Managing the Relationship with Special Managers

Successful cooperation between a special manager and an acquirer requires the involved parties to know, name and manage this relationship.

A “special manager”

A “special manager” in this article means a key manager who formerly founded/ owned a company and, after selling most or all of their shares in the company, is retained by the buyer to continue working there as a key manager for an agreed period of time.

Warren Buffet once said, “You can’t make a good deal with a bad person”. Yet ironically, it is also often difficult for “too good” persons to make a good deal with each other, and this precisely describes the relationship between the acquirer and the special manager(s) they retain for the acquired business. The manager cannot be a “bad” person, at least in terms of talent, since they have built up a company successful enough to attract the acquirer. Similarly, neither can the acquirer be considered a “bad person” in that they have chosen to not only acquire the manager’s company but also to retain the manager for cooperation.

A special manager is special not only because of their talents, but also because of their legal status. Before selling their shares in their own company, they are the owner – employer. Subsequently, after selling the said shares, they may be perceived as being employed by the very company which they no longer own. The nature of the legal status would be more difficult to define if the manager sold only part of their shares, and stayed at the company – which they now co-owned with the acquirer – as a minority shareholder and concurrently its manager. The circumstance is too special that it is almost impossible to decidedly label the manager as an employee or not of the company.

But successful cooperation between the special manager and the acquirer requires the involved parties to know, name and manage this relationship.

What legal shirt should the relationship between a special manager and an acquirer be dressed in?

Basically there are two designs that a special manager could wear: an employment relationship shirt which is manifested as an employment agreement, or a service supplier shirt manifested as a management service agreement. In the former, the special manager is an employee, while in the latter, a service supplier. The laws of Vietnam permit the parties to freely decide which legal shirt they would like to put on.

For the manager, the role “employee” is self-explanatorily contrary to “employer”, and thus it would seemingly be more desirable for them to wear the shirt of a service supplier. In reality, however, most would prefer to choose an employment agreement, not a service agreement, to be the legal instrument governing their relationship with the company. Why then?

What’s in it for the special manager to be positioned as an “employee”?

Wearing the “employee” shirt may not sound desirable by name, but it brings an abundance of benefits and protection if the special manager works in Vietnam. If defined as “employment” the relationship will be governed exclusively by the laws of Vietnam, particularly by Vietnamese labor regulations which are infamous for their employee-friendly reputation, and further protected by the exclusive jurisdiction of the Courts, not arbitration.

Being an employee means the special manager will have access to the full social welfare benefit package, which consists of, for instance, annual paid leave, maternity leave (of 6 months), payment of social insurance and so on.

On the other hand, sanctioning an employee for breach of the employment agreement is required to undergo a tightly regulated procedure, often with the participation of employee-protecting agencies such as the trade union and the conciliation organ. Provisions on confidentiality and non-competition are fairly difficult to enforce because, inter alia, these terms may be deemed a violation of the employee’s freedom to choose their job and workplace. Should termination be the employer’s final recourse, termination of an employment contract, especially those with employees of high seniority, is often difficult if not impossible. By contrast, from where the special manager stands, unilateral termination is just a matter of prior notice.

What’s in it for the acquirer if the special manager wears the “service supplier” shirt?

It would be easier for the acquirer to manage the relation if the parties can agree that the special manager would wear the “service supplier” shirt. The legal relationship would now be governed by commercial, not labor, law, and can even be made subject to a foreign jurisdiction; employee related benefits can be cut; confidentiality and non-competition provisions should be contractually binding and enforceable; and termination of the relationship is to be freely agreed by and subject to negotiation between the contracting parties without interference from pro-employee regulations.

Is a win-win possible?

In many cases, the acquirer needs the special manager so much that the former must agree for the latter to wear the “employee” legal shirt. In such a case, how should the conflicting needs be balanced so as to bring about a win-win for both parties?

First, agreement on termination of the relationship should be set out in a separate agreement, with effective conditions and timing to be controlled by the acquirer. In addition, the managerial title of the special manager should be forested out not in the labor contract but in a separate appointment which can be revoked by the company.

Second, agreements on confidentiality and non-competition should in similar veins be set out in a separate agreement to be governed like any other civil transactions. This would pave the way for the argument that these agreements are not part and parcel of any labor contract but should be treated as independent agreements subject to the same legal regime and having the same enforceability as any other civil agreement.

Last, but of course not least, is to build up a cooperative, win-win culture for the relationship. As discussed thus far, the relationship between an acquirer and a special manager is neither purely of an employment nor a service supplier-recipient nature. In such a special relationship, in addition to trust and respect, it is the clarity on how the parties are to exercise their agreed respective powers, how they are to cooperate for their mutual benefits and terminate their relationship as agreed, that will be the most enforceable and efficient tool for making a good deal between “too good” persons.

By Mr. Bui Ngoc Hong – Partner, LNT & Partners

This article is featured in Asian-mena Counsel M&A Special Report.

Disclaimer: This article is for informational purposes only. Its contents do not constitute legal advice and should not be regarded as detailed advice in individual cases. For legal advice, please contact our Partners.

Updates on M&A Legal Framework

We are pleased to introduce to you our newest publication on M&A Legal Framework from The Vietnam M&A Research Report 2016 (Issue 6) published by StoxPlus on 8th January 2016. This section is written by Mr. Bui Ngoc Hong – Partner of LNT & Partners. We strongly believe that these updates will be valuable to institutional investors, investment company and foreign players to set a foothold or to expand your businesses in Vietnam.

New legal improvements are likely to simplify the M&A procedures for foreign investors into Vietnam

  • Towards the end of 2015, Vietnam improved significantly its legal platform for M&A transactions, especially for foreign investors.
  • For on-the–stock-market M&A, Decree 60/2015/ND-CP, effective as of 1 September 2015, revised a number of articles of Decree 58/2012/ND-CP (Decree 60) and replaced the previous foreign ownership cap of 49% charter capital, relaxing the thresholds for foreign ownership. Depending on the target company’s business lines and its shareholders’ approval, these changes could enable foreign investors’ acquisition of up to 100% of a local company’s charter capital.
  • For not-on-the-stock-market M&A, effective as of 1 July 2015, the new Law on Enterprises (LOE) and the new Law on Investment (LOI) offer foreign investors relaxed ownership thresholds and simplify the investment procedures.
  • These legal improvements coupled with Vietnam’s full market openings to foreign investments in 2015 and fueled by the local economy’s heightened productivity rates, all suggest that now is the right time for buyers and sellers to actively engage in M&A transactions.

     Market openings ripen foreign investments

  • Under the LOI, foreign investors are permitted to own charter capital of a Vietnamese enterprise without being subject to any limits, unless otherwise stipulated in the following situations:
  1. International treaties to which Vietnam is a party, i.e. the WTO Commitments on Services and other free trade agreements (FTA);
  2. Securities laws governing investment in public companies, securities business organizations or securities investment funds;
  3. Laws on specific industries applicable to particular business lines; or
  4. Laws on state-owned enterprises in case of investments in state-owned enterprises.
  • Interestingly, the remaining restrictions under the WTO Commitments on Services (such as logistics services, foods and beverage supply, among others) are scheduled to be lifted this year 2015. This means, unless future free trade agreements offer better market openings, the scheduled openings under the WTO Commitments will provide the most preferential concessions to foreign investors.

M&A on the stock market –foreign ownership caps relaxed due to Decree 60

  • On October 26th 2015, Vietnam Government issued Decree 60/2015/ND-CP amending several contents of Decree 58/2012/ND-CP. In total, there are 24 adjustments in this new Decree. Decree 60 is intended to add vitality to the Vietnam stock markets and an extra boost to the equitization of State enterprises, as part of the plan to upgrade Vietnam from “frontier” market classification to “emerging” market classification at MSCI, while racing up to finish the SOE equitisation goal set out in Decision 929 by the Government.
  • Under Decree 60, there is no restriction on foreign ownership ratio of a public company, calculated by holdings of voting shares, unless:
    1. otherwise provided in relevant international treaties to which Vietnam is a party;
    2. the company operates in business line(s) for which the LOI and other relevant laws provide limits on the foreign ownership ratio;
    3. the target company operates in a business line with conditions applicable to foreign investors but there is not yet any specific provision on the foreign ownership ratio, then the maximum foreign ownership ratio is 49%;
    4. in case of equitization of Stated-owned enterprises, if the laws on equitization are silent on the foreign ownership ratio, the provisions of Decree 60 shall apply; or
    5. otherwise provided in the target company’s charter, which is subject to change by the shareholders at the annual general meeting.
  • For companies operating in multi-business lines with different provisions on foreign ownership ratios, the foreign ownership ratio shall not exceed the lowest ratio permitted (unless an international treaty provides otherwise).
  • Foreign investors may invest without limitation in government bonds, Government-backed bonds, local government bonds, and corporate bond unless prevented by Law or regulations.
  • The duration for equitized SOEs to finish new business certificate registration and register on UpCom is tighten up to 90 days.
  • The above rules of Decree 60 are expected to ease and increase foreign investment into Vietnam’s stock market. Once the list of business lines with conditions applicable to foreign investors are issued, the participation levels of foreign investors into companies on the stock market will depend only on the target companies’ shareholders’ decision at the general meeting.

For M&A into companies not on the stock market, the improvements introduced by the LOE and LOI are even more comprehensive and significant

New categorization of foreign invested companies, with different investment conditions and procedures depending on foreign ownership levels in the invested company

  • Perhaps the most significant change to M&A foreign investment into Vietnam governed by the LOI and LOE is the categorization of economic organizations into 2 groups depending solely on the foreign owned capital factor, with respectively different investment procedures and investment conditions accorded to each group. The first group includes those economic organizations that are subject to investment procedures and business conditions applicable only to foreign investments and generally are more restrictive (Foreign Controlled Group -FCG).
  • FCG includes any company in which the following conditions exist:
  1. 51% or more of its charter capital is held by one or more foreign investors (i.e. foreign individual or offshore entity); or
  2. 51% or more of its charter capital is held by an enterprise in (1) above; or
  3. 51% or more of its charter capital is held by foreign investor(s) and enterprise(s) in (1) above.
  • Of note, under the LOE the 51% threshold is calculated on the total charter capital of a company, rather than total voting shares.
  • Those that do not belong to the FCG make up the second group (Locally Controlled Group -LCG), which is entitled to enjoy investment procedures and conditions equal to those applicable to domestic investments.

M&A procedures under the new Law of Investment and Law of Enterprises are simplified

Simplified M&A procedures under the LOI and LOE

  • Now that M&A procedures have been simplified and shortened by the LOI and LOE, foreign investors’ share acquisitions into domestic companies shall follow one of the following two types of procedures:
  1. Type 1: If (a) any of the target company’s business lines falls under the business lines conditional to foreign investors , or (b) the foreign ownership resulted from the proposed M&A deal will lead the target company to become one belonging to the FCG, the M&A procedures shall comprise of 2 steps being (i) register and obtain an approval notice from the provincial Department of Planning and Investment and, (ii) upon approval, register the change of ownership as a result of the transaction.
  2. Type 2: For other cases, the sole step is to register the resulting change of ownership or the increase in charter capital of the target company. In case new shares have been issued privately to new investors, registration of the private placement may be required.
  • At the time of this article, the implementing regulations guiding the LOI and LOE have not taken effect. Thus, it remains to be confirmed whether the simplified M&A procedures will prove realistic. Nevertheless, if implemented successfully, the new M&A procedures will reduce significantly the paperwork and shorten the registration time by at least two-thirds of the time it took under the former, repealed legislation.
  • In any event, one virtual certainty is that foreign investors will not have to face the same time consuming procedures to obtain the so-called Investment Certificate, which was required under the former legislation when foreign investors acquired as little as 1% of the local target company’s charter capital.


Other improvements in the legal framework that support M&A deals

Registrability of M&A transactions involving foreign buyers becoming more transparent and predictable

  • Under the former laws, registrability of M&A transactions involving foreign buyers could not be confirmed until the signed M&A transaction documents were submitted to the licensing authority for final registration, or sometimes even worse, until an Investment Certificate was issued to the target company.
  • Now, if the proposed transaction leads the target company to become an enterprise falling under the FCG rubric or involves business lines conditional to foreign investors, it takes 15 days to obtain a notice from the authority to confirm whether or not the transaction is registrable or refused. When either the legal feasibility of the proposed transaction is confirmed or the approval notice is not required, parties to the proposed transaction may enter into contractual binding documents.
  • Taking advantage of this new procedure, foreign investors can avoid practical risks which may arise from lengthy licensing procedures, especially in applying for an Investment Certificate for the target company as previously required under the former legal regime. Owing to the improved procedures, it can be expected that those tools for controlling payment such as escrow account instructions, bank guarantees or share pledges may no longer be as necessary as they were under the former legislation.

Industries and trades restrictive to foreign investment now specified

  • Even with the market openings fully due under international trade treaties, there are a number of industries and trades into which foreign investments are still subject to restrictive conditions. On 30 December 2015, for the first time, the list of these industries and trades together with the respective investment conditions applicable to foreign investment (FCG Restricted Sectors) have been publicized on the Ministry of Planning and Investment’s website for foreign investment, at The FCG Restricted Sectors consists of businesses which must adhere to conditions applicable solely to foreign investment, and those conditions can be one or more of the following:
  1. Conditions of investment forms, e.g. setting up new companies, M&A, or contractual forms;
  2. Requirements of the Vietnamese party’s participation in the investment; and
  3. Conditions in investment areas and scope;
  4. Other conditions stipulated in international investment treaties and laws, ordinances, and decrees.

Other improvements in the legal framework that support M&A deals (cont’d)

The new legal regime helps ease structuring for M&A into sectors restrictive to foreign investments

  • Despite the restrictions placed on the FCG Restricted Sectors, special investment structures can be developed for FCG acquirers to commercially make the most of their investment. In particular, the new voting rules under the LOE and the new, higher allowance of foreign capital in categorizing FCG and LCG, along with other tools, help ease the deal structuring process.
  • Along with the new 51% ownership threshold, voting thresholds to pass a resolution by the decision-making organs of a company have been lowered under the LOE. Specifically, in a joint stock company (JSC) the voting thresholds for passing shareholders’ ordinary resolutions have been lowered to 51% of qualified votes and 65% for certain important matters (previously 65% and 75% respectively) requiring extraordinary resolutions. If voted by way of circulation, shareholders’ resolution may also be passed with only 51% approving votes. Accordingly, a shareholder may generally control a joint stock company by controlling only 51% of the voting shares.
  • In a multi-member limited liability company (MLLC), statutory voting threshold for members’ ordinary resolutions remains unchanged at 65% and 75% for special resolutions. However, the LOE allows the MLLC’s charter to provide a lower voting threshold, e.g. 51% or even less, subject to its members’ agreement.
  • Compared to the voting rules under the former, repealed LOE, majority shareholders will find that these new voting thresholds will make it cheaper to control the target company’s corporate management, as they now need to control only as little as 51% of the company’s voting shares. In contrast, for minority shareholders, it will cost more to buy enough shares (i.e. votes) to block a decision from being passed by the other shareholders.
  • Of note, different from the laws on securities, under the LOE the 51% threshold is calculated on the total charter capital of a company, rather than total voting shares. Accordingly, an acquirer investing via the LOE, i.e. not on the stock market, may find it cheaper to structure their investment so that they can hold and control in their invested company even if their operating company is engaged in the FCG Restricted Sectors. In any event, structures can be devised to achieve the commercial purposes of an investment.

Despite many improvements, some shortcomings still remain

Payment regulations applicable to M&A transaction not compatible with the LOI and LOE

  • Payment in M&A transactions is also an issue to be dealt with urgently. The current payment rules applicable to foreign related M&A transaction are provided by Circular 05/2014/TT-NHNN dated 12 March 2014 (Circular 5) and Circular 19/2014/TT-NHNN dated 11 August 2014 (Circular 19). These rules did not accommodate the relevant changes in the LOI and LOE in which such fundamental concepts as direct investment and indirect investment are no longer been used. In short, both Circular 5 and Circular 19 must be amended. The most expedient payment mechanism is to allow each offshore acquirer to open its own sole investment capital account at a commercial bank in Vietnam, and have the payment from their M&A deals into Vietnam-based companies transferred from that sole investment capital account to the seller’s account.

Existing shareholders may keep foreign acquirers locked out of a public company

  • Compared with former legislation, both the LOE and Decree 60 seem to allow parties of M&A transactions to decide the terms of their deal, i.e. corporate matters are becoming more democratic.
  • With respect to M&A transactions on the stock market, under Decree 60, the existing shareholders in a public company can effectively decide whether or not to open their doors to foreign investors, by setting maximum foreign ownership thresholds in their company’s charter. This should trigger plenty of negotiations not only among the existing shareholders in a public company, but also between a potential acquirer and the existing shareholders, so that a foreign acquirer may purchase shares.

