SCL
“Legal Issues and Practices in Relation to M&A Transactions”
presented by
Picharn Sukparangseeat
the Conference on “Mergers & Acquisitions 2010”
arranged by
the Asia Business Forumon May 13-14, 2010
at Royal Orchid Sheraton Hotel , Bangkok
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Contents
Latest Regulations related to M&A
Key Legal Contracts that govern M&A deals
Legal Considerations for foreign investors regarding
M&A transactions
Dispute Resolution and Legal Risk Management
Practical approaches to avoid disputes and litigation
Case Study
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Disqualifications of directors and executives
incompetent / quasi-incompetent be ordered to be under receivership / be bankrupt be prohibited by the SET be accused or charged in a criminal case be imprisoned breach of duties of care or loyalty do an unfair act or an act of taking advantage of investors or
participate or support such act conceal the financial condition or the business or state a false statement negligent to supervise the business
Requirements for directors and executives of a company issuing securities
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Reporting requirement • acquisition or disposition of every of 5% of the total
voting shares, not the total issued shares• securities acquired or disposed may be shares or
convertible securities• In the case of existing shares, a report shall be made
within 3 business days from the date of acquisition or disposition of existing shares.
• In the case of newly issued shares, a report shall be made within 3 business days from the date on which the business has registered a change of issued shares.
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Tender offer requirement• Any person acquires 25% of the total number of shares, 50%
or 75 % of the total voting rights of the company shall make a tender offer of the securities of the company.
• Exceptions of tender offer1. Acquisition of securities by inheritance or a right issue.2. Acquisition of securities by a Thai trust fund or a company
authorized to offer a non-voting depository receipt or NVDR.
Notes1. Acquisition of 25%, 50% or 75% of the total voting shares
includes an offer to purchase securities.2. Acquisition of the threshold includes acting in concert3. Acquisition of 25%, 50% and 75% of the voting rights through
legal entities under the chain principle shall make a tender offer.
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Types of connected transactions
1. Normal Business Transaction
2. Business Supporting Transaction
3. Short term Lease or Letting
4. Transaction on Assets or Services
5. Financial Assistance Transaction
Connected Transaction
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Calculation of the size of transaction 1. A small transaction of not more than Baht 1 million or
0.03% of the Net Tangible Asset or NTA2. a medium transaction of more than Baht 1 million but
less than Baht 20 Million or more than 0.03% of the NTA but less than 3% of the NTA
3. A large transaction of more than Baht 20 Million or more than 3% of the NTA
( in the case of a financial assistance, the value of the transaction is more than Baht 100 million or more than 3% of the NTA)
Connected Transaction
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Previous Regulation Previous Regulation New Regulation New Regulation
1. Only a connected transaction between the listed company and/or its subsidiary and a connected person of the listed company, not the subsidiary.
1. Include a connected transaction between a subsidiary and a connected person of a subsidiary.
2. More than 50% of the shares of one company is held by another company.
2. One company is under control of another company.
3. A normal business transaction with general commercial conditions can be carried out by the management.
3. General commercial transactions with special conditions shall be approved by the board of directors.
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Acquisition and disposition of Assets
Types of transactions1. A transaction as a backdoor listing in the case of a transaction
with the value of more than 100% of the total assets of the listed company.
2. A transaction to be notified to the SET and be approved by a general meeting of shareholders in the case of a transaction with the value of at least 50% but less than 100% of the assets of the listed company.
3. A transaction to be notified to the SET and shareholders in the case of a transaction with the value of at least 15% but less than 50% of the assets of the listed company.
4. A transaction to be notified to the SET but not to shareholders in the case of a transaction with the value of less than 15% and issuance of securities by the listed company.
5. A transaction not to be notified to the SET in the case of a transaction with the value of less than 15% but no issuance of securities by the listed company.
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A significant transaction on acquisition or disposition of assets as required by the CMSB shall be approved by a general meeting of shareholders.
