Merger and acquisition in Thailand: navigating the complex legal landscape

What are the key laws governing Merger & Acquisitions in Thailand? 

Several legal instruments govern Merger & Acquisitions transactions in Thailand, each addressing different aspects of the process. The most relevant laws include:

• Civil and Commercial Code : It lays the foundation for private company law, contract law, and corporate governance standards—addressing share purchases, business transfers, and contractual obligations between buyer and seller. 

• Public Limited Companies Act : It regulates shareholding structures, voting rights, amalgamations, and procedures for acquiring controlling interests for publicly traded firms. Amalgamations involving public corporations necessitate special shareholder resolutions, adherence to corporate governance principles and transparency requirements.

• Securities and Exchange Act (SEA): For publicly-listed Thai companies, the SEA introduces further obligations. Strict disclosure is demanded, notably for takeovers or significant share accumulations. Acquirers must tender all shareholders once thresholds are breached (usually 25%, 50%, or 75% ownership).

• Competition Act: Led by the Trade Competition Commission (TCC), this act ensures mergers don’t birth monopolies or considerably reduce competition domestically. notified if market control is prospective, or penalties and undoing may await.

• Foreign Business Act (FBA): Foreign investors encounter extra scrutiny under this act, restricting ownership in telecom, agriculture, transportation. Firms in these areas must apply for a Foreign Business License (FBL) or seek Board of Investment (BOI) promotion to exceed 49% foreign ownership.

• Labour Protection Act: In business transfers, this act safeguards employee rights. It transfers staff to new entities with equal terms unless agreed otherwise. Advance notification of transfers is mandated; noncompliance could stir disputes and liabilities.

What are the typical steps in the Thai M&A strategy?

The Merger & Acquisitions approach in Thailand can be portioned into several pivotal phases, diverging somewhat based on whether the transaction is shaped as a share purchase or business transfer.

• Preliminary negotiations and confidentiality agreements: Initial discussions between prospective buyers and sellers often involve an informative exchange followed by negotiations on fundamental deal terms. A non-disclosure agreement is routinely executed to safeguard sensitive details.

• Due diligence: Comprehensively evaluating the target’s financials, legal framework, and procedures is crucial to assess standing. Legal scrutiny encompasses corporate composition, regulatory observance, major contracts, intellectual property, pending litigation, work issues, and potential liabilities. Financial statements and tax filings also demand close study to uncover any hidden risks.

• Transaction structuring: Acquisitions may be structured as share purchases or business transfers, each carrying distinct legal and tax effects. Share acquisitions convey not only equity but also duties and obligations. Asset transfers allow leaving undesirable debts or liabilities behind while obtaining specific assets and liabilities.
• Shareholder and regulatory approvals: Public company transactions often necessitate shareholder approval, especially those involving over half of assets or shares. Domestic law mandates shareholder meetings to vote on proposed deals, requiring at least three-quarters approval.

Clearances may additionally be needed from sectors like securities, antitrust, or commerce authorities.

• Signing and Closing: Once obtaining all necessary regulatory permissions, the parties affix signatures to the sale and purchase agreement (SPA) legally binding the transaction. The SPA outlines terms, conditions for ownership transfer including representations, warranties and purchase price as well as any stipulations awaiting fulfillment before finalizing the deal.

Transferring shares or assets, payment remitted and registration with relevant government offices completes the closing process typically. For share switches, modifications enter the files of the Department of Business Development.

• Post-Closing Obligations: Afterwards, the buyer must see to ongoing commitments like mandated submissions, tax declarations and staff changes. Companies may also need to submit reports to the SEC, TCC or DBD contingent on the nature of the exchange.

What difficulties do overseas financiers face in Thai M&A dealings?

Foreign investors encounter several singular challenges when directing M&A transactions in Thailand, chiefly owing to limitations imposed by the FBA and cultural variances.

• Foreign ownership restrictions: 

As mentioned, the FBA restricts non-national possession to 49% in certain regulated industries. To work around this limitation, international financiers often opt for BOI sponsorship or form joint ventures with Thai partners. BOI backing allows 100% possession of a Thai company in some promoted sectors including manufacturing, renewable energies or technology.

• Regulatory Scrutiny: 

Purchases of major market players or exchanges significantly impacting competition undergo examination by the TCC under the Competition Act. Acquiring clearance from the TCC can be time-consuming particularly if the transaction raises anti-competitive issues. In some cases, the TCC may impose conditions on the deal to mitigate effects on the market.

• Cultural and linguistic barriers: 

Cultural and linguistic barriers must be considered by foreign investors when negotiating with Thai counterparts. Cultural nuances can impact dynamics, decision processes, and post-merger integration. Variations in language could affect understanding, trust and cooperative spirit during exchanges. However increased effort towards mutual comprehension often helps navigate through differences constructively.

• Tax Considerations 

Tax ramifications of M&A deals in Thailand necessitate prudent examination. Capital gains tax, specific business tax, and stamp duty may apply contingent on structure. While a share purchase generally avoids SBT, a business transfer risks triggering it. Anticipating tax outcomes is pivotal to circumvent unexpected liabilities. Strategic planning alleviates such risks.

How does BOI promotion impact Merger & Acquisitions deals in Thailand?

The Board of Investment (BOI) plays a crucial role in promoting foreign investment in Thailand, especially in industries where foreign ownership is restricted under the FBA. For M&A transactions, BOI promotion offers several key benefits:

• 100% Foreign Ownership: In promoted sectors, foreign investors can acquire up to 100% of a Thai company without the need for an FBL. This is particularly attractive in industries like high-tech manufacturing, renewable energy, and healthcare.

• Tax Incentives: BOI-promoted companies benefit from a range of tax incentives, including corporate income tax exemptions for up to eight years, import duty exemptions on machinery and raw materials, and reduced personal income tax rates for expatriates.

• Simplified Visa and Work Permit Procedures: BOI-promoted companies also benefit from streamlined processes for obtaining visas and work permits for foreign executives and employees, facilitating the transfer of foreign talent to Thai operations.

What are the competition law implications for M&A transactions?

The nation’s Competition Act aims to prevent anticompetitive behaviors in M&As by mandating that companies notify the Thai Competition Commission (TCC) if a merger or buyout leads to a dominant market position. Under this Act, a company is seen as dominant if it controls over 50% of the market or if its annual revenue surpasses a specific threshold amount.

Transactions involving major market players could be blocked or made subject to conditions maintaining competition. The TCC may also research mergers substantially reducing competition, even if they do not create a monopoly. Firms engaging in M&A deals must conduct a competition evaluation and, if necessary, secure clearance from the TCC prior to moving forward.

Conclusion

In conclusion, mergers and acquisitions in Thailand offer substantial opportunities for both domestic and overseas investors but necessitate careful navigation of the legal and regulatory landscape. The Civil and Commercial Code, Public Limited Companies Act, Securities and Exchange Act, Foreign Business Act, and Competition Act form the foundation for M&A rules in the nation. Foreign investors must pay specific attention to foreign ownership constraints, competition issues, and tax consequences. By acquiring BOI promotion, investors can unlock considerable advantages like enhanced ownership rights and tax benefits. Given the complexity of the process, it is crucial for businesses to seek expert legal counsel to ensure adherence and successful transaction execution.