Despite many improvements, some shortcomings still remain (cont’d)

Documents evidencing completion of M&A transactions –the tricky law interpretation may come back

  • With respect to registering M&A transactions which are not on the stock market, i.e. to abide by the LOE, Decree 78/2015/ND-CP (Decree 78, effective as of 1 November 2015) provides a change which may be very consequential especially to the acquirer. This change reads, “share purchase agreements or documents proving completion of the share purchase transaction” must be submitted for licensing registration. Positively interpreted, it could mean that instead of submitting documents evidencing the completion of the share transfer (in previous practice, evidence that the entire purchase price has been made), the parties to an M&A can choose to submit their share purchase agreement.
  • On the other hand, negatively interpreted, the “share purchase agreement” could be deemed as a tool to prove that the share purchase transaction has been completed. If so interpreted, payment terms in the share purchase agreement should require that the purchase price must be fully made at the time the share purchase agreement is submitted for licensing registration. If the positive interpretation applies, payment terms of share purchase agreements can be freely negotiated, and this change should revolutionize the payment terms in an M&A transaction, where lots of trade-offs are expected to be made between the parties. In that sense, the legal environment for M&A in Vietnam under the new legislation empowers parties to make more of their own decisions.

Looking forward

For the first time, Vietnamese law makers introduced new, more reasonable classification of foreign invested companies –FCG and LCG -together with different investment conditions and M&A procedures respectively applicable to each of the two groups. With the new voting thresholds, the new M&A legislation makes it more cost effective, dramatically reducing the time it takes to conduct M&A transactions. The new voting rules tend to support financially stronger shareholders, i.e. those who wish to become a majority shareholder, as they can pass decisions in a company with a smaller percentage of approving votes. In this regard, the new legislation encourages acquirers to buy more into the target company. With the new, improved legal platform, M&A transactions in Vietnam should run faster and more smoothly. With respect to implementation, as usual, there remain issues to be addressed and resolved. However, with the macro-economic factors getting more and more encouraging, the market should soon experience a noticeable increase in M&A traffic.

By Vietnam Law Insight (LNT & Partners)

Disclaimer: This Briefing is for information purposes only. Its contents do not constitute legal advice and should not be regarded as detailed advice in individual cases. For more information, please contact the author Hong Bui at ( or visit the website: Http://

Revised legal framework benefits foreign investors

From July 1, 2015, with the new Law on Investment (LOI) and new Law on Enterprises (LOE) coming into force, Vietnam changes its legal platform significantly for M&A transactions, especially for those with foreign investment elements. From a foreign buyer’s perspective, the legal framework becomes more transparent, simplified, shortened, and generally favouring those aspiring to become the target company’s controlling shareholder. The extent of improvement, however, may depend very much on how the new conditions for foreign investments are stipulated and implemented.

The new rules are geared towards creating a more transparent business environment for foreign investors

The LOI introduces a new categorisation of foreign invested companies, with different investment conditions and procedures. This is perhaps the most significant change affecting M&A by foreign investment in Vietnam under the LOI and LOE.  That is, enterprises are categorised into two groups, with different investment procedures and investment conditions accorded to each group. The First Group includes any company in which the following conditions exist: (a) 51 per cent or more of its charter capital is held by one or more foreign investors (that is, foreign individuals or offshore entities); or (b) 51 per cent or more of its charter capital is held by an enterprise in (a); or (c) 51 per cent or more of its charter capital is held by foreign investor(s) and enterprise(s) in (a). This First Group is subject to investment procedures and business conditions applicable only to foreign investments and is generally  more restrictive. The Second Group covers the remainder companies, which are now entitled to enjoy investment conditions and procedures as provided for domestic investors.

Three lists of business lines are introduced, changing the overall approach of sharing acquisition transactions. The LOI fosters transparency, especially for foreign investment in Vietnam, by making the investment and business conditions public. For the first time, three new lists of business lines are stipulated: First, the list of prohibited businesses—for which no investment is permitted; second, the list of business investments which are permitted but subject to regulations on operational conditions outlined in the List of Regulated Businesses; and third, the list of businesses in which foreign investments are subject to restrictive conditions prescribed by the Foreign Investment Negative List.

Of the three lists, the list of prohibited businesses and the List of Regulated Busineses apply to both domestic investors and foreign investors. To determine whether it is legally possible to invest, a domestic investor must confirm that their proposed investment does not fall under the list of prohibited businesses; meanwhile, a foreign investor will need to check both the list of prohibited businesses and the Foreign Investment Negative List. Once it is confirmed legally possible to invest, then the List of Regulated Businesses will be checked for possible operational conditions.

Under the former regulations, foreign investment is based on an approved project, manifested in the form of an Investment Certificate. The most concerning issue was that the registrability of an M&A transaction involving foreign buyers, even with as little as 1 per cent foreign ownership, could not be confirmed until an Investment Certificate was issued, which usually took four months on average. This time-consuming and somehow unpredictable process is mainly because the licensing authorities had the right to appraise, thus virtually having a lot discretion in permitting or rejecting the issuance of an Investment Certificate.

Now, with the three lists being made public, the role of the authorities changes: they are not in the position to appraise and should have much less discretion to permit or reject a proposed acquisition. Their role now should be to check and confirm whether or not the proposed acquisition is in line with the three publicised lists, and conduct the requested registration if the proposed investment meets the publicly required conditions. Accordingly, in a given proposed share acquisition, a foreign acquirer will need to check the target company’s business lines to ensure that the target company is not engaged in the prohibited businesses. Next, if  the target company is confirmed to have no involvement in the business lines under the Foreign Investment Negative List, it is legally possible to proceed with the proposed share acquisition. However, if involved, the possibilities to proceed with the proposed acquisition is subject to whether the specific restrictive conditions for the relevant business lines can be satisfied.

The new M&A procedures are simplified and shortened. Under the LOI and LOE, foreign investors’ share acquisitions shall follow one of two types of procedures. Type one: if (a) any of the target company’s business lines falls under the Foreign Investment Negative List, or (b) the foreign ownership resulting from the proposed M&A deal will lead the target company to belong to the First Group,  a more complicated procedure shall apply. Accordingly, the M&A procedures comprise of two steps, these being (i) registering and obtain an approval notice from the business registration agency—which is to take 15 days; and (ii) upon approval, registering the change of ownership  as a result of the share transfer transaction–which is to take three working days. Type two: for other cases, the sole three-working-day step is to register the resulting change of ownership or the increase in chartered capital of the target company. With the new M&A procedures, the paperwork is reduced significantly and the registration time can be shortened by at least two-thirds of the time it took under the former, repealed legislation.

The new voting rules make it cheaper to acquire a controlling shareholding (while also making it more costly to acquire enough shares to block a decision). Along with the new 51 per cent ownership threshold used in categorising different groups of investors, voting thresholds to pass a resolution by the decision-making organs of a company have been lowered under the LOE. Specifically, in a joint stock company, the voting thresholds for passing shareholders’ ordinary resolutions have been lowered to 51 per cent of qualified votes and 65 per cent for certain important matters reqioromg extraordinary resolutions (previously 65 per cent and 75 per cent, respectively). If voted by way of circulation, shareholders’ resolution may also be passed with only 51 per cent approving votes. Accordingly, a shareholder may generally control a joint stock company by controlling only 51 per cent of the voting shares. In a multi-member limited liability company, the statutory voting threshold for members’ ordinary resolutions remains unchanged at 65 per cent and 75 per cent for special resolutions. Nevertheless, subject to its members’ agreement, a lower voting threshold, e.g. 51 per cent or even less, can be effectively stipulated in the company’s charter.

Issuance of the Foreign Investment Negative List remains a hidden factor. For foreign acquirers perhaps the most awaited news now is the issuance of the Foreign Investment Negative List—i.e. the comprehensive list of industries and trades into which investments by foreign investors are restricted. This list helps to determine maximum foreign ownership and other investment conditions applicable only to foreign investors. Until this list is issued, foreign investors’ decisions to acquire shares in many local companies may be delayed or cannot be promptly ascertained. What is more important is the volume of the Foreign Investment Negative List. The more this list is reduced, the easier it will be to attract foreign investment—including foreign acquisitions and vice versa.

It remains to be seen how the “investment and procedure conditions as provided to domestic investors” will be applied to the Second Group. Under the draft decree guiding the LOI, investment conditions applied to foreign investors include, among others, “conditions on the scope of investment activities”. However, even this term is ambiguous, thus it is unsure if it includes “business lines”. Consequently, if the term “conditions on scope of investment activities” is interpreted to cover “business lines”, those under the Second Group should enjoy the same, equal legal status and be permitted to invest into any business lines not prohibited to domestic investors. Accordingly, a foreign invested company with less than 51 per cent foreign ownership can engage in business lines till now only open to domestic investors, such as pharmaceutical retailing. If interpreted negatively to foreign investment, “conditions on scope of investment activities” may be narrowed not to include “business lines”, thus nullifying the so-called “investment and procedure conditions as provided to domestic investors”.

The current payment regulations for M&A transactions are not compatible with the LOI and LOE. The current payment rules for foreign-related M&A transactions are provided by Circular 05/2014/TT-NHNN and Circular 19/2014/TT-NHNN. These rules do not accommodate the relevant changes in the LOI and LOE in which such concepts as “direct investment”, “indirect investment”, and “investment certificate” are no longer used. These circulars must be amended. As a recommendation, the most expedient payment mechanism would be to allow each foreign acquirer to open its own sole investment capital account at a commercial bank in Vietnam, and have the payment from their M&A deals into Vietnam-based companies transferred from that investment capital account to the seller’s account.

To sum up, for the first time, Vietnamese law makers introduce new, more liberal groupings of foreign invested companies, together with different investment conditions and M&A procedures respectively applicable to each group.  The investment conditions have been made more transparent, by publicising in three lists, enabling confirmation of legal possibility for a proposed M&A deal. The new M&A procedures under the LOI and LOE can help save at least two-thirds of the time previously taken. The new voting thresholds enable a majority shareholder to pass decisions in a company with a smaller percentage of approving votes, thus encouraging acquirers to buy more so as to control the target company. Overall, this new, improved legal platform should help M&A transactions in Vietnam run faster and more smoothly.

Disclaimer: This Briefing is for information purposes only. Its contents do not constitute legal advice and should not be regarded as detailed advice in individual cases. For more information, please contact our partner: Mr. Bui Ngoc Hong at:

Mergers & Acquisitions 2015

In our Mergers & Acquisition 2015 Roundtable we spoke with 12 experts from around the world to discuss a broad range of topics including: a “new era of opportunities” for Greece; the problem with “gun jumping”; and a bold prediction that 2015 could end up being a record year for announced global M&A deals. Featured regions are: Greece, Japan, Belgium, Ukraine, Switzerland, Luxembourg, Vietnam, Pakistan and USA.
  • LE NET
All questions

1) Can you talk us through the current M&A landscape in your jurisdiction?

2) Have there been any recent regulatory changes or interesting developments?

3) Are you noticing any trends in terms of deal size, volume and/or sectors?

4) What are some of the key issues related to integrating finance organisations?

5) What key risks should finance executives consider in the planning of integration?

6) What are the key risk areas in an M&A transaction, and what common mistakes do companies make during a transaction?

7) Can you outline any applicable anti-corruption legislation in your jurisdiction? What are the potential sanctions and how stringently have they been enforced?

8) Royal Dutch Shell’s acquisition of BG Group was the biggest M&A deal announced in the first half of 2015.  Do you share the same concerns as US regulators in regards to monopoly trends?

9) What is the current status of risk reduction and cost synergy in mergers & acquisitions?

10) M&A typically involves a substantial amount of due diligence from the buyer.  Given the current climate what aspects of due diligence should be focused on in relation to technology/intellectual property?

11) What factors can lead to a dilution EPS (Earnings per Share) in an acquisition?

12) What types of issues can impact the marketing and sales organisation during M&A transaction, and what are the current leading practices to address these key issues?

13) What key trends do you expect to see over the coming year and in an ideal world what would you like to see implemented or changed?

You can also read the full Report at:

1) Can You Talk Us Through The Current M&A Landscape In Your Jurisdiction?

2015 is being again an extremely busy year on the M&A side in Luxembourg, with even more activity than the previous year.  One cannot set aside that there was a concern about the Lux Leaks but eventually investors kept faith in Luxembourg.  This combined with the financial crisis exit brought many deals on the table.

For example, in July 2015, KBL European Private Bankers, headquartered in Luxembourg, acquired Brown Shipley, an independent company operating on the financial planning in the UK.  In May 2015, the Swiss group ExecuJet Aviation Group AG was acquired by Luxaviation, the most important business aviation group in Europe, hence becoming the second most important business aviation group in the world.

Vietnam is one of the largest recipients of M&A from Japan, Korea, Singapore and, to a lesser extent, the US and European Union.  After the first wave of investments in 2011 – 2013[1], Vietnam now faces competition from Indonesia, the Philippines and Myanmar.  Meanwhile, China is reforming its Foreign Investment Law and streamlining the procedures for foreign investment.[2]

At the Spring Economic Forum at Nghe An, Vietnam in April 2015, JETRO issued a survey from over 400 Japanese investors in Vietnam, which revealed that the main concern is the lack of transparency within the law, followed by an underdeveloped support industry.[3]  Meanwhile, Bloomberg recently described Vietnam as Asia’s next economic tiger, supported by the potential of its low labour cost, young population and sizable local market.[4]  Vietnam is now the US’s largest trading partner in the ASEAN region.  However, while Vietnam is already among the top 8 trading partners of Korea, it ranked as Japan’s 14th largest, below Malaysia and Thailand.[5]

The question now is what the Vietnamese government can do to address foreign investors’ concerns and how such investors can overcome the difficulties in Vietnam to take advantage of Bloomberg’s aforementioned economic potential.  I would like addresses the recent changes that will have positive impacts in Vietnam, and a strong message that now is the time to accelerate M&A investment to Vietnam.

In line with general market optimism in Japan since the introduction of “Abenomics,” M&A activities in Japan have been on the rise since 2012, both in terms of number of deals and transaction value.  The depreciation of the Japanese yen, a result of “Abenomics,” continues to make Japanese companies attractive acquisition targets for foreign companies and private equity funds.

In terms of outbound transactions (where the acquirer is a Japanese entity and the target is a foreign entity), many Japanese companies, driven by a sense of crisis as a result of the shrinking domestic market, are pursuing growth opportunities by acquiring suitable foreign targets.  As such, the volume of outbound transactions has also remained buoyant despite the depreciation of the Japanese yen.

All in all, the current M&A landscape in Japan remains upbeat.

A clear distinction should be made between 2014 and 2015 in relation to the Greek M&A landscape.  During 2014 the increase in deal volume was a clear marker of the investors’ renewed interest in Greece.  However, since December 2014, the well-known, political and economic developments, including negotiations with the institutions, Grexit risk and the newly announced elections (scheduled for September 2014) have made both foreign and domestic investors extremely reluctant.  We are looking forward and are confident that, once the situation is stabilised, a new era of opportunities will commence.
The M&A activity in Ukraine remains practically dormant.  Given the political instability, there is little interest from foreign investors in acquiring Ukrainian assets.  Also some of those foreign investors who have previously acquired Ukrainian assets are looking to divest them.  This scenario attracts Ukrainian buyers who try to benefit from the situation and often acquire such assets with very significant discounts.  There is also a significant increase of M&A transactions related to distressed assets.  It is expected that aggressive foreign buyers will likely follow the suit and try to enter the market with the purpose of acquiring undervalued assets in Ukraine but this has not yet become a massive trend.

Belgium’s strongest industrial sectors are the food and beverage industry (chocolate, beer, biscuits), manufacturing (automotive, carpet industry), transport and logistics (logistical centre of Europe, highly developed transport network and presence of international hubs of major logistics companies), the services industry (financial institutions, consultancy) and the TMT sector (characterised by a lot of start-up companies and an excellent network infrastructure).

Belgium is a country with a lot of small and medium-sized companies, many of which are family-owned.  These shareholders often prefer to have a majority share, or be at least a ‘reference’ shareholder, in order to be able to keep the control over their company.  When, at a certain point in time, these reference shareholders are no longer able to make the necessary investments to support their company’s growth, they often prefer to sell their participation rather than to see it become diluted in the context of a capital increase, where another shareholder takes over control of the company.  As a result, there are generally a lot of interesting investment opportunities for both industrial and financial investors.

There continues to be increased M&A activity in Switzerland.  Large caps and in particular listed companies have been highly acquisitive, especially in the TMT and Life Sciences industries.  A number of large strategic transactions closed in 2015, e.g. the asset swaps between GlaxoSmithKline and Novartis, the disposal of SIG, the disposal of Kuoni’s travel agency business and the merger of Holcim and Lafarge.  There is higher appetite for outbound transactions, i.e. Swiss companies acquiring abroad, compared to divestments of Swiss businesses.  Key target markets for many Swiss companies are the US, Germany and China.  Outlook in the SME segment is however prudent due to the strong Swiss Franc.