1. Previous transaction• A significant transaction means acquisition or disposition of assets, a
transfer or a waiver of rights and benefits, acquisition or transfer of right to possess the assets in the long term.
2. New Regulation2.1 enter into , amendment or termination of an agreement on letting, a hire
purchase of the business or all or part of the assets.2.2 Assignment to another person to manage all or part of the business.2.3 A merger of the business with the business of another.2.4 a financial assistance which is not in an ordinary course of business of the
company
The new regulation has not defined a significant transaction, as a result, listed companies shall comply with the notification of the SET on acquisition or disposition of assets.
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Share purchaseShare purchase
1. Licenses can be continuously used.2. Tax can be saved (no or little capital gain tax on sale of
shares, capital gain on sale of shares on the SET or the MAI is exempted from Thai tax).
3. Liabilities are still with the company (actual, contingent, hidden and off-financial statements liabilities)
4. Tax losses, if any, can be carried forwarded5. Litigations remain with the company.
Share Purchase / Asset Purchase
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Asset Purchase
1. liabilities (actual, contingent or hidden liabilities) will not be with assets.
2. a lot of taxes (withholding tax /or income tax , value added tax ,specific business tax and stamp duty) shall be paid.
3. licenses shall be renewed or transferred.4. Tax losses can not be used by an acquirer. 5. A fraudulent transaction arising within one year before
the date of filing a petition for the business rehabilitation or the date of filing the application for adjudication of bankruptcy may be cancelled.
Share Purchase / Asset Purchase
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Contents
Latest Regulations related to M&A
Key Legal Contracts that govern M&A deals
Legal Considerations for foreign investors regarding
M&A transactions
Dispute Resolution and Legal Risk Management
Practical approaches to avoid disputes and litigation
Case Study
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• share purchase and asset purchase• individual or corporate shareholding• conditions precedent• legal due diligence• actual, contingent and hidden liabilities• licenses• binding clauses in material agreement• minimize potential tax liability• indemnification• right of first refusal• tag along provision• settlement of dispute
Key Legal Contracts that govern M&A deals
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Contents
Latest Regulations related to M&A
Key Legal Contracts that govern M&A deals
Legal Considerations for foreign investors
regarding M&A transactions
Dispute Resolution and Legal Risk Management
Practical approaches to avoid disputes and
litigation
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Legal Considerations for foreign investors regarding M&A transactions
• foreign shareholding limit• compliance with laws and regulations on transactions• regulatory requirements• shares subject to encumbrances , seizure or attachment• assets pledged , mortgaged and/or secured• equity and/or debt financings• legal risks• undertakings in material agreements• full disclosure of information• representations, warranties and covenants• control by a majority shareholder• matters decided by the Board• matters to be approved by a meeting of shareholders• management discussion and analysis
Legal Considerations for foreign investors regarding M&A transactions
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Foreign shareholding limit• In general, a foreigner shall not hold more than 49% of
the total shares of a company incorporated under law of Thailand unless the company is promoted by the Board of Investment of Thailand.
Foreign Business Act• Not more than 49% of the total shares of a Thai
company which carries on any of the businesses specified in Schedule 1 , 2 or 3 of the Foreign Business Act can be held by a foreigner.
Legal Considerations for foreign investors regarding M&A transactions
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Specific Acts• Specific acts restricting foreign shareholding
include the following:• Air Navigation Act • Condominium Act • Financial Institutions Business Act • Hotel Act• Land Code • Telecommunication Business Operation Act • Thai Vessels Act
Legal Considerations for foreign investors regarding M&A transactions
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Corporate Structure
• A complicated structure should be created for protection of foreign investment in Thailand and avoidance of foreign shareholding limit.
Legal Considerations for foreign investors regarding M&A transactions
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Equity Financing• Payment for subscription for shares cannot be tax
deductible.• Equity financing will be within the limit of the debt to
equity ratio of 3: 1 as required by the BOI.
