating in real estate business major. The total asset of Company A and Company B is 2500 billion VND and 1000 billion VND, respectively. The total market share of these company in the real estate market is less than 1%. In this account, are the 03 enterprises required to carry out the economic concentration notification procedure?
Answer:
In accordance with the current Competition Law, M&A activity – business merger and acquisition – is one of the economic concentration activities and if it falls within the threshold of concentration notification, the transaction is required to be notified to the competent authorities and shall only be able to be continued after the competent authorities confirm that it is not a prohibited concentration transaction.
The determination of concentration notification threshold is based on Article 33.2 of the 2018 Competition Law and Article 13.1 of Decree 35/2020/NĐ-CP elaborating on several articles of the Competition Law. Accordingly, enterprises must notify the economic concentration before its implementation if it falls into one of the following cases:
- Total asset available in the Vietnamese market of a company or a group of affiliated companies of which the company is an affiliate must be worth VND 3,000 billion or more in the fiscal year preceding the planned year of economic concentration;
- Total sales or purchase volume arising in the Vietnamese market of a company or a group of affiliated companies of which the company is an affiliate must be worth VND 3,000 billion or more in the fiscal year preceding the planned year of economic concentration;
- Value of all economic concentration transactions must be worth at least VND 1,000 billion;
- The joint market share of enterprises intending to participate in the economic concentration program must account for at least 20% of total share of the relevant market in the fiscal year preceding the planned year of economic concentration.
In case of Company A acquiring 55% of Company B’s shares from Company C, this is defined as an enterprise acquisition transaction in the form of economic concentration as prescribed in Article 29.4 of the Competition Law. Therefore, the partis to this transaction shall have to carry out the economic concentration notification procedure if there is at least one of the aforementioned factors fall within the notification threshold.
In this account, the factor of total revenue and transaction value are not considered due to the silence of the Client, instead, 02 elements which are the market share and total assets of the companies participating in the transaction shall be focused.
Regarding the market share, the total market shares of the 3 enterprises is under 1% of total share of real estate business market, therefore, we assure that this transaction does not fall within the share threshold that subject to economic concentration notification.
However, regarding the total asset of the companies, the law prescribed that the considered asset threshold is the total asset of a company or a group of companies of affiliated companies of which the company is an affiliate participating in the transaction. In this case, the question does not clarify whether the amount is the total asset according to the separate financial reports of Company A or Company B (“Separate Total Asset”) or the total asset recognized in the consolidated financial reports of Company A and Company B/of parent company of which Company A or Company B is a member (“Consolidated Total Asset”). In this case, it could be assumed that the Separate Total Asset exceeds the threshold, then it is only required to determine the Consolidated Total Asset from the Consolidated Financial Statements for the year preceding the year of the transaction of Company A, Company B or the parent company of which Company A or Company B is a member. Accordingly, in case the Consolidated Total Asset of Company A or Company B/the parent company of which Company A or Company B is a member reaches or exceeds 3,000 billion VND, the companies participating in this share purchase transaction shall be subject to the notification of economic concentration procedure before officially conducting the transaction.
For details of procedures, dossiers and issues related to economic concentration notification procedure, please contact ATA Legal Services for advice and support.
ATA LEGAL SERVICES
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