So far global M&A activity has made a phenomenal start to 2015, with the much awaited rush of deals finally starting to happen.  The $2.30 trillion invested represents the highest recorded value of announced deals globally since H1 2007, when a record $2.60 trillion was invested.

Announced private equity deals as a sub-sector of overall M&A activity totalled $267bn.  However this figure is still 57% lower than the record breaking 2007 time period, the biggest difference in 2015 being the amount of “secondaries” taking place compared to previous years, with these deals representing 22% of all PE deals by value.

The current landscape is busy with many larger transactions being completed exceeding $100million.
Cross-border M&A activities are increasing relatively to new direct investment activities.  The Government is also pursuing an aggressive plan to equitise hundreds of State enterprises, which may create opportunities for investors in a number of attractive sectors.  On the other hand, the trend of merger and consolidation of financial institutions continue as they try to cope with the increasingly competitive market.

2) Have There Been Any Recent Regulatory Changes Or Interesting Developments?

No big regulatory changes in New York, this area has already been through it all.

The Listed Companies (Substantial Acquisition of Voting Shares and Take-overs) Ordinance 2002 (“2002 Ordinance”), has recently been repealed by the Securities Act 2015.  Under the 2002 Ordinance, a Mandatory Tender Offer was required to be made where the shares being acquired of a listed company exceeded 25% or more.  However under the new Securities Act 2015 the thresholds triggering a Mandatory Tender Offer is the acquisition of more than 30% shares.  Further while the 2002 Ordinance has been repealed, the Listed Companies (Substantial Acquisition of Voting Shares and Takeovers) Regulations 2008 issued pursuant to the 2002 Ordinance continue to be in force.

The Competition Act 2010 (Competition Act) has introduced certain new concepts for which there are no precedents in Pakistan.  The Competition Act prohibits the abuse of dominant position, prohibits certain agreements, requires approvals for mergers and acquisitions and prohibits deceptive marketing practices.

Under the provisions of section 11 of the Competition Act, no undertaking can enter into a merger or acquire shares or assets of another undertaking whereby competition is substantially lessened and a dominant position is created or strengthened in the relevant market.  Where an undertaking intends to acquire the shares or assets of another undertaking or two or more undertakings intend to merge the whole or part of their businesses, and such acquisition or merger meets the pre-merger notification thresholds stipulated in the regulations prescribed by the Competition Commission of Pakistan (Competition Commission), such undertaking or undertakings are required to apply for clearance from the Competition Commission of the intended merger/acquisition.  Under the Competition (Merger Control) Regulations 2007, a merger is deemed to have occurred if, among other things, one or more persons or other undertakings who or which control one or more undertakings acquire direct or indirect control of the whole or part of one or more other undertakings.

Any agreement containing exclusivity or non-compete provisions would have to be considered under section 4 of the Competition Act which prohibits agreements which have the object or effect of preventing, restricting or reducing or distorting competition within the relevant market.  If the relevant agreement falls under the ambit of section 4 of the Competition Act, it would require exemption from the Competition Commission prior to the agreement being executed or becoming effective.  The Competition Commission normally grants an exemption within 2-4 weeks of an application being made.  Such exemption is normally granted for a specific period and is renewable at the discretion of the Competition Commission.

We are not aware of any recent legal or regulatory change of the Luxembourg takeover bids or, of the squeeze-out law and of the Luxembourg law dated 10 August 1915 concerning commercial companies, as amended from time to time, which would impact M&A transactions in Luxembourg.
The regulatory changes in the financial and especially banking industry (e.g. capital reserve requirements and increasing compliance costs) have triggered significant M&A activities on the sell- and buy-side.  Another area to watch is the restriction on visas and work permits which might have an effect on M&A in Switzerland as the Swiss industry is highly dependent on the supply of qualified immigrants.
In line with the AEC integration schedule, the Government is introducing a number of dramatic changes to the legal framework for investment, securities and real estate.  The changes amongst others simplify investment procedures and M&A processes, reduce the difference in the treatment of foreign investors and local investors in M&A transactions, allow foreigners’ ownership of personal real properties in Vietnam, and lift the 49% foreign equity cap for most companies listed on the stock exchanges.
The recent amendments to the Companies Act of Japan, which introduced, among other things, squeeze-out procedures, have been lauded as a boost to Japanese M&A practice.  Prior to the amendments, squeeze-outs in Japan were required to be conducted through the use of a certain class of shares, resulting in a complicated and time-consuming process.  The amendments, which came into effect on 1 May 2015, allow for a “special controlling shareholder” of a company (i.e., a shareholder that controls 90% or more of the company) to compulsorily acquire the shares of the remaining shareholders in the company for cash consideration.  The new squeeze-out procedure is expected to simplify and accelerate the squeeze-out process in Japan.

In 2013 Vietnam amended its Constitution; and now officially recognises that the private sector has an equal role in the economy as the public sector.  Many laws have been revised or restated to reflect this principle, most notably the LOI and the LOE.  Both laws will become effective from 1 July 2015, and decrees implementing those laws are underway.

As to the LOI, the most important change in the law is the definition of “foreign investor” or what is deemed to be a foreign investor, and the process of approving M&A transactions.  In the past, companies that held directly or indirectly more than 49% of total capital by foreign investors might be deemed foreign investors.  Now only enterprises held directly by foreign investors (F0) with at least 51% of the total capital, or held by company/ies (F1) where foreign investors directly hold at least 51% total capital are deemed to be foreign investors.  In other words, Japanese investors may establish a local holding company of various structures, to hold the majority of a Vietnamese operating company, whilst at the same time avoid being triggered by the conditions of investment that are applicable to foreign investors.  This “form over substance” approach of Vietnam is different from the “substance over form” approach that China utilises to control offshore held companies and offshore M&A transactions.

In the past, foreign investors have had to obtain an Investment Certificate (“IC”) – now referred to as an Investment Registration Certificate (“IRC”), and as a closing condition for an M&A transaction.  The new law stipulates that only registration at the company registrar (normally the local DPI) is required for foreign investors, or those deemed to be foreign investors.  The registrar will issue an approval for the M&A within 15 days from filing.  This reform is to catch up with China’s recent streamlining of the investment procedure.

As for the application process, Vietnam will introduce a national portal, in which information on the IRC application, as well as the conditions under which it can be made online.  Mega projects or projects using public land or natural resources shall have to obtain principle approval (“PA”) before applying for the IRC, meaning the application process can last from 30 days to 90 days.  Other projects however will be issued with the IC within 15 working days.  There are 29 areas that belong to a “restrictive list” of investment where internal approval from the relevant ministries should be sought, including distribution and logistics services, but those restrictions have been subject to criticism from investors and expected to be relaxed before 1 July 2015.  The IRC is now issued by a local industrial zones authority (“IZA”) or the department of planning and investment (DPI) instead of the People’s Committee, significantly reducing the time frame of IC issuance.  The DPI/IZA responsibilities are now only to review the documents, and not the due diligence of the investors.  It is expected that with straightforward conditions in the application dossier, the DPI shall refrain from asking relevant authorities before issuing the IC.

Meanwhile the MPI has issued Official Letter 4326 /BKHĐT-ĐTNN (OL 4326) for ad hoc guidance to implement the new LOI, as well as the forms to be used from 1 July 2015 to obtain the Investment Registration Certificate (IRC) and its amendments; they key points are:

i.) Online application for IRC: investors can file IRC application online at the National Investment Portal [NIP], and submit a paper dossier within 15 days from the online filing.  In the event that the dossier is accepted, the investors will be given a temporary account to check the application status.  Any incorrect or incomplete application must be notified within three days from receipt by the licensing authority.

ii.) Project Code: the project code is a 10 digit code to be issued to the applied project (Project) during its operation.

iii.) Forms issued: among the forms submitted, please noted that CPC Code and VSIC Code (for business line) is still required when submitting to obtain the IRC.  Separate forms are also available for amendments to the project.

iv.) M&A approval: the form for M&A approval is on form I.6 attached to OL 4326.  This form is simplified, and the explanation to satisfy conditions for M&A is rather brief and must strictly follow the WTO Commitment.  It is unclear how other restrictions under local laws could be satisfied or would need to be satisfied (e.g. ENT for distribution companies).

v.) Forms of decisions and IRCs: OL 4326 also provides new forms of IRCs, Principle Approvals and other decisions for authorities to use.

No noticeable regulatory changes occurred in the past few years in relation to M&A.  A number of tax measures, however, may have had a slight impact on the M&A market.  The Act of 29 March 2012 introduced a 25.75% capital gains tax on the sale of shares by a Belgian company if the shares are sold within one year from their acquisition.  The tax does not apply to physical persons selling shares.  In addition, as from 1 January 2013, a tax of 0.412 % is levied on capital gains resulting from share sales, even if the shares were held for more than one year.  These capital gains were previously entirely exempt.  The tax, however, only applies to large companies and not to small or medium-sized enterprises.
During the last years, there have been extensive regulatory changes and reforms in many fields, aiming mostly into creating a more competitive environment in Greece.  Indicatively, the new Investment Law aims to increase liquidity, speed up regulatory procedures for investment projects and ensure transparency; moreover, the laws that have transposed the UCITS/AIFM Directives have also introduced new investment tools in Greece.  In parallel, the new Civil Procedure Code and the introduction of mediation aims to a modernised and more effective dispute resolution mechanism.  Reforms take place continuously on many other fields of law, including, but not limited to, corporate, labour, fiscal etc.
There has been some significant progress with legislative reforms and initiatives in Ukraine.  However, we are yet to see how these reforms will be implemented in practice.
One of the recent developments is the requirement for all Ukrainian companies to disclose information regarding their ultimate beneficial owners.  The law defines ultimate beneficial owners as individuals who, irrespective of formal ownership of Ukrainian company, may influence the management and business activities of the company.  Information about UBOs is publicly available and may be easily accessed online.There are also important developments in the area of transfer pricing.  It has recently been clearly stated that transfer pricing rules do not apply to value added tax and transactions between related Ukrainian tax residents.

3) Are You Noticing Any Trends In Terms Of Deal Size, Volume And/Or Sectors?

In 2014, there were approximately 190 Belgian M&A transactions (both domestic and cross-border).  This represents a slight increase compared to the period 2011-2013, with approximately 170 M&A deals per year.  Whereas in the first years after the 2008 economic and financial crisis, buyers were most often industrial players and private equity deals were hampered by a lack of available cash and the reluctance of financial institutions to provide funding, it appears that in the last 12 months the deal appetite of Belgian companies has somewhat increased and confidence in the private M&A market is starting to grow again.

Whereas auctions previously were quite rare (only half of the transactions with a value over €100m were auctions), currently three out of four such transactions are auctions.  There seems to be a positive correlation between transactional value and the use of auctions.

The top sectors where most private M&A deals are traditionally concluded are those of logistics, life sciences, technology/IT and food.  The most noticeable transaction of 2014-2015 was the acquisition by Perrigo of Omega Pharma, the Belgian leader in OTC cosmetics and pharmaceutical products, for $3.6 billion.

2015 has seen the return of the M&A “Mega” deal.  37 deals greater than $10bn in value have been announced so far this year.  Corporate buyers have finally been prepared to part with significant amounts of cash in order to consolidate their market positions and take advantage of growth opportunities.  All but one of the $10bn+ deals this year have been between two corporate entities.  Based on the location of the target company, North America and Western Europe remain the “powerhouse” regions for deal activity, but in the last 18 months the Far East & Asia Pacific region is getting much closer in terms of its companies being targeted for deals.
As mentioned above, the deal size has been larger, assuming the extensive due diligence and financing costs.
The overall deal size during 2014 amounted to approximately €5.1 bn.  Although there has been an increase in the overall volume, there has also been a significant decrease in the average deal size.  In terms of sectors, real estate has been leading the M&A transactions, followed by some announced privatisation deals like the privatisation of regional airports, which has, however, been put on hold.  Shipping and industry has been active as well.
We have personally witnessed a recent certain attractiveness of companies carrying on their business in the technology and digital sector.

We notice a strong interest from Japan and Korea, as well as Singapore, to invest in Vietnam.  According to Savills, M&A in real estates have gone up by US$7 billion this year.[1]  In retail sector, we have seen the landing of major players such as Aeon, Ministop, Family Mart, Guardian, Seven 7 and more through M&A.  In food, beverage and entertainment, we see the M&A from leading Japanese brands such as Saporo, Suntory, MOF; as well as many Korean brands, Lotte Cinema, CGV, Angel in Us, to name a few.  As Vietnam is among the countries that have “golden population”, which average ages between 25-30, and the middle class will grow by 40% until 2020, there will be many market opportunities for new comers that satisfy the demand of the new middle class, including healthcare, education, real estates, retail and entertainment.

The banking sector has seen a fair share of mergers and acquisitions in recent years, especially with the exit of a number of foreign banks whose Pakistan branches have been merged into Pakistani banks.

In terms of sectors, M&A activity in the medical and life-science sectors have seen an uptrend in recent years.  Due to Japan’s ageing society, which has resulted in increasing demand for health-related services, Japanese companies have over the years developed highly advanced medical and life-science technology.

The IT sector in Japan continues to hold tremendous promise as Japanese companies, from industry leaders to start-ups, are showing increasing interest in IT development.  This has resulted in a recent increase in M&A activity in the IT sector.

As regards deal size, mid-sized inbound M&A transactions have been quite common in recent years, especially deals involving private equity funds as acquirers.  The outbound activities of Japanese companies in recent years are focused mainly on targets in the Asian region, and typically involved mid to small-sized deals, with the exception of a few transactions of considerable size involving U.S. and European targets.

Large caps have strong balance sheets and are willing to make large transactions.  This includes transformational deals.  Key drivers of M&A are the acquisition of technology and closing of products gaps followed by the acquisition of market share.  Another important driver for mature, lower growth businesses is to acquire growth outside of the current core business.
It seems that the deal size somewhat increased over the last two years.  We have even seen interests in acquiring a controlling interest in listed or public companies, types of transactions that didn’t previously exist in Vietnam.  The most active sectors we have seen include real estate, retail, finance, energy, and consumer goods manufacturing.

4) What Are Some Of The Key Issues Related To Integrating Finance Organisations?

The Luxembourg takeover bids law shall neither apply to takeover bids for securities issued by companies, the object of which is the collective investment of capital provided by the public, which operate on the principle of risk-spreading, nor to takeover bids for securities issued by the Member States’ central banks.

Such integration shall further require a deep due diligence process which would be complicated by confidentiality obligations of the target company.  Such integration of finance organisations shall also require a complete preparation from a regulatory perspective to ensure that all required obligations will be satisfied to avoid a “bad start” of the investor with the relevant supervision authorities.

Integration of finance organisations need to consider a range of issues from how to extend required financial controls to the newly acquired entity, how to keep talent in the finance organisation motivated despite increasing uncertainty and higher workloads during an integration.  It is important to ensure financial data flows are being maintained and there are also tax, treasury and legal considerations to be worked through as part of integration planning.

Along with promoting FDI, the government has pushed forward an equitisation program for state owned enterprises (SOEs), with an ambition to sell at least US$3.5 billion of assets in over 180 SOEs within this year.  The attractions of SOEs are the land they control, and due to their status, their market value has not had the opportunity to be fully realised.  Many SOEs are now on the list, including Vietnam Airlines, Vinatex (textile corporation), and the Saigon Beer Company.  In the past, the strategic partners must acquire shares at a discount through the IPO.  Now strategic partners may negotiate directly with the SOEs and their owners to an agreed price.  Moreover, newly equitised SOEs will be listed immediately after an IPO event, instantly providing further market-lead value appreciation opportunities for foreign investors.  It is also widely expected that the 49% ownership capacity for foreign investors with respect to listed and public companies will be relaxed.  The remaining issue will be to obtain transparent information from the Ministry of Finance and the State Capital Investment Corporation (SCIC) to participate in this process.[1] The equitisation process is an alternative approach to Vietnamese SOE’s compared to that of China, which has mainly focused on restructuring in the SOE management.

Following the relaxation of the foreign investment procedure under the new Law on Investment (LOI) and the Law on Enterprise (LOE), the Government has now also relaxed the room for portfolio foreign investment as well as the equitisation of state owned enterprise (SOEs).

Furthermore, the Decree provides for the equitisation of state owned enterprises (SOEs), and this action is expected to attract more share acquisition in stock markets as well as private equity soon.  Currently, a foreign investor may purchase up to 49% of total shares of public joint stock company (JSC) or a listed company.  From 1 September 2015, this general restriction will be removed under Decree 60/2015/NĐ-CP dated 26 June 2015 (Decree 60).

