Briefing
Vietnam’s long-awaited new merger rules are issued
An epidemic and the competition law share little in common but end up in the same place – one attacks fairly and equally; the other attacks unfair inequality. So it was perhaps fitting that on 24 March 2020, in the middle of its fight to control the Coronavirus outbreak, the Vietnamese Government issued Decree 35/2020/ND-CP (Decree 35) implementing its new Competition Law.
Decree 35 will take effect from 15 May 2020. It is the long-awaited important implementing regulation for the new Competition Law (Competition Law) that became effective on 1 July 2019.
Businesses will now need to consider whether their transaction triggers a merger filing in Vietnam and, if so, factor in sufficient time between signing and closing to allow for the transaction’s review (30 days for a preliminary review and, if necessary, a 90 day official review which can be extended by a further 60 days). Merger filings are expected to increase in number as a result of the new rules.
A summary of the key merger control aspects of Decree 35 / the Competition Law is set out below.
Definition of control
An economic concentration between companies will be regulated if the relevant transaction results in acquisition of control by one party over another. Decree 35 introduces a relatively clear definition of “control”.
Accordingly, a transaction will be deemed to result in the acquisition of control if the purchaser:
(i) holds more than 50% of the charter capital or the voting shares of the target;
(ii) has the right to use more than 50% of the assets of the entire business or one business line of the target; or
(iii) has the right to decide:
- the appointment or removal of a majority of or all the directors of the target;
- the amendment of the charter of the target; or
- important business activities of the target, including business operation models, business lines, geographic scope of operations; adjusting the scale of the business; and forms and methods of raising, allocating and utilizing capital.
This new definition of control better reflects the reality of merger structuring than previous regulations. It is not limited to the shareholding acquired by the purchaser but looks into actual rights that may influence material aspects of the business operations of the target. The definition appears to cover indirect control, which needs to be considered in structuring multi-layered transactions.
One open question is whether typical minority shareholder protection rights of a minority investor in an M&A deal would amount to “control”. As there is no one-size-fits-all answer, there may be different views depending on the facts of each specific transaction.
Merger filing thresholds
The Competition Law introduces a new merger filing regime which deviates from the old “market share approach” and takes into account more economic factors of a transaction. Accordingly, a transaction will be notifiable if it exceeds one of the four thresholds (based on the fiscal year preceding the transaction):
(i) the combined market share of the parties;
(ii) the value of the transaction (applicable to onshore transactions only);
(iii) total assets of one of the parties (including affiliates) in Vietnam; or
(iv) total turnover of one of the parties (including affiliates) in Vietnam.
Decree 35 sets out the specific values of each of these thresholds:
|
Sectors |
Turnover |
Assets |
Transaction value |
Combined market shares |
|
Insurance |
VND10,000 billion (around US$428 million) |
VND15,000 billion (around US$642 million) |
VND3,000 billion (around US$129 million) |
20% or more in the relevant market in Vietnam |
|
Securities |
VND3,000 billion (around US$129 million) |
VND15,000 billion (around US$642 million) |
VND3,000 billion (around US$129 million) |
Same as above |
|
Credit institutions |
20% or more of the total turnover of credit institutions in Vietnam |
20% or more of the total assets of credit institutions in Vietnam |
20% or more of the total charter capital of credit institutions in Vietnam |
Same as above |
|
All other sectors |
VND3,000 billion (around US$129 million) |
VND3,000 billion (around US$129 million) |
VND1,000 billion (around US$43 million) |
Same as above |
Merger review timeline
According to the Competition Law, the Vietnam Competition Commission (Competition Commission), a new national competition authority to be established to replace the current Vietnam Competition Authority (VCA) and Vietnam Competition Council) will review a notification in two stages, the preliminary review and the official review. The preliminary review will take 30 days from the date the Competition Commission receives the complete notification file from the parties. If after the preliminary review, the Competition Commission decides that official review is needed, it will carry out a 90-day official review (which can be extended for additional 60 days with written notice to the parties) before issuing the final decision.
Economic standards for reviewing competitive impact
The Competition Law introduced a comprehensive economic approach to reviewing the competitive impact of a transaction. This is progressive compared to the old regime’s reliance on the market-share test, and more in line with international norms. Now the Competition Commission will look into various economic factors to assess the market power of the parties involved and the competitive impact of the transaction. Decree 35 sets out detailed guidance on how those factors are evaluated.
On the upside, this approach provides the regulator with more flexibility in reviewing and making decisions in question. Unlike the old market-share based approach which could potentially exclude a number of significant transactions where the parties have small market share but strong market power thanks to their position in the supply-chain system, clientele or knowhow and technology, this comprehensive economic test approach should give the Competition Commission greater flexibility to take better account of changing market conditions in its assessment of transactions, an important consideration for a fast-evolving economy like Vietnam.
The main challenge of this approach is that it will require the authority to develop the necessary resources and expertise to adapt to a more economic-based assessment of transactions. In addition, to ensure the regime is predictable and to provide legal certainty for merging parties going through the merger review system, it will be important that the Competition Commission shares details of their analysis both in relation to ongoing and past cases.
More robust enforcement
Since the new Competition Law was passed in 2018, Vietnamese authorities have been more active in monitoring competitive conduct. Notable examples include:
(i) the VCA’s investigation into Grab-Uber deals in 2018-2019;
(ii) in another case relating to Grab, the Appellate Court of Ho Chi Minh City recently upheld the trial court’s judgement that Grab violated Vietnam’s pilot program for application of technology to passenger transportation business; and ordered Grab to compensate its competitor Vinasun, a major local taxi company, for damages due to such violation; and
(iii) a number of recent investigations by VCA into cartel and abuse of dominance activities between major competitors.
Our expectation is that enforcement activity will continue to increase over time. In the immediate term, it will be interesting to see what impact the Coronavirus outbreak will have on enforcement levels. It is possible that the authorities will scrutinise any attempts by companies to exploit the crisis by inappropriately enhancing their commercial position or harming consumers.
