This chapter outlines the key merger control reforms brought about by the Competition Law 2018 and its guiding instruments, as well as practice notes transaction parties should be aware of when filing in Vietnam. It is expected that the Vietnamese merger control practice will undergo drastic changes in the years to come, and gradually move closer towards internationally recognised standards.
On 1 July 2019, the Competition Law 2018 (ie, Law No. 23/2018/QH14) came into force, replacing its 14-year-old predecessor, the Competition Law 2004, and related guiding instruments. One of the most significant changes introduced by the new Law is a shift in regulatory approach from form-based to effects-based, whereby the antitrust authority will employ the substantial lessening of competition test to decide whether to green-light a merger.
Other notable reforms include the new jurisdictional thresholds and a two-phased appraisal process. A decree providing guidelines for implementation of the Competition Law 2018 (ie, Decree 35/2020/ND-CP), which sets out, among other things, filing thresholds and criteria for substantive assessment, took effect on 15 May 2020 (the Guiding Decree). Another decree dealing with competition violations (ie, Decree 75/2019/ND-CP) has also been promulgated, outlining the administrative sanctions and remedies for breaches of merger control regulations, among other relevant matters.
Vietnam’s merger control regime is characterised by two core features. First, it is ex ante in nature, which means parties to a contemplated transaction must notify their transaction prior to completion if it qualifies as an economic concentration within the meaning of article 29 of the Competition Law 2018 and crosses any of the jurisdictional thresholds. The current regime noticeably does not provide for any filing or clearance exemption, which means notification is mandatory if the above prerequisites are satisfied.
The second core characteristic of Vietnam’s merger control regime is the standstill obligation. This entails that merger parties are required to put the anticipated transaction on hold until it is cleared, either automatically or after a full review. [1]
The NCC is Vietnam’s principal merger authority. Under the purview of the Ministry of Industry and Trade (MOIT), the NCC assumes the functions of overseeing the merger control regime and imposing fines and remedies formerly discharged by the VCCA and the Vietnam Competition Council, respectively.
To date, the NCC has not been formally established. As such, the MOIT has directed the VCCA to remain in charge of administering the merger control regime until the new competition watchdog is instituted.
As the Competition Law 2018 adopts the effects-based approach when it comes to merger control, an offshore transaction will be caught if it has an actual or potential restrictive impact on the Vietnamese market.
As a general rule, parties to a contemplated foreign-to-foreign transaction that have local subsidiaries or generate sales in or into Vietnam must notify such transaction if any of the filing thresholds is met.
Certain mergers in the insurance, finance and telecommunications sectors are also regulated by sector-specific legislation. These provisions do not override merger control regulations under the Competition Law 2018, but rather exist in tandem with the latter. Mergers in the insurance and finance and banking sectors are subject to a separate set of filing thresholds under the Competition Law 2018 as further discussed below.
A written approval of the Ministry of Finance is required when an insurer: [2]
A credit institution must obtain a written approval of the State Bank of Vietnam when it is restructured by way of division, demerger, consolidation, merger, acquisition or conversion of legal form. [3]
An anticipated concentration resulting in the market share of a post-merger telecoms business of 30 to 50 per cent must be notified in advance to the telecoms regulator; namely, the Vietnam Telecommunications Authority under the Ministry of Information and Communications. [4]
The Competition Law 2018 does not differentiate the filing obligation based on the type of concentration, and instead mandates that any party participating in the concentration that crosses any of the jurisdictional thresholds is responsible for filing.
In practice, however, the regulator has treated all parties to the transaction as notifying parties and has requested the notification form to be signed by all such parties. For each reportable concentration, the regulator only accepts one filing.
As mentioned above, a contemplated transaction is notifiable under the Competition Law 2018 if it qualifies as an economic concentration within the meaning of article 29 and crosses any of the jurisdictional thresholds. An economic concentration encompasses a merger, consolidation, acquisition, joint venture and other types of concentration provided by laws:
The joint venture definition focuses on the legal form of the joint venture rather than its activities. Only joint ventures incorporated as legal entities or juridical persons are relevant under Vietnam’s merger control regime, while purely contractual joint ventures are not regarded as an economic concentration for the purposes of Vietnam’s competition law. Unlike the EU’s full-function test, the definition is not concerned with whether the joint venture carries out any business activities, or the degree of its autonomy from the parent companies. If a joint venture exists as a legal entity, it will be construed as an economic concentration subject to merger filing requirement, irrespective of whether it is a greenfield joint venture with no actual business operation or whether it relies almost exclusively on its parent companies for sales revenue on a lasting basis.