Instead, the new restriction will be subject to the WTO commitments or other specific domestic law (e.g., the 30% cap in the banking sector).  If there is a specific restriction under domestic law that has yet to be specified, then the rule of thumb is 49%.

When there is no restriction under domestic law (e.g., for production companies, or distribution companies), then there is no limit for the foreign shareholding ratio.  This rule also applies to equitised SOEs, with the aim of attracting more foreign investment in the privatisation program.
As for securities companies (or investment banking), those who are eligible to establish 100% foreign owned securities companies are allowed to buy up to 100% equity of local securities companies.  Those who are not eligible can acquire up to 51% total shares.

Decree 60 also lifts all restrictions to foreign investors to invest in bonds.  With respect to share certificates or derivative products of stocks of JSCs, the restriction will be relaxed as mentioned above.  For this purpose, open funds or securities funds that have foreign shareholding more than 51% equity will be deemed as foreign investors.

In addition, Decree 60 addresses the following changes:
i. Private placement of public companies
ii. Share swap of public companies
iii. Public offering of shares in public companies for swapping shares in non-public
companies, or equity in limited liability companies
iv. Private placement filing at the State Securities Commission (SSC) for public companies
v. Public offering process, use of escrow account for public offering proceeds
vi. Public offering of investment certificates or shares abroad
vii. Redeem shares
viii. Tender offers
ix. Sale of treasury shares
x. Listing of merged or amalgamated companies
xi. Upcom transaction registration and listing
xii. Real estate capital valuation and contribution to real estate investment fund

Banks in Pakistan are regulated by the State Bank of Pakistan.  The legislation governing banks includes the Banking Companies Ordinance and the Prudential Regulations issued from time to time by the State Bank of Pakistan.  The key points in transactions involving banks is that the prior approval of the State Bank of Pakistan is required for any proposed acquisition.  Further prior approval of the State Bank of Pakistan must be sought and obtained before prospective acquirers can conduct due diligence on a bank.

In respect of amalgamation, under the provisions of the banking legislation in Pakistan, a scheme setting out transfer arrangements is required to be put in place and approved by resolutions passed by the shareholders of the merging entities (a majority in number representing two thirds in value) respectively.  The scheme, once approved, is required to be submitted to the State Bank of Pakistan for sanction.

A recent hot topic has been the consolidation of regional banks in Japan.  Financial policymakers seem to hold the view that there are too many regional banks in Japan.  Accordingly, some market watchers expect to see a number of Japanese regional banks being consolidated between themselves or with bigger financial groups in Japan, or being acquired by foreign financial institutions in the coming years.  One of the key issues in this regard is how effectively the operational systems of the acquirer and the target company can be effectively integrated.  Since many Japanese regional banks have their own major operational systems, integration of the regional banking system with different operational systems may prove costly and time-consuming.  In addition, depending on the market share of the relevant regional bank, certain anti-trust regulations may also be triggered.
Transitioning IT software and systems is a key issue especially when there is only a segment of a conglomerate being acquired.

5) What Key Risks Should Finance Executives Consider In The Planning Of Integration?

While opening the door to, and creating more options for foreign portfolio investment, the deregulation of various procedures at SSC are certainly attractive to foreign investors, it is unclear how other restrictions under different ministries, such as Ministry of Health, Ministry of Education, Ministry of Industry and Trade may impact on the intention of the Government to open up the market.

Note that Art 74.3 LOI allows for the “non-compliant” restriction of business to be valid until 1 July 2016, suggesting there could be some more grounds of clarification and explanation to come.

Very often, the financing in an M&A transaction is assured partly by an external bank financing which is implemented afterwards closing.

The client very often sees the implementation of such bank financing as a straight forward post-closing transaction.  Actually, the lenders shall always notably require a full package of security documents guaranteeing their loans.  The implication of lawyers for the lenders and of lawyers for the borrower often renders the process difficult.

Hence we always recommend the client set up a clear term sheet with the lenders from the early stages of the M&A transaction and to clearly present to the lenders the structure and envisaged business to ensure a smooth process of the bank financing in due time.

Finance executives should consider three categories of integration risks.  Firstly, there are risks that the integration negatively impacts daily business.  For example, if the finance systems integration is not executed properly, it impacts the quality of the financial information available.  Secondly, there are often risks that the integration is not delivering the promised deal value.  Finance executives are often accountable for achieving the synergy target and it falls to the finance function to track synergies.  The third area of risk is that integration decisions have negative financial consequences.  For example for many companies with a European principal structure, moving headcount incorrectly may have substantial tax implications.
See response to question 4.

6) What Are The Key Risk Areas In An M&A Transaction, And What Common Mistakes Do Companies Make During A Transaction?

A perfect knowledge of the target company is probably the most important point in our view to be considered.  The performance of a due diligence process is very important not only in determining the value for the target company and hence of the purchase price for the latter, but also to identify any potential issues that may arise in the integration.

When certain issues are identified at the stage of the due diligence, this allows the parties to discuss them at an early stage of the negotiations and then to allocate the risks between the parties accordingly, mainly through an adjustment of the purchase price, an extension of the warranty, indemnity protection, escrow arrangements or otherwise.

A common mistake made by parties to a transaction is to sign a letter of intent without duly consulting their legal counsel.  As a result, letters of intent are often not sufficiently binding (from a seller’s perspective) or too detailed and binding (from the buyer’s perspective).  Parties also tend to forget to establish a clear framework for the negotiations, in which certain important elements are already agreed upon (e.g. price adjustment mechanisms, earn out, data room disclosure, etc.).  These elements are often very important to the parties, and if they are not dealt with at the start of the transaction, they may become deal breakers.

In addition, parties sometimes tend to underestimate the time and resources that are required to successfully complete a transaction.  This translates into incomplete data rooms, insufficient manpower to follow up on the Q&A process or lack of appropriate legal and financial counsel.

Deloitte’s research shows that the majority of merger failures are due to poorly executed integrations.  The reasons for failed mergers are 70% due to integration errors and only 30% due to transaction errors.  Common integration errors are, for example, lack of executive alignment on merger rationale, inadequate integration planning, merger synergies not being driven through quickly enough, lack of a formal and fast decision making process and too much time spent on organisational politics.  Other key mistakes are a loss of focus on everyday operations and that customers are forgotten.  On the transaction side errors include inadequate due diligence, weak analysis of the target and lack of strategic, financial or cultural fit.

There is a recent trend among many Japanese companies to set up M&A budgets of a certain amount and to allocate specific resources for M&A purposes.  Some Japanese companies tend to think that full utilisation of their M&A budgets is encouraged.  Accordingly, such “trigger-happy” companies may face the risk of acquiring unsuitable targets or paying for targets that are excessively valued.

Another common mistake that Japanese buyers sometimes make in an acquisition is failure to adequately protect themselves through appropriate representations/warranties and indemnity clauses based on key findings in due diligence reviews of target companies.

Key risk area’s in M&A is the integration of finance and G&A, also trending out projections when new management is coming on board.

M&A deals are considered by many observers and potential participants to be exciting and to bring rich rewards to those involved.  The reality is that many deals do not ultimately provide an increased level of shareholder value.  This is consistently linked to the following factors:

– The reality being that often the perceived synergies between the buyer and the target are not as great as initially thought
– The buyer has ended up paying more for the target than the value of the synergies the target brings to the buyer
– The deal itself can become a major distraction to both parties and take far longer to conclude than originally envisaged.
– Post deal integration of the target is more problematic or fails to happen.

As Vietnam’s increasingly outward looking economy and Competition Law develop, the country’s merger control regulations should not be overlooked – not least because of the hefty penalties that they attract.  A fine of up to 10%of a company’s total revenue in a financial year may be imposed for a breach of merger controls, including requirements on notification.  Other severe penalties include forced demerger or withdrawal of a company’s business certificate.

It is also worth remembering that investors who have just completed transactions are not out of the woods yet.  Competition authorities can still penalise companies up to two years from the date of the breach and prospective or existing investors must be aware of how these merger controls affect them and how to deal with potential non-compliance risks.

The term, “economic concentrations”, under the Competition Law includes company mergers, consolidations and acquisitions, as well creations of joint ventures.  The law imposes certain merger controls on these economic concentrations that investors should be aware of, especially when dealing with larger transactions.

These merger controls focus on the consideration of the economic concentration’s “combined market share”.  The market share of a company is calculated by referencing its percentage of turnover from sales or inwards purchases against total turnover from sales or inwards purchases by all companies in the business of the same type of goods in the relevant market for a month, quarter or year.  The combined market share is defined as the total market share in relevant markets of all companies participating in an economic concentration.  The job of looking at the extent of the combined market share falls to the Vietnam Competition Authority (VCA) when assessing whether an economic concentration will be subject to notification or prohibition under the Competition Law.

This makes it crucial for investors, before entering into an economic concentration, to calculate the resulting combined market share to evaluate potential risks of offending Vietnam’s merger control regime.  This prudence will allow investors to determine whether VCA notification of the transaction is required.

The data necessary to determine market share can be obtained from government agencies, such as the General Statistics Office, the ministries of Finance and Information and Communications or the State Bank, depending on the respective industry.  Reputable market research can also be used.

To prevent an under or overstatement of this market share figure, investors also need to identify the “relevant market”, because market share will be calculated on an assessment of the relevant product market and geographical area.  For example, the market share of a company may be more than 95% for the Ho Chi Minh City area, but only 5% for the whole country.

With respect to notification requirements, there are generally no restrictions against an economic concentration if the resulting combined market share in the relevant market will be below 30%, or if the resulting economic concentration is considered a small or medium-sized enterprise (SME).

If the combined market share falls between 30-50%, the VCA must be notified of the proposed transaction before the parties can execute it.  The parties can only proceed with the transaction once the VCA approves it.

Economic concentrations that result in a combined market share of more than 50% will be prohibited, unless the VCA grants an exemption.  Such an exemption can be granted if one or more companies in the economic concentration will be at risk of dissolution or bankruptcy or if the economic concentration will contribute to the country’s socio-economic development or technical and technological progress.  However, these exemptions are not guaranteed and will be at the authorities’ discretion.

The key risk areas are as follows:

– inadequate due diligence by the buyer and, as a result, acquisitions of unwanted liabilities the buyer did not know about;
– relying on warranties/indemnities provided by an offshore company with no substance which acts as a seller.  In this case these must be supplemented by a parent company guarantee or other adequate security;
– inadequate disclosure of information by the seller which results in a potential liability due to warranty/indemnity claims.  Sellers often start working on preparing a disclosure schedule at the very end of the negotiation process.  In addition, any delay with preparing a disclosure schedule can hold up or even frustrate the deal if the potential buyer sees the issues it was completely unaware of;
– inadequate representation of the parties.  In an attempt to save of legal fees, Ukrainian business owners often prefer to use their existing in-house lawyers in order to negotiate a cross-border M&A deal.  This may complicate and delay the process due to unfamiliarity of in-house lawyers with the concepts used in Western style transaction documents.

When a foreign investor acquires a local company, there can be a gap in deal expectations, culture, management practice and negotiation style, amongst others.  Managing such a gap is critical to the success of a deal.  Sorting out how to deal with a legal due diligence is also key as foreign investors will need to be advised what findings, while not satisfactory, are relatively common in the local market and how to handle such findings.
From the legal advisor’s perspective the key issue during an M&A transaction is to keep the balance between identifying and handling legal risks and assisting in making the transaction.  From the principals’ point of view, the risks differentiate, depending on the side: the Buyer faces the risk of acquiring an asset which has regulatory limitations, as well as, encumbrances and present or potential liabilities – in addition the tax structure must be carefully selected.  The Seller’s risk involves securing payment (either paid upon completion or deferred one) and giving too many reps & warranties.  Both sides also face the commercial risk of the price (paying too much versus not getting paid enough for the asset sold).  A common counterparties mistake is not to have clearly agreed their commercial understanding – this complicates negotiations – after all the devil is in the details!

7) Can You Outline Any Applicable Anti-Corruption Legislation In Your Jurisdiction? What Are The Potential Sanctions And How Stringently Have They Been Enforced?

Switzerland is ranked as one of the countries with the lowest level of corruption in the Corruption Perception Index as published by Transparency International.  Between 2000 and 2006 anti-corruption laws were tightened in Switzerland.  New is, among other things that the bribery of foreign public officials is now regarded as a criminal offence and that not only individuals, but also companies can be prosecuted for corruption.  Typically, most enforcement actions in Switzerland stem from the US DoJ in those instances where government officials were bribed.  This has been the case in a number of recent high profile cases involving some well-known companies.  Recently the Swiss Attorney General initiated a corruption investigation of FIFA.  This could indicate a tougher enforcement regime.

Ukrainian anti-corruption legislation has improved significantly over the last year.  A series of laws and regulations were adopted in addition to the core law “On Fundamentals of Preventing and Combating Corruption”.  There are also specific provisions on the topic in the Criminal Code and the Code of Administrative Offences.  Amended legislation provides for increased sanctions – for example, taking a bribe may be punished with imprisonment of up to 12 years and confiscation of property.

Also, the new government body was established – National Anti-Corruption Bureau of Ukraine.  It is a law enforcement agency with broad authority, which is responsible for fighting corruption in Ukraine.

Vietnam’s anti-corruption legislation applies to persons defined as “public officials” or “persons with position, power.” The current threshold for establishing a criminal bribe is VND 2 million (approximately USD92) when the payment of cash or other material benefit is received or paid to induce the recipient to do or not to do something for the benefit of the payor in connection to the recipient’s official duties.  Enforcement in practice tends to focus on large-value, high profile corruption cases.
The law on anti-corruption is in place since 2001.  The Criminal Code also has the crime of corruption and bribery.  A bribe is considered as an action to take benefits in exchange for exercising power.  This law has been enforced strongly in some areas but less so in other areas.  The two areas that face corruption issues are the judicial and the police system.  In other areas, corruption is rare.
The main anti-corruption legislation in Japan is the Unfair Competition Prevention Act (Act No. 47 of 1993, as amended; the “UCPA”).  Bribery of foreign public officials is criminally punishable under the UCPA.  Violators may be imprisoned for up to five years or fined up to JPY5 million (article 21, paragraph 2 of the UCPA).  Bribery of domestic public officials is criminally punishable under the Penal Code (Act No. 45 of 1907, as amended; the “Penal Code”).  Foreign companies can be prosecuted for foreign bribery because the UCPA does not differentiate between domestic companies and foreign companies.  Based on the Penal Code of Japan, a crime committed in Japan should be punishable.  For this purpose, a crime will generally be deemed to have been committed in Japan if all or part of the relevant act was conducted in Japan or all or part of the consequences of the crime occurred in Japan.
Recent anti-corruption legislative changes provide severe penalties in case of bribery of any governmental, parliament, regional or municipality official (imprisonment for a period of 5-20 years and monetary penalty between €15,000 – €150,000).  Public employee bribery penalties differ (imprisonment for a period of 1-5 years and monetary penalty between €5,000 – €50,000) and in case of repeated acts, or bribes of significant value, the penalty is more strict (imprisonment for a period of 5-15 years and monetary penalty between €15,000 – €150,000).  Although the above changes are recent, monitoring and preventing corruption is a key issue.

Pakistan Penal Code 1860 (PPC 1860) is a general penal code, which prescribes offences and punishments for such offences, and extends to the whole of Pakistan and applies to any offence committed by any citizen of Pakistan or any person in the service of Pakistan and outside Pakistan (public servant as defined therein) and any person on any ship or aircraft registered in Pakistan.

Prevention of Corruption Act 1947 (PCA) which is an Act to more effectively prevent bribery and corruption.  It extends to the whole of Pakistan and applies to all citizens of Pakistan and persons in the service of the Government, wherever they may be.  Under the PCA the expression “public servant” is as defined in section 21 of the PPC 1860 and includes an employee of any corporation or other body or organisation set up, controlled or administered by or under the authority of the Federal Government.

The Government Servants (Conduct) Rules 1964 under which a government servant is prohibited from accepting (without the prior permission of the government) any gift the receipt of which will place him under any form of official obligation to the donor.  If however due to exceptional circumstances such gift cannot be refused, the government servant may accept such gift and inform the Cabinet Division accordingly.  The gift must then be kept for official use by the department or organisation.  A government servant cannot, except with the previous sanction of the government, engage in any trade or undertake any employment or work, other than his official duties.