Debt Financing• Payments of interest are tax deductible.• Loan by an investor can be made to a company.• Loan is secured by mortgage of land, building,
equipment and machinery, pledge of shares and/or guarantee. Assignment can be used. A floating charged is not enacted under Thai laws.
Legal Considerations for foreign investors regarding M&A transactions
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Contents
Latest Regulations related to M&A
Key Legal Contracts that govern M&A deals
Legal Considerations for foreign investors regarding
M&A transactions
Dispute Resolution and Legal Risk Management
Practical approaches to avoid disputes and litigation
Case Study
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Litigation • Litigation is used in loan agreement and project
financing.• Litigation is time-consuming and very expensive.• Enforcement of a judgment may face
challenges.• A foreign judgment cannot be automatically
enforced in Thailand.• A new lawsuit shall be filed by a foreign
company against a Thai company in a Thai court.
Dispute Resolution and Legal Risk Management
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Arbitration• Arbitration is normally applied in a joint venture, trade
and investment.• Arbitration is favoured by foreigners.• Arbitration is supposed to be fast and efficient.• Arbitrators are very knowledgeable and specialized.• Award issued by arbitrators can be enforced in Thailand
under the Arbitration Act as Thailand is a signatory to the New York Convention.
• Enforcement of an award can be challenged on the grounds of unlawful proceedings of arbitration,or an award contrary to laws or a public order.
Dispute Resolution and Legal Risk Management
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Contents
Latest Regulations related to M&A
Key Legal Contracts that govern M&A deals
Legal Considerations for foreign investors regarding
M&A transactions
Dispute Resolution and Legal Risk Management
Practical approaches to avoid disputes and litigation
Case Study
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• due diligence investigation
• management discussion and analysis
• extensive representations and warranties
• comprehensive covenants
• strict terms and conditions
• engaged experience and versatile lawyers
Practical approaches to avoid disputes and litigation
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Case Study
A holding of a telecommunication company
Operating
Company 1
Operating
Company 2
Operating
Company 3
Operating
Company 4
Foreign Company
Operating
Company 5
Operating
Company 6
49%
42.86%
51.38%
53%
50%
13.45%
40.02%
100%
Holdings
A Investment
C Holding
C Holding
Holding Company
Thai Holding
Bank
99.99%
99.94%
49%
49%
41.1%
9.9%
38.62% 10.97
%
P Shareholder S Sharehol
der
19.26%
20%
30.96%
A Holding
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Levels of an offshore company and a beneficiary
1. An offshore company is incorporated in an offshore territory.2. A company setting up an offshore company is located in the first country.3. A company managing an offshore company is located in the second foreign
country.4. Shares in the listed company held by an offshore company are transferred
into a securities account maintained with a securities company in Thailand. 5. Shares in the listed company held by an offshore company are transferred
from a securities account maintained with a securities company in Thailand to a securities account maintained with a securities company in the second foreign country.
6. Shares in the listed company held by an offshore company are transferred from a securities account maintained with a securities company in the second foreign country to a securities account maintained with a securities company in the third foreign country.
7. An offshore company has its bank account opened with a bank in Thailand .8. A bank in Thailand transfers dividends and proceeds of a sale of shares of the
offshore company to a bank account in the second foreign country.9. A bank in the second foreign country transfers money from the second foreign
country to a bank account in the third foreign country.
Case Study
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Corporate structureCorporate structure
Trust
Offshore Company A
Offshore Company B
Fund A
Fund B Fund C
Company A
M & F
A B
Offshore Company C
Company B
Company B
Case Study
SCLPicharn Sukparangsee
PARTNER
SIAM CITY LAW OFFICES LIMITED20th Floor, Rajanakarn Building,
183 South Sathorn Road, Bangkok 10120, ThailandTel: (662) 676-6667 – 8
Fax: (662) 676-6188-9E-mail : [email protected]
www.siamcitylaw.com
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