National Accountability Ordinance 1999 (NAB Ordinance) relates to the prevention of corrupt practices, misuse or abuse of power or authority, misappropriation of property, taking of kickbacks, commissions and for matters connected and ancillary or incidental thereto.  The NAB Ordinance is applicable to persons who are or have been in the service of Pakistan and to any “holder of public office” as defined under the NAB Ordinance, wherever they may be.  The NAB Ordinance also deals with and provides for penalties for offering or paying bribes or making facilitation payments to employees of private or public listed companies.  Under the NAB Ordinance the term ‘person’ includes in the case of a company or corporate body, the sponsors, chairman, chief executive, managing director, elected directors, by whatever name called, and guarantors of the company or corporate body, or anyone exercising direction or control of the affairs of such company or corporate body, and in the case of any firm, partnership or sole proprietorship the partners, proprietor or any person having interest in the said firm, partnership or proprietorship concern or direction or control thereof.  The penalties under the NAB Ordinance include rigorous imprisonment for a term which may extend to 14 years and fine.  The amount of fine shall in no case be less than the gain derived by the accused.

Civil Servants Act 1973 provides for the appointment of persons to, and conditions of persons in, the service of Pakistan and is applicable to all civil servants wherever they may be.

Under the Government Servants (Efficiency and Discipline) Rules, 1973 “misconduct” is defined as conduct prejudicial to good order or service discipline or contrary to Government Servants (Conduct) Rules, 1964 or unbecoming of an officer and includes any act on the part of a Government servant to bring for attempt to bring political or other outside influence directly or indirectly to bear on the Government or any Government officer in respect of any matter relating to the appointment, promotion, transfer, punishment, retirement or other conditions of service of a Government servant.  A government servant may be penalised by demotion or withholding for a specific period promotion or increment or by recovery from pay of the Government servant of the whole or any part of any pecuniary loss caused to Government by negligence or breach of orders or compulsory retirement or removal/dismissal from service.

Federal Investigation Agency Act 1974 (FIA Act) is applicable to all citizens of Pakistan and public servants, wherever they may be.  A public servant under the FIA Act is as defined in Section 21 of the PPC 1860, and includes an employee of any corporation or other body or organization set up controlled or administered by or under the authority of the Federal Government.  The FIA Act makes references to other anti-corruption legislations (wherein punishments and penalties for corrupt practices are provided for) and does not specifically provide for punishment and penalty in the case of corrupt practices.

In the context of takeover bids, the Luxembourg law provides the general rules and principles applicable with respect to a takeover bid and aims at ensuring an adequate level of protection for the holders of securities.  As a general principle, the law provides that all holders of the securities of an offeree company of the same class shall be afforded equivalent treatment.  In that respect, the offer document shall include certain mandatory mentions including notably in case of mandatory bid the method employed for determining the consideration.  Shares may be bought outside of the takeover bid process, but subject to certain notification obligations that are imposed notably by the applicable transparency regulations and the Luxembourg squeeze-out law.

General anti-corruption legal provisions shall also remain applicable.  Criminal and civil liabilities shall be applicable on such matters.

8) Royal Dutch Shell’s Acquisition Of BG Group Was The Biggest M&A Deal Announced In The First Half Of 2015.  Do You Share The Same Concerns As US Regulators In Regards To Monopoly Trends?

Of the Top 50 deals by value that have been announced in H1 2015, 29 are effectively “horizontal mergers”.  This figure remains the same as H1 2014, but represents a 52% increase on those announced in H1 2013.

Therefore it is understandable that regulators in particular countries may have concerns that consumer choice may become more limited as a result of such deals and would thereby enable the newly enlarged entity to potentially abuse its position in terms of pricing of goods and services offered.

Taken at face value such deals should theoretically enable larger companies to maximise their economies of scale.  Whilst regulators are right to scrutinise such deals, in order to protect the consumers, careful thought should be applied to those that are allowed and those that are rejected.

Anti-trust concern in Vietnam is plausible, but Competition Law is not very active so far.  While it is cautious to make an anti-trust notice to the Competition Administration of Vietnam (CAV).
We indeed acknowledge certain concerns in this respect though as regards the Luxembourg jurisdiction, applicable legal provisions notably stemming from the EU should avoid such monopolies.

9) What Is The Current Status Of Risk Reduction And Cost Synergy In Mergers & Acquisitions?

There is increased scrutiny by Boards on whether or not management achieves the promised synergies.  Many recent Swiss deals are focused on growth synergies rather than cost synergies.  Where cost synergies are important, there is heightened awareness of the need for thorough synergy planning and tracking.  Similarly strong risk management processes are being adopted to identify and mitigate key integration risks.
An interesting example of M&A about risk reduction and cost synergy is in the retail sector.  The restriction of foreigners to participate in retail sector was removed in 2009.  However, foreigners are still keen to find and work with a local partner.  This is rather the knowledge of the local market that needs to be explored and worked by cooperation.  On the course of cooperation, difference in vision and culture may negatively impact on the risk reduction and cost synergy.  Eventually however, if both parties respect each other, these difficulties can be overcome.
We would raise in this respect that cross-border mergers inside the EU have been largely facilitated by European Regulation and Directive allowing a reconciliation of multi-jurisdictional legal environments.  Such regulations have created a unified legal framework ensuring a cross-border universal transfer of the assets of the merged company and the implementation of the merger according to common principles with the EU Member States.  This ascertained the mergers within the EU and rendered them less costly.

As a result of the economic crisis, potential buyers tend to start with a high-level due diligence to ascertain whether the target meets the acquisition requirements and to reduce the initial costs.  If the results of the high-level due diligence are satisfactory, a more extensive confirmatory due diligence is conducted.

Whereas financial experts used to look at the past track record of a company to determine its value and decide whether or not to proceed with the transaction, most buyers are interested in the future potential of the target and the synergies that can be created following the acquisition.  This results often in a more thorough due diligence, that does not only focus on financial and legal aspects, but also on the business, HR and ICT of the company.  Although this is a more expensive and time-consuming effort, it allows the potential buyer to get a clear and realistic view of potential synergies and make an early start with the post-acquisition integration process.

10) M&A Typically Involves A Substantial Amount Of Due Diligence From The Buyer.  Given The Current Climate What Aspects Of Due Diligence Should Be Focused On In Relation To Technology/Intellectual Property?

With respect to technology/intellectual property, the first thing to focus is whether the trademark or patents are properly registered and still valid, whether any license has been registered with the National Office of Intellectual Property.  Furthermore, it is necessary to see if the royalty under each license agreement is under arm’s length price, as the current regulation on anti-transfer pricing is now on the rise.
One of the noticeable trends is an increased focus of potential buyers on data privacy compliance, in particular in the technology sector.  As more and more technologies involve the collection, processing and use of (large amounts of) personal data, it is important to carry out a thorough and detailed due diligence of the target’s data processing practices (data flows, purposes of processing and use, access to data, cross-border transfers, privacy policies, information practices, security measures, etc.).  In relation to intellectual property, the use of open source or third party software in technology of the target should be subject to careful analysis, in order to avoid any third party claims.

Due diligence in relation to technology/IP issues requires particular thoroughness and accuracy.  Special attention should be paid to the documents confirming seller’s ownership of technology/IP and previous underlying documents for IP rights acquisition.  It may be also necessary to carry out the analysis of legal risks related to the use of copyright works or industrial property as these rights have complicated nature.  A properly conducted due diligence will help to determine possible risks and commercial value of the transaction in order to avoid acquisition of worthless technology/IP.

In addition, this will help to avoid a situation where, after acquiring shares of a Ukrainian financial institution operating under a well-known name, a foreign buyer discovered that the name of that institution was registered as a trademark and was still owned by the previous shareholder – this situation illustrates very well the need for a detailed and highly professional due diligence.

Due diligence should be a systematic and integral part of any M&A transaction.  It is especially important when looking at a target company that has patents or intellectual property that is behind the buyer’s core motivation for doing the deal.  Key areas that should be ascertained in relation to the IP at a very early stage in the Due diligence include;

Ownership – does the target actually own the technology / IP it purports to own?

Limitations of use – are there any pre-existing agreements that prevent the use of the company’s IP in other markets or business areas?

Infringement claims – are there any outstanding or pending claims that might bring rise to a law suit?

IT due diligence can incorporate many different areas of focus, however these options should be narrowed during the scoping phase to ensure that the due diligence effort is relevant to the deal context and delivers most benefit for the deal value and business model.  Questions for diligence to address can be grouped into three areas:

– Confirming if IT contains risks to the current cost base and whether it can support the planned business model
– Identifying opportunities to improve IT performance and reduce IT and business operational costs
– Confirming the need and impact of data migration

In our view, though there is no particular impediment for a hostile bid in Luxembourg, we always recommend the bidder to co-operate with the management board of the target company, to authorise a smooth and complete due diligence process.

Review of licensing issues typically form an important part of legal due diligence.  Specifically, the identities of licensor and licensee, royalty amount and conditions of license (such as the conditions under which a license may be terminated) are key issues.  Where a license has been granted to the target company by its parent (which is often the seller) or affiliate, it is also important to determine how such license will be treated after the target is acquired.  Issues relating to cross licenses should also be carefully considered.  In particular, buyers should look into whether the target company will still be legally entitled to the benefit of material cross licenses once they exit the seller group.

Additionally, a buyer should make sure to review joint research agreements entered into between the target and third parties to determine the target’s right in respect of research results.

Further, due diligence should focus on whether the target has had disputes with its employees or former employees in relation to such employees’ inventions created in the course of the employees’ work (Shokumu-Hatsumei).  Under the Patent Act of Japan (Act No. 121 of April 1959, as amended), such an invention belongs to the relevant employee, and can only be transferred to the employer based on an agreement between them, under which the employer pays an appropriate amount of compensation to the employee for the invention.

11) What Factors Can Lead To A Dilution EPS (Earnings Per Share) In An Acquisition?

Dilution EPS in acquisition can occurred because of the following factors:

i.         Related party transaction: if a subsidiary of a shareholder being supplier to the company, and charge excessively high fee, there is a risk that benefit from the company has been retrieved by the related party subsidiary.
ii.       Unprofitable assets: some assets cost a lot of funds to support and maintained.
iii.      Potential liability, especially tax liability.

The dilution or accretion of a buyer’s EPS as a result of an acquisition is one way in which the buyer can define the potential risk / rewards to its shareholders for pursuing the acquisition.  Logically it might well be argued that if a dilution of the buyers EPS is going to happen as a result of the deal then the deal should not proceed, but this should not be the only measure upon which the acquisition strategy should be determined.  EPS should be looked at in the “round” when considering the long term strategic benefits of the deal for the purchaser.

Dilution of the buyers EPS could occur as a result of the target company in the deal having negative net incomes or a higher PE ratio than the acquiring company.  How the acquiror chooses to finance the deal could also impact negatively on its EPS.  So if, for example, it were to finance the deal by bringing in new debt or by raising its existing debt levels then higher interest expenses would be reflected in the profits of the combined entity.  If the acquiror were to satisfy the deal using its own cash reserves, this too could impact profits as lower levels of interest would be generated.  Also if the perceived synergies between the two companies could not be achieved, this would impact upon the EPS in the longer term.

The acquisition costs and applicable taxes are mainly the factors that could lead to a dilution EPS.  This shall be controlled through a complete preparation of the transaction and a complete due diligence of the target company.

12) What Types Of Issues Can Impact The Marketing And Sales Organisation During M&A Transaction, And What Are The Current Leading Practices To Address These Key Issues?

A common issue is that of “gun-jumping,” – such as when the potential buyer and target exchange competitively-sensitive information such as pricing or product plans, customer information and the like before completion of the transaction – which could trigger certain anti-trust regulations.  One way to avoid such risks is to refrain from any exchange of sensitive information at least until the clearance of merger filing.  An additional way to address gun-jumping concerns is the setting up of “clean rooms” to store competitively-sensitive and ensuring that such information is handled only by personnel who are not part of the transacting parties’ business teams.
Marketing and sales should be predetermined along with an iron clad plan for the transition, many times on an acquisition the acquired companies marketing department would be eliminated.
Competitors can take advantage of the uncertainty an M&A transaction brings, which may lead to loss of customers.  This risk can be mitigated by clearly communicating the deal rationale and integration roadmap from a customer perspective.  Identifying key personnel and putting a retention plan into action will mitigate the loss of talent.  Distributors may delay ordering anticipating a distributor rationalisation.  Again a clear communication plan will alleviate this risk.  Another risk to be addressed as a priority is customer facing staff not giving the right message or inconsistent messages to customers.  Customer facing staff needs to be informed and provided with detailed guidance for what they can and can’t say to customers.  Many deals are built on significant growth synergies; however adjusting incentive schemes, systems integration and back office consolidation may be required and can impact timelines of achieving revenue synergies.
During the M&A transactions, the seller is bound by an exclusivity period until the Share Purchase Agreement is signed by the parties.  Moreover the parties are bound by confidentiality agreement and therefore leakage of information that may impact the marketing and sale of shares may be minimised.  From the time the Share Purchase Agreement was signed until the completion of the conditions precedent stated in the Share Purchase Agreement.

13) What Key Trends Do You Expect To See Over The Coming Year And In An Ideal World What Would You Like To See Implemented Or Changed?

There will most likely be continued high level of M&A activity for a little while longer.  Companies having undergone transformational deals will however need to pause and digest what has been acquired.  They may well conduct smaller acquisitions but are less likely to engage in further transformational ones.  Another trend that is likely to continue is the heightened focus on proper integration.  I have seen a great interest by corporates in building and upskilling their teams’ integration capabilities.  It is good news for the success of a deal if integration efforts are taken more seriously.

We expect the M&A activities level to increase significantly once (a) there is more certainty regarding the conflict in the Eastern part of Ukraine and (b) Ukrainian government negotiates a deal with its creditors.  Obviously there are other important factors such as structural reforms moving ahead, evidence of success in fighting corruption, etc.

Most economists agree that Ukrainian assets are currently significantly undervalued, and this is likely to result in a mini M&A boom once the fundamental risks stated above are addressed.

Referring to the reconciliation of the legal environments within the EU, such a reconciliation at the level of the world would render the M&A deals more attractive and less frightening in our view, especially for “non-big” companies.
M&A activities and direct investment will very likely increase significantly in Vietnam, especially after the sub-law regulations implementing the new investment law, enterprise law and real estate business law have been fully issued and AEC integration takes shape.  From 2016, corporate and investment procedures are anticipated to be drastically simplified and the difference in the treatment of foreign investors and local investors to be significantly reduced.  Nevertheless, the approval requirements and procedures for sizable investment projects in infrastructure, real estate and energy probably will remain complex and burdensome.  Many of our clients wish that the Government would take more aggressive steps to simplify the procedures for those sizable projects.

The Japanese government has in recent years introduced several policies targeted at developing a start-up culture in Japan, in hopes of encouraging innovation.  Additionally, the government is also expected to roll out more policy initiatives to encourage big companies to move to, as well as encourage the establishment of start-ups in, the regional areas of Japan.  Hopefully, this will result in more M&A activities involving regional companies in the near future.

In addition, Stewardship and Corporate Governance Codes were recently introduced in Japan, to encourage more communication between Japanese companies and their shareholders, and more responsibility taken by Japanese companies toward shareholders.  Some high-profile hostile takeovers in Japan about a decade ago had led to the institution of takeover defence mechanisms by many Japanese companies, and engendered wariness toward foreign shareholders.  The introduction of the Stewardship and Corporate Governance Codes in Japan have gone some way in dispelling unwarranted scepticism that some Japanese companies held toward foreign shareholders, and hopefully, this trend will continue.

I believe the financing arena will change along with the characterisation of the deal due to anticipated interest rate volatility.
Despite the ongoing Greek debt saga and the revision of global growth forecasts, the appetite for M&A deals remains strong and appears to be unsated at this time.  Corporate buyers have shown increased levels of activity over the last 12 months, reflecting the need for them to increase shareholder value.  Whilst Private Equity buyers have been active compared to previous years it is common knowledge that the industry as a whole is sitting on a reported $1.3trillion of “Dry Powder” which has to be invested.  This inevitably means that deal values are rising as there is strong competition for the best performing companies from both corporate and private equity buyers.  Add in to this mix the rise of secondaries by private equity firms and it’s no surprise to find that the average value of globally announced deals per month in the first seven months of 2015 is greater than the average monthly value seen in 2007.  On this basis 2015 could end up being a record year for announced global M&A deals.
I strongly believe that, upon stabilisation of the political situation, right after the elections to be held on 20 September, Greece will enter into a new era, full of opportunities.  I expect that investors will start to monitor more actively potential acquisition targets, and once they feel that Greece offers again a stable and effective business environment, there will be a boost in the M&A activities in comparison to the previous months.  In order for this to happen, all Greek market players (institutional or not) should put their best effort so that an attractive and competitive business environment is created and sustained.
We hope M&A in “conditional projects” to be removed.  There are more than 250 business areas where the M&A are subject to approval from relevant ministries.  The LOI stated that any restriction to business must be presented in the National Portal of Foreign Investment or otherwise rendered invalid.  However, please note that Art 74.3 LOI allows for the “non-compliant” restriction of business to be valid until 1 July 2016, suggesting there could be some more grounds of clarification and explanation to come.

New Laws on Investment and Enterprise Come Into Effect from Midnight

As you now all know, the new Law on Enterprise (LOE) and Law on Investment (LOI) will take effect from 0.00AM tomorrow, 1 July 2015 promising to bring many positive changes to Vietnam business environment. 

What enterprises and investors are all now waiting for are the Decrees implementing the LOE and LOI, which have not been issued yet.

While the final draft of the decrees are now being circulated, and the vacatio legis by law would be 45 days after promulgation by the Government, the Ministry of Planning of Investment (MPI) sent and urgent Official Letter No. 4211/BKHĐT-ĐKKD dated 26 June 2015 (OL 4211) on business registration, implementing LOE (please click here to download).

Another Official Letter implementing the LOI are expected to be circulated anytime from now until Midnight (we have been informed that this Official Letter No 4326/BKHĐT-ĐTNN dated 30 June 2015 implementing LOI was issued, and will provide you with updates in the next legal alert).

Under OL4211, notable changes are as follows:

  1. Application of ERC for current foreign invested enterprise (FIE): for enterprises operating under an Investment Certificate (IC) or an Investment License (IL), when amending  the IC or IL, they will apply for the Enterprise Registration Certificate (ERC). The ERC dossier will be similar to the dossier for applying a new ERC, attached with the current IC or IL.
  1. Simplified ERC registration process: Art 24 LOE only requires applicants to file, among others, scope of business, and not the HS Code or CPC to the registration request or establishing an enterprise, be it a limited liability company (LLC) or a joint stock company (JSC). The form under Art 24 LOE is now being drafted by the local department of planning and investment (DPI) and to be released soon.  The CPC will be filled in by the DPI, and there is still a risk that the CPC/HS Code filled by the DPI are not matched by the CPC/HS Code of products to be imported by the enterprise. However, the enterprise’s application will no longer be rejected because the CPC/HS Code is not found or unfit.   Please note that with respect to FIEs, the filing of HS Code and CPC would still be required under form MĐ-6 of Circular 08/2013/TT-BCT dated 22 April 2013 of (Circular 08) of Ministry of Industry and Trade (MOIT).  This requirement is still valid until 1 July 2016, at the latest (LOI, Art 74.3).
  1. Place of business to be notified, not registered: the notice shall be sent within 10 days to the local DPI from the date of the decision to open a new place of business. This regulation does not affect requirements to have specific license for each type of business (e.g. a supermarket license, warehouse license, school license etc).
  1. A change of the scope of business, a JSC private placement, and entry of foreign shareholders to be notified, not registered: these changes are notified at the local DPI, who will then reconfirm within 3 working days from receipt of notice. The DPI reserves the right to reject the notice if the conditions for foreign investors’ entry under WTO assessments or other local laws are not met (for “conditional projects”). Therefore it is advisable that the scope of business of an enterprise must be “clean” from conditions, before a notice of foreign shareholders are sent. After foreign shareholders have been duly notified, the enterprise may change its scope of business. This change may still be subject to scrutiny, but the conditions will be strictly by law (e.g., percentage of foreign shareholding) rather by the authorities’ discretion.
  1. Enterprises can make more than one seals by notice. The new seals will be published on the National Business Registration Portal (NBRP).
  1. Liquidation process to be simplified: the enterprise’s liquidation shall be made within 6 months from the passing of the resolution for its liquidation. Within that 6 months, the tax authority should confirm the enterprise’s fulfillment of tax obligations. Unless the tax authority send a notice of objection, the liquidation process will complete within that time period and the enterprise will be deleted from the NBRP.


Some issues are still unclear under OL4211:

  1. Whether enterprises operating under an IC or IL must surrender its original IC or IL when receiving the ERC, and if so, what would be their new Investment Registration Certificate (IRC) under the new LOI, and what would be the In Principle Approval (IPA), should an IPA be required under the new LOI.
  1. Must a foreign shareholder have a “project” when it acquires shares (i.e., indirect investment) in a local company? It is likely that it is not required, but we might need to confirm this by an official letter implementing the LOI (ad hoc regulation pending Decrees implementing LOI).
  2. What is the real difference between “registration” and “notice” if DPI may have the right to send a negative opinion on a notice filed?

For more information about this article, please contact the author: Dr. Le Net at the email:

By Vietnam Law Insight (LNT & Partners)

Disclaimer: This Briefing is for information purposes only. Its contents do not constitute legal advice and should not be regarded as detailed advice in individual cases. For more information, please contact us or visit the website: Http://

Vietnam, FDI and the TPP ISDS: a Tentative Look

The Trans-Pacific Partnership Agreement (“TPP”) is a multilateral agreement currently being negotiated that, when finally agreed, will encompass approximately 40% of the worlds GDP under a new generation of multilateral economic governance that is focusing on competition policy, labour rights, international investment law and the harmonization of other areas of law and aimed at boosting trade, investment and economic growth between members, who at the advanced negotiation stage include Japan, the USA, Vietnam, Australia, Singapore, Brunei, Malaysia, New Zealand, Chile and Peru, with Canada and Mexico interested in joining. One of the most controversial aspects of the negotiations is that they are largely being held behind closed doors – with only limited information on draft chapters being released through memorandums, or via the medium of Wikileaks, hence why this short article is a tentative look – a detailed analysis at this stage is not possible until the final draft is released or leaked, which will not be for some time yet. This lack of transparency has helped foster strong opposition to the agreement before even considering the provisions contained within. This article considers some implications of the TPP’s Investor-State Dispute Settlement (“ISDS”) for investors of inward and outward FDI in Vietnam.

Opposing views mean uncertainty for ISDS in TPP

The ISDS provisions of the TPP have both strong support, and strong disapproval. The strong support comes primarily from the Japanese and US governments and firms that see the ISDS as crucial to the success of the TPP, and the need to protect their investment interests particularly in the SE Asian parties to the agreement. On the opposing side, with a particularly vitriol response is Australia, which has undergone a unique policy shift among developed countries and chosen to accommodate anti-ISDS voices, arguing that it ISDS is a threat to domestic rule of law and has an undermining effect on national judiciary systems. In light of this, Australia has become a proponent to abandoning the ISDS mechanism in the TPP. While the inclusion of an ISDS is still highly likely to be included as part of the agreement – with the USA pressuring opponent parties to endorse the ISDS – and arguing that there won’t be a TPP without it, there is still uncertainty around how the final draft of the TPP will be structured.

ISDS could bring new forms of investment to Vietnam

The inclusion of ISDS into the TPP agreement could have the effect further reducing the risk associated with foreign investment, which could encourage companies from developed countries party to the TPP such as those in the US, to engage in “discretionary” outsourcing, this refers to foreign investment that does not require a foreign presence to be successful (while “non-discretionary” investment outsourcing refers to investment that requires outsourcing to a foreign jurisdiction to be financially viable) , and to ensure performance, would usually be kept in the home country jurisdiction where investment is less risk averse. Such investment can include high quality manufacturing, research and development and others. This discretionary investment could further raise investor confidence in Vietnam as a destination for high tech, R&D and other forms of investment.

Vietnamese outward investment could be boosted

2014 was regarded as a bumper year for Vietnamese outward FDI, with approximately US$1 billion going to 129 projects around the world. While the biggest recipients of Vietnamese FDI have been Myanmar and Cambodia, the US and Singapore were also destinations, both of whom are parties to the TPP negotiations. This suggests that Vietnamese firms would be able to benefit from the ISDS mechanisms. While the US and Singapore have highly developed legal frameworks for the enforcement of foreign arbitral awards; both countries and Vietnam are indeed party to the New York Convention, this could seek to enhance Vietnamese enterprises’ access to a neutral ISDS mechanism. The wide scope of the Japanese and American positions on ISDS covering all major contracts between foreign investors and the host state, if agreed, could protect many forms of Vietnamese FDI to the US and Singapore.

A potential Appellate structure could enhance ISDS for investors

Although not confirmed as yet, the US has taken a leading role in the TPP negotiations in calling for an Appellate structure to the TPP ISDS. Such a mechanism has been widely promoted in US-led international investment agreements, and is included in the US model BIT as a review mechanism. Furthermore, the International Centre for Settlement of Investment Disputes (“ICSID”) secretariat has also considered reform to include an Appellate structure for reviewing arbitral awards. Such a mechanism in the TPP ISDS could have two implications for investors. Firstly, such a structure could harmonize the interpretation of the TPP treaty text, and allow for the correction of awards from the many private commercial arbitration institutions from different jurisdictions that contain different rules of interpretation, and provide a more legitimate investment framework for investors. Indeed, the basis behind the ICSID Appellate structure was to achieve the aforementioned.


This short look at some of the potential implications on both inward and outward investors in Vietnam suggests that there will be benefits to the international framework for investment in the region that will have the effect of boosting investor confidence between TPP members, on the back of a re-energized ISDS mechanism. With suggests that such negotiations are at an “advanced stage”, it is likely that more aspects of the agreement will be made public in the months to follow.


  • Sappideen, R. Ling Ling, He. ‘Investor-state Arbitration: The Roadmap from the Multilateral Agreement on Investment to the Trans-Pacific Partnership Agreement’, 40 Fed. L. Rev. 207 2012
  • Cai, Congyan. ‘Trans-Pacific Partnership and the Multilateralization of International Investment Law’, 6 J. E. Asia & Int’l. L. 385 2013
  • Ikenson, D. ‘A Compromise to Advance the Trade Agenda: Purge Negotiations of Investor-State Dispute Settlement’, 57 Free Trade Bulletin 2014
  • Mayer Brown JSM ‘A Guide to doing business in Vietnam’ 2015
  • Mayer Brown JSM ‘Will Vietnam Sink or Swim Amid a Proliferation of FTA?’ International Trade Asia, 2015
  • Accessed 7/4/15
  • Accessed 7/4/15

By Joseph McDonnell – Vietnam Law Insight.

Disclaimer: This Briefing is for information purposes only. Its contents do not constitute legal advice and should not be regarded as detailed advice in individual cases. For more information, please contact us or visit the website: Http://

Solutions to mitigate M&A pitfalls

Recently Vietnam has become a favourite merger and acquisition (M&A) destination among foreign investors, particularly from Japan, Korea  and Singapore. Popular sectors include real estate, food and beverages, retail, and to a lesser degree, manufacturing.

Vietnam has become a favourite merger and acquisition destination among foreign investors. However, one problem at present is that negotiations are often lengthy and closing deals can be difficult. This article reviews the major obstacles and pitfalls facing M&A transactions, based on a recent case study, and proposes solutions that could make the process easier and more efficient.

Law on Enterprises and Law on Investment – Effects on closing conditions

Under the Law on Enterprises (LOE), an equity acquisition is considered complete at the time the investor receives their share certificates and is entered into the shareholder registry.

Under the Law on Investment (LOI), the time at which a foreign investor is eligible to manage an acquired local company (officially under the definition of foreign direct investment (FDI) is when they are issued an investment certificate (IC). Obtaining an IC is often a cumbersome process and requires the signature of a provincial leader. The process can take months and needs to be well-advised and strategically carried out to avoid delay. That is one reason why Vietnam is currently behind other countries in terms of competitiveness. It is also a reason why major M&A transactions still occur offshore – investors take over a holding company that holds the acquired company’s shares. This loses  tax revenue and is not effective when the target company is already an FDI enterprise.

When the company to be acquired is a Vietnamese firm, an offshore transaction does not avoid the IC required to complete the transaction. One solution would be to use a local holding company. Recently however the government issued regulations prohibiting the establishment of a local ‘holding company’. However, because there is no official definition of ‘holding’, foreigners are not restricted from setting up such an entity and it could in fact be used to streamline the acquisition process.

The pitfalls of due diligence

Legal due diligence (LDD) in Vietnam differs from other countries in that foreign investment is restricted in certain sectors. The starting point of an LDD process would be to check whether the buyer is excluded from some areas of the target company’s business. If so, the recommendation would be to clarify or remove those areas of business or use the holding structure as advised above.

Another issue could be the nature of the target company. Family businesses, for example, may use double book transactions and may not have their books audited before the transaction. It is therefore important that a buyer only trust audited financial statements and that any other ‘profit’ shown in a separate transaction book be considered with scepticism.

There are two risks that cannot be avoided through LDD in Vietnam. The first is the ‘non-litigation’ risk. There is no central database in Vietnam where one can look up who is suing whom. Therefore, most LDD reports simply state that the ‘target is not aware of any legal action pending’, which is a weak position. The second is tax risk. Under the Law on Tax Management, there is no time limitation on tax recovery. That means in theory a target company could be subject to tax arrears indefinitely. In fact, there have been cases where an LDD takes place and a company is acquired, only to have tax authorities return for arrears years later, and the due amount including penalties is actually higher than the purchase price. If the sellers have left the country then the company is the only entity availably responsible for payment. One solution to this would be to request that tax authorities clarify any outstanding issues, or to withhold part of the payment until taxes have been finalised. Having said that, it does not fully mitigate risk. This is also the reason many buyers opt for asset deals rather than equity deals. This can be more practical with a pure M&A transaction, rather than private equity where asset deals are not an option.

Risks during negotiation

Contract negotiations may be short or long, depending on how skilled both sides’ lawyers are and how detailed the memorandum of understanding (MoU) or term sheet is. More often, negotiations are drawn out because the MoU or term sheet was not drafted or lacks detail. Asides from fixing a purchase price, these preliminary documents are very important to limiting the expectations of both parties and familiarising them with concepts such as right of refusal, a drag-along or tag-along clause, a non-compete clause, or reserved matters, which are often a source of tension.

Co-operation between lawyers from both sides in good faith and towards a win-win solution is vital. There is nothing more frustrating than an embattled negotiation, where one party has a presumed feeling that he/she has been treated unfairly by the other party, or that the lawyers have done nothing to protect their clients. If lawyers are apathetic with their clients, then both parties lose and the only winner is the law firm.

During negotiations, it is standard for both sides to have lawyers. In a case where only one side has lawyers, the other side may not understand basic concepts such as rep and warranties and put options, and may start feeling paranoid about the contract as a whole. That said, many sellers hesitate to engage lawyers because of the high cost, but this only prolongs negotiations and leads to frustration. If the seller doesn’t employ a lawyer, it is important for the buyer’s lawyers to use plain English or tone down their language so that their client can achieve their objectives. Regardless, it is much better that the seller has a lawyer for negotiations, and if not, suspends negotiations until one can be employed. Another option is for the buyer’s lawyers to clearly explain any and all points of contention.

What often happens is that foreign lawyers blame local lawyers for being uncooperative or not understanding the basics of M&A. But more often I encounter foreign lawyers that underestimate local lawyers or have colonial attitudes. Such attitudes lead to bullying and might be useful in some frontier markets, but not in Vietnam, especially when the other side are prominent local lawyers who have been involved in many international transactions. Both sides have to be realistic and have a win-win attitude. This is easier said than done, but small steps such as not arguing over ‘face-saving’ issues and avoiding the use of unsubstantiated threats can help to build trust between both lawyers and the involved parties.

Post-closing issues

Closing a deal does not mean it is time to pop open the champagne. Apart from tax risks (mentioned above) there are also situations where a put option or convertible bond applies, and these issues need to be worked out. Recently there was a pending case at the Vietnam International Arbitration Centre between a buyer who wanted to enforce the put option and the seller who denied the validity of the option. A battle commenced where one side argued a strict interpretation of the words ‘shareholder agreement’ and the other side who defined it as the intention of the parties before the M&A transaction occurred. The solution, in either case, is to have a well-drafted contract and that both sides have a red-line and hedge against or insure that red-line.

There are numerous obstacles to M&A transactions in Vietnam, as in all emerging countries. But with an experienced advisory team, it is easier to build trust with the counter-party.

By Vietnam Law Insight, LNT & Partners.

Disclaimer: This Briefing is for information purposes only. Its contents do not constitute legal advice and should not be regarded as detailed advice in individual cases. For more information, please contact us or visit the website: Http://

Competition law key factor in M&As

While investors’ interest in Vietnam has translated into healthy growth in mergers and acquisitions (M&As) and foreign direct investment (FDI), the potentially far reaching impact of the Competition Law is not understood by many players, writes Dr. Nguyen Anh Tuan from LNT & Partners.

As Vietnam’s increasingly outward looking economy and Competition Law develop, the country’s merger control regulations should not be overlooked – not least because of the hefty penalties that they attract. A fine of up to 10 per cent of a company’s total revenue in a financial year may be imposed for a breach of merger controls, including requirements on notification. Other severe penalties include forced demerger or withdrawal of a company’s business certificate.

It is also worth remembering that investors who have just completed transactions are not out of the woods yet. Competition authorities can still penalise companies up to two years from the date of the breach and prospective or existing investors must be aware of how these merger controls affect them and how to deal with potential non-compliance risks.

The term, “economic concentrations”, under the Competition Law includes company mergers, consolidations and acquisitions, as well creations of joint ventures. The law imposes certain merger controls on these economic concentrations that investors should be aware of, especially when dealing with larger transactions.

These merger controls focus on the consideration of the economic concentration’s “combined market share”. The market share of a company is calculated by referencing its percentage of turnover from sales or inwards purchases against total turnover from sales or inwards purchases by all companies in the business of the same type of goods in the relevant market for a month, quarter or year. The combined market share is defined as the total market share in relevant markets of all companies participating in an economic concentration. The job of looking at the extent of the combined market share falls to the Vietnam Competition Authority (VCA) when assessing whether an economic concentration will be subject to notification or prohibition under the Competition Law.

This makes it crucial for investors, before entering into an economic concentration, to calculate the resulting combined market share to evaluate potential risks of offending Vietnam’s merger control regime. This prudence will allow investors to determine whether VCA notification of the transaction is required.

The data necessary to determine market share can be obtained from government agencies, such as the General Statistics Office, the ministries of Finance and Information and Communications or the State Bank, depending on the respective industry. Reputable market research can also be used.

To prevent an under or overstatement of this market share figure, investors also need to identify the “relevant market”, because market share will be calculated on an assessment of the relevant product market and geographical area. For example, the market share of a company may be more than 95 per cent for the Ho Chi Minh City area, but only 5 per cent for the whole country.

With respect to notification requirements, there are generally no restrictions against an economic concentration if the resulting combined market share in the relevant market will be below 30 per cent, or if the resulting economic concentration is considered a small or medium-sized enterprise (SME).

If the combined market share falls between 30-50 per cent, the VCA must be notified of the proposed transaction before the parties can execute it. The parties can only proceed with the transaction once the VCA approves it.

Economic concentrations that result in a combined market share of more than 50 per cent will be prohibited, unless the VCA grants an exemption. Such an exemption can be granted if one or more companies in the economic concentration will be at risk of dissolution or bankruptcy or if the economic concentration will contribute to the country’s socio-economic development or technical and technological progress. However, these exemptions are not guaranteed and will be at the authorities’ discretion.

An open door to VCA consultation

If investors harbour doubts or concerns over whether a proposed transaction will be prohibited or require VCA notification, they may actively consult the VCA for guidance.

This VCA consultation function has proved successful and resulted in VCA assistance in accurately calculating combined market shares in certain cases. PV Drilling and Mirae are two key recipients of VCA expertise. These companies were advised not to make a notification (with regards to respective deals or a combined  deal/merger) as the participants’ combined market share did not meet the threshold stipulated by law.

However, despite VCA being on hand to provide this free service, only a handful of companies have utilised it. In fact, it was called into action just nine times from 2008 to 2011.

The VCA offers two types of consultations – general and specific consultations. The former, which can be done through email or phone, is primarily used for clarifying general Competition Law concerns. The latter is used when considering whether the proposed transaction requires notification or is prohibited. Through the provision of salient details on a proposed transaction, the VCA can help ascertain the relevant market share and its potential market impact.

It must be remembered that this consultation service does not excuse companies from legally notifying the VCA of larger economic concentrations, however such consultations are an invaluable resource for investors in navigating through the country’s complex merger control regime. Moreover, they could potentially save millions of dollars in penalties and legal headaches, as well as save time and costs in ascertaining whether a breach has occurred.

Confronting early notification fears

There have also been growing investor concerns about the serving of notification letters to the VCA, a Competition Law requirement, on proposed transactions.

Particularly, fears over the possibility of the VCA preventing the transaction from going ahead and breach of confidentiality are still commonplace among prospective investors.

However, the VCA does not act as a roadblock to transactions upon receiving a notification. In fact, it has not objected to any of the notified economic concentrations. These include substantial economic concentrations that have resulted in considerable increases in local market share, such as the merger of Nippon Steel and Sumikin Bussan Corporation and the proposed merger of AIA and Prudential.

In regard to confidentiality concerns, the VCA is prohibited by law from disclosing or using confidential company information and the extent of information disclosed in notices and applications for exemption vary on a case-by-case basis. For example, future business plans are often needed if an application for exemption is made. Companies can rest assured though that sensitive information, such as prices and detailed post-transaction business plans, will almost never need disclosure.

With this in mind, it is unclear why prospective investors unnecessarily chance facing a substantial fine for a Competition Law breach. Failure to notify the VCA as required by law may result in a company getting hit with a substantial fine of 3 per cent of its total turnover for the preceding fiscal year.

For this reason, prospective investors must put irrational fears aside and notify the VCA to comply with the Competition Law. In addition, companies are not bound to proceed with transactions after receiving VCA approval. Notification should be provided as soon as the commercial terms of the transaction have been reached or even earlier during the deal negotiations.

Sound advice on offer

Vietnam’s Competition Law regime is challenging for new and seasoned investors, despite the sound VCA support on offer. For investors that strive to comply with the law, their combined lack of experience and knowledge in Vietnam’s business and legal environment have often resulted in drawn out VCA assessment or consultation processes, largely a result of improperly prepared notifications and explanations.

For this reason, seeking assistance from professional advisers is highly recommended. In dealing with the VCA, legal assistance will leave an invaluable footprint on the preparation of notifications and explanations – particularly when it comes to how much information should be disclosed on the proposed transaction.

While Vietnam’s Competition Law arguably lacks the sophistication of other developed jurisdictions, with substantial penalties and the potential to make or break a deal, they are often the overlooked elephant in the room for larger transactions.

Competition Law compliance should always be on the agenda when investors propose and negotiate an upcoming economic concentration. However, there is no need to be daunted.  For prospective transactions to proceed as smoothly as possible in agreement with the Competition Law, the VCA should be considered a friend, not a foe.

The VCA is ready to serve investors and the nation in promoting healthy competition and maximising foreign investment to the greatest extent permissible under the Competition Law.

By Vietnam Law Insight, LNT & Partners.

Disclaimer: This Briefing is for information purposes only. Its contents do not constitute legal advice and should not be regarded as detailed advice in individual cases. For more information, please contact us or visit the website: Http://

M&A Vietnam Overview 2013


M&A transactions in Vietnam have seen steady growth from 2003, fostering the country as a potential hub for economic activity which has seen strong development in recent years, particularly after Vietnam officially became a member of the World Trade Organization (WTO). Featuring crowded markets, stable economic growth and rising income per capita, Vietnam is still considered as an attractive destination for investors.

Despite setbacks of the global financial crisis from 2007 to 2009, corporate investment into and within Vietnam has rebounded, with the value of M&A transactions growing from 15-30% annually until now. In 2009, Vietnam had a total of 295 M&A deals with a total value of approximately US$1.14bn. By 2010, the number of deals had decreased slightly to 245 but with their total value escalating to US$1.75bn. In 2011, the number of M&A deals in Vietnam reached 266 with a total value of US$6.25bn, up 3.5 times from the previous year, and in only the first quarter of 2012, the value of M&A deals has risen to over US$1.5m with 60 deals.

The recent trend of M&A shows an increase in value with a decrease in the number of transactions. This may be partly explained by the fact that high interest rates (25% per annum at the moment) amid economic and financial crises have led to many distressed assets in the country. Meanwhile most domestic companies rely on loans as mobile capital and in certain cases to create fixed assets. This offers an opportunity for investors, including multinational companies (MNCs) and private equities, to penetrate into Vietnam through M&A.

The three most active sectors are consumer goods, financials and real estate. Among those, the consumer goods sector ranked first in total deal size at US$1.035bn (accounting for 39% of the total value), with financials accounting for US$453m (17%) and real estate for US$251m (9%). It is predictable that inbound M&A is more popular than outbound M&A. However, on an interesting note, the highest deal amount came from corporations from China and the US, but inbound cash flows came from Japan.

Earlier this year, Japanese confectionery firm, Ezaki Glico Co., bought 14 million shares (equivalent to a 10% stake) of Kinh Do Corporation as its first step in launching Glico products into Vietnam’s market. Japan’s Mizuho Corporate Bank Ltd. expects to complete the disbursement of over US$567m to acquire a 15% stake in Vietcombank, the second-ranked commercial bank in capitalisation in Vietnam. The stake acquisitions of investors from Japan have been seen in many fields, from finance, real estate, media and consumer goods, including acquisitions of 25% of Nutifood, 48% of Saigon Paper, 57% of Interfood Shareholding Company and 95% of Diana to name a few.

Despite strong growth, numerous key observations of Vietnam’s M&A landscape have been made:

First, Vietnam is still in the process of maturing its commercial centre with a majority of enterprises still considered small or medium-sized enterprises. Therefore, the value of individual M&A transactions generally only falls within the US$5-20m bracket. One of the most challenging factors for foreign investors is the transparency of Vietnamese enterprises. The spirit and commitment in complying and ensuring transparency after “closing the transaction” is an obstacle which must be overcome in order to attract and retain investment flows. Due to the transparency issue, investment funds currently only invest in leading companies. This creates a paradox whereby competition among investors in the same segment, and the cost of capital for investors, are increased. This creates issues for smaller businesses and inhibits their growth potential as they cannot yet gain access to investment capital.

Second, foreign M&A transactions in 2011 accounted for 66% of the total value of M&A transactions in Vietnam (reaching a value of US$2.6bn). By the end of the second quarter of 2012, Japan was the largest foreign investor in Vietnam, having engaged in approximately 4,000 investment projects. Despite this, however, offshore investments from other developed nations have not yet taken off as foreign investments are still being strongly carried out by neighbouring economies, including Laos, Cambodia and most recently Myanmar. According to a survey made in late 2011, weak macroeconomics is considered as the most significant factor of investment obstacles, with corruption and government red tape following in second and third places. Investors’ confidence towards the Vietnamese economy has fallen due to macroeconomic issues such as high inflation and the GDP growth rate.

Third, Vietnam’s M&A landscape has been faced with legal and administrative barriers, including a lack of transparency owing to insufficient disclosure of information of target companies from the public authorities. Furthermore, a lack of clarity on applicable investment laws has unnecessarily prolonged transactions, as well as seen a need for seeking third-party assistance to reconcile differences caused by this lack of clarity.

Finally, despite the fact that Vietnam’s accession to the WTO Commitments has resulted in a significant increase in flow of FDI into the domestic markets, it has seen numerous restrictions imposed on foreign investors – particularly those stipulating an upper limit as to the amount of capital permitted for investment in various sectors such as banking, retail and distribution.

Significant Deals And Highlights

In 2011, Vietnam was graced with significant M&A transactions in a broad spectrum of sectors – particularly in banking and consumer products. Given the magnitude of the transactions, Vietnam is observably seeing a positive trend towards foreign investment into the country. Some significant transactions include:

(i) Mizuho Corporate Bank Ltd’s acquisition of a 15% stake in Vietcombank, a transaction valued at approximately US$567m

On 30 September 2011, Vietcombank and Mizuho Corporate Bank Ltd (Mizuho), one of the leading financial groups in Japan, entered into a strategic partnership agreement under which Mizuho purchased 347.6 million ordinary shares at a value of VND34,000 per share, accounting for 15% of the charter capital of Vietcombank. This transaction marked the first success during the pilot process of equitisation of large state-owned banks. The cooperation with Mizuho puts Vietcombank on a new positive light. Particularly, Vietcombank’s financial capacity was enhanced and the surplus acquired from this transaction was VND 8.343bn. In addition, this opened a great opportunity for Vietcombank to exchange its experience in corporate management, risk management and service development with Mizuho. An interesting feature of this deal is that most analysts believed that Mizuho had accepted to purchase the shares of Vietcombank at a higher price in comparison with current market prices, despite the fact that Vietcombank’s share would have been sold at a higher price before the financial turmoil starting from late 2010. One of the key factors for Mizuho’s consideration in this deal is that the customer network of Vietcombank is diversified to more than 6 million individual customers and more than 74,000 corporate customers.

The M&A transaction between Mizuho and Vietcombank is expected to benefit both parties. It aided Mizuho in expanding its retail banking portfolio through Vietcombank’s system. Meanwhile Vietcombank can maintain its leading position in the Vietnamese banking market and expand its operations over the international market, as well as achieving the position of being one of the 70 largest financial groups in Asia (except for Japan) by the year of 2020.

(ii) C.P Pokphan’s acquisition of 70.82% of the stake in C.P Vietnam, a transaction valued at approximately US$609m
This was an off-shore deal whereby C.P. Pokphan (CPP) indirectly owned and controlled C.P Vietnam by acquiring Modern State, a subsidiary of Charoen Pokphan Group (CP Group) having a head office in Thailand, which was holding a 70.82% stake in C.P Vietnam valued at VND12,000bn (equivalent to US$609m). The remaining shares (accounting for 29.18%) were still owned by CP Group. CP Vietnam is regarded as a leading company specialising in the manufacture of cattle food and sea food in Vietnam, as well being recognised as one of the fastest developing enterprises in the South-East Asian agricultural market. For the time being, CP Vietnam accounts for 20% of the market share in respect of breeding food in Vietnam, 77% of the market share in industrial pigbreeding and 30% of the market share in chicken breeding in Vietnam. As such, this M&A deal was seen as a transaction to polish the reputation and image of CPP for the purpose of publicly listing on the Hong Kong Stock Exchange.

However, CPP’s aim in this strategic acquisition was to take the leading position in the Vietnamese market for cattle breeding food and agriculture, as well as supporting the chain of 78 processing factories of CPP in China in the supply of raw material for manufacturing breeding food and other agricultural products. This acquisition raised fears that Vietnamese enterprises are becoming targets for foreign groups in this sector, particularly in the South-East Asian region, to acquire. Due to their great financial capacity, it is inevitable that foreign investors would dominate and control the market in cattle breeding and food supply following the end-to-end process. However, the fast acceleration of CPP seemed to fall beyond the contemplation of domestic companies. According to the Vietnam Association of Seafood Exporters and Producers (VASEP), the domination of these groups forces 30% of Vietnamese enterprises operating in this sector into bankruptcy. From an economic perspective, this is a positive signal which is expected to stimulate Vietnamese enterprises in enhancing their business scale, competition capability, technological level and so forth in order to survive and develop in this sector. Nevertheless, in practice it is impossible for a majority of domestic companies to pursue the end-to-end model such as that of CPP. As a result, their lower position in competition is evident.

(iii) Kohlberg Kravis Roberts & Co. LP’s acquisition of 10% of the stake in Masan Consumer Vietnam, a transaction valued at approximately US$ 159m

This features an increase in PE investments involving reputable organisations such as Diageo Plc (acquiring a 23.6% stake in Hanoi Liquor Joint Stock Company (Halico) for US$51.6m from VinaCapital portfolio), Mount Kellett Capital Management investing US$100 in Masan Resource, and SEB Group acquiring a 65% stake in Vietnam Fans Joint Stock Company. This deal is by far the biggest private investment in Vietnam.

Through this deal KKR proposed that Massan acquire other enterprises in the industry, especially companies with strong business operations and a low PE ratio. The PE funds are disbursed during the period (cycle) of economic difficulties and enhance the liquidation and divestment in the market, exciting activities. Because of this aspect, the period of prolonged economic hardship in Vietnam today is a good time for funds to seek investment opportunities in the country. Many large PE deals have announced success in recent years to highlight the interest of international investors in the Vietnamese market.

(iv) Gtel Mobile’s takeover of VimpelCom in the Beeline mobile network joint-venture, a transaction valued at approximately US$45m

This deal reflects a different trend of M&A in comparison with the previous, in which VimpelCom, the second largest mobile group in Russia, decided to sell all of its 49% stake in the joint venture to local partner, GTel Mobile, in order to cut losses in early 2012. According to published information, VimpelCom will be paid in cash the value of US$45m to completely pull out from the joint venture. GTel Mobile will stop using the Beeline brand after six months from the date of the transfer. It is notable that GTel had only spent $45m to acquire full control of Beeline, where building the first mobile network in Vietnam was estimated to cost at least US$1bn. Hence, VimpelCom’s was perceived strongly as a move in cutting losses. Up to this point, VimpelCom had not announced how much loss it had suffered in Beeline Vietnam. However, one can estimate the magnitude of the losses in considering the US$463m that VimpelCom had invested in Beeline Vietnam.

This was a turnabout from VimpelCom’s announcement in April 2011 that it would invest US$500m into the Beeline in 2013, thereby bringing the total network investment to US$1bn, if it achieved its business objectives and obtained relevant approvals from the competent authorities. Therefore, the withdrawal of VimpelCom demonstrated that it was unable to create opportunity in the investment and was forced to sell its shares. There are various reasons to explain the failure of Beeline, such as its low average revenue per user (ARPU), saturation level and the diffi culty in expanding its coverage. However, many believe that one of the main reasons is that the appearance of Beeline with the impression of the BigZero package, which indeed had brought excitement and further innovation into the market, had caused serious concerns for major State-owned mobile networks (holding 95% of the market), such as MobiFone, VinaPhone and Viettel. These network operators had publicly asked the Ministry of Information and Communication

(MIC) to secure the mobile network from cut-throat competition resulting from aggressive marketing activities. In fact, Beeline was also unable to apply 3G technology due to technical barriers created by MIC and was forced to use the 1800 MHz band, which was more costly and less efficient than the 800-900 MHz band deployed by other operators.
The possibility of excessive state intervention to protect State ownership may be considered as a factor that foreign investors must consider in selecting the investment sector in Vietnam.

Vietnam’s Legal System For M&A Transactions

The economy of Vietnam embraced the influx of M&A activities within the country, following the State’s promotion in encouraging investment in 2000. From this year until 2006, these investment activities were primary governed by the Law on Enterprises, Law on Investment, Law on Securities, Law on Competition, and other specific legal instruments. For both domestic and foreign M&A transactions, M&A transactions must be conducted in accordance with the following legal instruments:

(i) Mechanism of transactions, amendments to licences/certificates and management of target enterprises after transactions are stipulated in the Law on Enterprises and relevant regulations, including Decree 102 and Decree 43 issued in 2010.

(ii) In some cases, subject to the scale of the target company after a transaction, investment registration is required by the Law on Investment and relevant regulations, including Decree 108.

(iii) If parties to an M&A transaction have a combined market share as defined in the Law on Competition of between 30% to 50% of the relevant market, they are required to notify the Vietnam Competition Administration Department (“VCAD”) for its approval before conducting this transaction. If the combined market share after an M&A transaction exceeds 50% of the relevant market, it will be prohibited. The parties must submit an application for individual exemption if it satisfies conditions stipulated under the Law on Competition.

(iv) M&A relating to shares/securities of public companies, listed companies, investment funds and securities companies must comply with some specifi c requirements of the Law on Securities and relevant regulations.

(v) M&A in specifi c sectors such as banking, fi nance and insurance must be conducted in accordance with specifi c laws and regulations. In addition to satisfying conditions for new members/ shareholders after a transaction, approvals of the transaction by the authority in charge are almost always required.

Despite the State’s promotion of these activities and attempts to reform placed on the agenda, the legislature has still been faced with diffi culties, in that certain inconsistencies in the law still inhibit the development of M&A transactions in the country. According to a survey conducted in 2011, the legal system in Vietnam was cited by 82% of respondents as one of the factors constraining their investments. Together with corruption, Government red tape, and infrastructural issues, the legal system has been cited as one of the top four concerns since the first survey. It seems that there has been no improvement in the view of investors, as the number of investors considering them as hindrances for their investments has consistently increased. Certain notes on restrictions against foreign investors are highlighted as follows:

(i) Restrictions on business lines and shareholding proportion of a target company after a transaction mentioned in WTO Commitments on services of Vietnam need to be studied. For instance, a company with more than 49% ownership by foreign investors will be considered as foreign-owned company and will face this restriction.

(ii) Under Decision 55/2009, only 49% of shares/securities are available for foreign investors relating to M&A of public companies, listed companies, investment funds and securities companies. There is a draft of new regulations to remove the cap on foreign holding ratio but however, to date, the draft has not been fi nalised.

(iii) In the case foreign investors acquire shares of domestic companies, such company may be required to conduct investment registration procedure. Foreign investors are required to make payment for the transaction by a VND account opened in Vietnam. In addition to these above restrictions, the legal framework for M&A in Vietnam still maintains the following shortcomings that may inhibit M&A transactions:

(i) The basis for calculating the “market share” in relation to an “economic concentration” is not addressed clearly by the Law on Competition and regulations so therefore, implementing this requirement on M&A has not been efficiently conducted by VCAD.

(ii) In 2007 when Vietnam acceded to the WTO, capital ratio requirements of foreign investors in domestic companies were specifi cally addressed in the roadmaps for a majority of key services. However, a few services have not been mentioned in these commitments and these services are approved on a case-by-case basis only. In addition, for the time being, the 30% restriction on commercial banks, as well as a 49% restriction mentioned in Decision 55/2009, are causing difficulty and are materially affecting foreign M&A transactions.

(iii) The laws have not clarified requirements on procedures of investment registration after transactions related to foreign investment. As a result, a number of difficult guidelines on this matter have been issued by the authorities in charge.

(iv) In relation to the private placement of non-public companies, a number of transactions which involve private placement have been delayed for two years owing to a lack of guidelines for implementing Decree 01/2010. As from September 2012, Decree 01/2010 was replaced by Decree 58/2012. While we are awaiting new detailed regulations to implement this Decree, it is expected that transactions involving private placement will in practice be allowed to proceed.

(v) The quality of the current Vietnam Accounting System (the “VAS”) has been lower than the International Financial Reporting Standards (the “FRS”), despite some parts of FRS being incorporated into the VAS. We note that in 2020, the VAS will fully comply with the FRS. Financial due diligence and transactions are being affected by this shortcoming. Furthermore, GLI – Mergers & Acquisitions Second Edition 101
LCT Lawyers Vietnam regulations on capital gains tax also need to be clearer in which the implementation of double tax agreements must be conducted strictly by a tax agent. The roadmap of 2012-2015 forecasts an intention of the country to sustain further development of M&A activities, and the following highlights are worth noting:

First, as abovementioned, legal reforms to the M&A landscape are on the agenda, which will aim to resolve current obstacles facing this area, as well as offer greater support to parties engaging in these transactions. Amendments to the Law on Investment, Law on Enterprises, Law on Real Estate, and Law on Securities will come soon. These amendments will be used as a stepping stone towards drafting detailed regulations. Of particular interest to foreign investors would be those amendments made to the Law on Land and Law on Securities, which endeavour to broaden the restrictions against foreigners.

Second, discussions are underway on supporting a decrease in taxes, in which the rate of corporate income tax may be lowered to 20% from 25%, and exemptions made for capital gains tax from securities transactions. Other benefits are expected to be made in an effort to encourage investment activity. Also, it is anticipated that improvements will be made to policies on managing inflation and currency.

Third, it is understood that Vietnam is on its way to establishing new appropriate policies on decreasing and avoiding red tape. A national database on enterprises and investments is expected to be implemented in the near future, which will bring forth much-needed transparency into the country. Furthermore, new regulations on the information management against strictly-managed, publicly-listed companies will assist in this respect. Although the country is still far from establishing directions similar to those of Asian global financial centres such as Hong Kong or Singapore, investors will be pleased to know that positive reforms are underway to reflect Vietnam’s shifting economy. Industry Sector Focus As Vietnam is an emerging market with a population of almost 90 million, M&A transactions have seen particular focus on consumer products, banking and real estate. Historically, these sectors have accounted for over 70% of the total value of M&A transactions in the country. However, with 70% of the population engaged in the agricultural industry, we anticipate a key focus in this area over the
upcoming years.

M&A deals in agricultural and consumer sector

M&A activities in the South-East Asian region currently focus on sectors of distribution, wholesale, retail of agricultural products, food and seafood (hereinafter referred to as consumer sector). These sectors are granted numerous incentives from the Government. M&A transactions engaged in the consumer sector are also based on a trend in developing the region, with the demand of consumption increasing day-byday in Vietnam. In particular, as demand in the consumption of luxury goods is rapidly growing, it has encouraged European and American investors to penetrate into this sector to satisfy enormous demands. M&A activities in the consumer sector are expected to remain positive in the year ahead due to a number of reasons.

First, the consumer market in Vietnam has been developing in recent years thanks to the country’s young population, with high demands of consumption and growing incomes.

Secondly, domestic enterprises engaging in manufacture of consumer products have encountered many difficulties in capital owing to high interest rates.

Finally, due to a lack of capital and experience, these local enterprises approach foreign investors for further investment strategies. Particularly, foreign investors such as those from Japan, owing to damage from natural disasters occasionally occurring in the country and the development of the country’s economy having reached its limit, also wish to invest overseas in order to maintain their capital and broaden their markets. Therefore, most investment in local enterprises operating in the consumer sector provides a positive outcome.

M&A in the real estate sector

M&A activities in the real estate sector in 2012 has grown in popularity, particularly in the first six months of the year. There are more vendors than purchasers in M&A activities as real estate developers and stakeholders are encountering financial difficulties such as funding difficulties and low liquidity.

Many domestic investors run out of capital to maintain their construction projects while stocks are kept at high levels. They are forced to transfer their real estate and fulfill their financial obligations to repay money to the bank.

Activities in M&A transactions in the real estate sector are very popular – particularly by way of selling enterprises with real estate projects. This trend is due to the prolonged and diffi cult procedures in transferring real estate projects in real estate-related M&A transactions. Therefore, acquiring 100% ownership seems to be the most favourable solution of investors, rather than solely purchasing the projects. This method can be easily progressed by purchasing the capital contribution and shares in the company which own existing real estate projects. This sector has also experienced an increase in the participation of local enterprises in M&A activities. However, one major obstacle for domestic developers is the scarcity of investment capital. It is uncertain when the real estate market will recover but however, we are certain that real estate market will be restructured after the economic crisis period from M&A transactions. Investors with strong financial health will purchase real estate and continue to develop it.


The banking sector is the leading sector in M&A activities, with many high-value transactions in 2008 to 2010. The success rate of transactions is about 30%. Under the impact of the global financial crisis between 2008 and 2009, the number of successful transactions in the past two years was very modest. However, in 2010, when the crisis hit hardest, this number increased rapidly. Particularly, nine M&A transactions representing 20% of the state-owned banks and commercial banks have been recorded. In 2012, the tendency of M&A in the banking sector is the same as in 2011. The majority of acquisitions have been conducted by foreign banks or credit institutions. The sudden variation in M&A transactions in the banking sector may be explained by three main reasons.

First, Vietnamese banks seek to find strategic partners by way of issuing shares to foreign banks or credit institutions operating regionally and globally.

Second, there is now a requirement to increase the legal capital in commercial banks up to VND3,000bn (equivalent to US$142.9m) at the request of the State Bank of Vietnam. Moreover, the rate of capital contribution of foreign banks in local commercial banks is not allowed to exceed 15% (this rate can be adjusted in certain cases subject to the State Bank’s approval).

Third, M&A is one of the State’s solutions in implementing the restructuring plan of the Government and the State Bank. Therefore, M&A in this sector is expected to further increase in the near future. Ownership of shares by foreign banks or credit institutions will become more popular in the near future as many local banks have not found strategic investors and many foreign banks have not yet acquired shares in local partners. In addition, the implementation of restructuring policies of the State Bank will lead to the appearance of new, larger local banks by the way of merger. While foreign banks and credit institutions have expedited their investment in local banks, in 2010, no Vietnamese bank will acquire shares in a foreign bank. With high credit growth, up to 28% in 2010,
local banks tend to concentrate on the domestic market and develop their own abilities. Therefore M&A over foreign banks or credit institutions conducted by Vietnamese banks will remain scarce.

The Year Ahead

The current positive trend reflects a positive outlook for Vietnam’s M&A landscape, which is expected to continue in 2012 and 2013. While strong interests from Japan are expected to be maintained, we are also seeing a gradual increase of interest from China and other non-neighbouring Asian countries. We are currently also seeing trend towards a corporate restructuring of small commercial banks, as the reforms aim to decrease the State’s retention of market capital in State-owned companies.

By 2014, we anticipate that almost all foreign capital restrictions imposed under the current WTO Commitments will be lifted, thereby further opening the market to foreign investors. While the growth of M&A transactions is expected to be maintained in the upcoming years, we therefore expect a strong dominance in foreign investment.

Consumer, banking, and real estate sectors will remain the key focus of the transactions, but those of State-owned companies and those in the agricultural sector are expected to enter in to the sphere.

By Vietnam Law Insight, LNT & Partners.

Disclaimer: This Briefing is for information purposes only. Its contents do not constitute legal advice and should not be regarded as detailed advice in individual cases. For more information, please contact us or visit the website: Http://

What is the Solution for M&A Procedures of Foreign Investors in Domestic Companies?

The Government has recently finalised its long-anticipated considerations to amending Decree No.108/2006/ND-CP which was promulgated almost six years ago in September 2006 in a bid to further clarify provisions under the Law on Investment. Most of these amendments have already been submitted to the Government by the Ministry of Planning and Investment (“MPI”), with only three unconfirmed matters remaining, awaiting the scrutiny of the Government.

However, this is no call for celebration yet. Stormy waters still lie ahead for foreign investors and domestic companies as one of these three matters may pave the way to tighter controls and stricter management over foreign capital and share transfers in domestic companies.

The relevant governing laws

The procedures for these transfers (or “acquisitions”) had been touched upon by numerous legal instruments including the Law on Enterprises, Law on Investment, Decree No. 108/2006/ND-CP and Decision No. 88/2009/QD-TTg.

However, in the past, no detailed, uniform procedures for such acquisitions have been comprehensively covered by any legal instrument. At some point in time, there existed numerous guidelines from various licensing authorities within Vietnam, thereby creating difficulties for any investors wishing to engage in these acquisitions.

The most recent Government regulation overseeing the acquisitions, Decree No. 102/2010/ND-CP (“Decree 102”), was issued with a view to regulate and offer a uniform approach to the procedures. On the face of the law, it seems to be a victory for foreign investors and domestic companies alike as an interpretation of this decree reveals an absence of any requirement on part of the domestic company to obtain an investment certificate following the acquisitions. In fact, we were recently presented with an opportunity to view official dispatches of the MPI (the “Report”), which confirmed this absence.

The reality in the application of Decree 102

However, numerous commentators have observed a potential conflict in the wording of Decree 102 and the Law on Investment. As a result of this lack of textual clarity in Decree 102, licensing authorities are, again, divided on the correct procedural requirements of carrying out the transfer. Foreign investors and domestic companies are, again, left in the dark as to what is precisely required in executing the procedures for these acquisitions.

This conflict has yet to be resolved, with different licensing authorities still continuing to act upon different interpretations of the law. For example:

  • The licensing authorities in Ho Chi Minh City require domestic companies to obtain an investment certificate after the acquisition such that the company will operate under two licenses – the enterprise registration certificate and the investment certificate.
  • The licensing authorities in Hanoi require all members or shareholders of the domestic company (including foreign investors) to engage in procedures to obtain an investment certificate. In doing so, the members or shareholders of the company will be granted an investment certificate while having their enterprise registration certificate revoked.
  • The licensing authorities in Ba Ria–Vung Tau Province and Binh Duong Province abolish the need for an investment certificate for domestic companies altogether if the transferred capital or shares do not exceed 49% of the domestic company’s charter capital.

The basis for this requirement

In its Report, the MPI highlighted the need for an investment certificate, citing that such requirements lay consistent with international customs on selected industries such as banking, insurance and real estate. Furthermore, it will ensure that there exist a codified set of procedures which would ultimately save the day on the face issues arising through a lack of specified guidelines.

However, it is debatable that perhaps the MPI should have given further foresight in providing its reasons. Particularly, the face of the Report seemed to overlook numerous key considerations:

  • First, the laws in countries of developed economies such as Singapore, Australia, USA and UK do not generally provide for any requirement to obtain an investment certificate of the kind potentially required in Vietnam. Particularly, Singapore provides no specific provisions for foreign investors in establishing a new company or purchasing shares of a private Singaporean company.
  • Second, the conformity to international customs that the MPI highlights apply to selected industries which are traditionally regulated to a high degree. Therefore, it is not necessarily appropriate to apply them universally to all industries.
  • Third, it seems that the requirement does not draw advantages for the transferring parties, not the State of Vietnam. In fact, both the parties and the licensing authorities fall victim to an increased burden and administrative workload as a result of its requirement.
  • Fourth, Decree 102 does not provide for this requirement so its removal will abolish any potential legal conflicts now and in the future.

What is the solution?

Without a doubt, investors aim to seek the simplest, shortest and cheapest way possible in order to carry out and maximise their investment. As such, one can only expect disappointment from foreign investors and domestic companies alike if the amendments of Decree 108/2006/ND-CP continue to implement this investment certificate requirement.

Therefore, now is a crucial time for the Government to reconsider its position, particularly given Vietnam’s national policy in promoting foreign investment into the country. Otherwise, consistency in the laws will need to be maintained in order to create a clear and systematic process for the transferring parties and licensing authorities.

At the moment, however, potential foreign investors can only wait in anticipation that the Government opts to takes one step forward in the right direction without the two steps back.

(Please note that the scope of this article covers only transfers between foreign investors and domestic companies established and operating in ordinary domains and sectors)

By Vietnam Law Insight, LNT & Partners.

Disclaimer: This Briefing is for information purposes only. Its contents do not constitute legal advice and should not be regarded as detailed advice in individual cases. For more information, please contact us or visit the website: Http://