The Competition Law 2018 no longer relies on market share as the sole jurisdictional threshold. The current regime also adds financial criteria to its filing test, namely total assets, total turnover and transaction value. The Guiding Decree sheds light on these changes, introducing two sets of jurisdictional thresholds, one applicable to transactions in virtually all sectors, the other reserved for transactions involving credit institutions (CIs), insurers or securities companies.
A contemplated concentration, except for one involving CIs, insurers or securities companies, must be notified to the competition authority if any of the following thresholds are met:
A contemplated transaction involving CIs, insurers or securities companies must be notified if it crosses any of the following thresholds:
The introduction of financial criteria, coupled with the reduction in the combined market share threshold from 30 per cent under the former regime to 20 per cent, has increased the number of M&A transactions caught by the filing requirement. Between the effective date of the legislation (1 July 2019) and the date of writing, the regulator has announced at least 40 clearance decisions. By comparison, under the former regime, the VCCA’s annual merger control reports indicate that the regulator received a modest total of 35 filings between 2009 and 2019 (the VCCA’s merger control report was first issued in 2009).
An undertaking (A) is deemed to control or govern another undertaking (B) if:
The ‘control’ concept is pivotal to the definitions of ‘acquisition’ and ‘group of affiliated undertakings’. Noticeably, although not explicitly stipulated in the Competition Law 2018 and the Guiding Decree, the VCCA has taken the view that ‘negative control’ or the veto right are not excluded from the control concept. Consequently, a minority shareholder may be deemed to exert ‘control’ over the target business if, for example, decisions that are critical to the target’s commercial policies such as operating capital, markets, or business lines, require unanimity or a supermajority. Acquirers of a minority shareholding should therefore be mindful of the Vietnamese regulator’s liberal interpretation of the control concept when assessing the reportability of the transaction.
‘Group of affiliated undertakings’ is a crucial element in the asset and turnover tests, especially in transactions that involve a member company of a corporate group. The Guiding Decree defines a group of affiliated undertakings as a collection of businesses that are under the common control or governance of one or more undertakings within the group in question, or that shares the same management.
‘Assets’ in this test refer to assets in the Vietnamese market of each party in the anticipated merger or, where such party belongs to a group of affiliated undertakings, the total assets in the Vietnamese market of the whole group. By taking the group’s assets into account, this test would in effect nullify any attempt to circumvent the filing requirement by simply establishing a special purpose vehicle to acquire a target business.
The asset test is applied in a non-discriminatory way; that is, assets of the entire corporate group on the Vietnamese market will be taken into account irrespective of whether other member undertakings have relation to the target business or whether they are offshore.
The current merger control regime does not define ‘assets’. In practice, references are often made to the financial statements of each relevant party for their respective asset value.
In this test, the relevant turnover is the turnover for the relevant goods or service in question on the Vietnamese market; namely, sales in or into Vietnam, or both, of each party in the transaction or the group of affiliated undertakings.
When calculating the turnover of the group of affiliated undertakings, intra-group turnover should be excluded. [5]
As provided by the Guiding Decree, transactions taking place entirely outside of Vietnam are exempt from the transaction value test. [6]
The guiding laws, however, is notably silent on how this test would apply in, for instance, stock swap transactions or transactions where part of the consideration is not fixed but subject to the target’s performance in the future. In these transactions, the deal value is not always clear-cut, making application of the test a practical challenge.
Combined market share is the sum of market share in the relevant market of all undertakings involved in the anticipated merger. The market share of the member undertaking in a group of affiliated undertakings corresponds to that of the entire group. The authors understand this test applies to horizontal and non-horizontal mergers alike. In the latter case where the parties do not have any horizontal overlap, the relevant market share would be the individual market share of each party on the relevant market where they generate revenues.
The ‘relevant market’ refers to the market of interchangeable goods and services (ie, relevant product market), in particular, geographical areas with similar competitive conditions and that are in stark contrast with neighbouring areas (ie, relevant geographical market). As such, the relevant market is determined on the basis of relevant product market and relevant geographical market. In practice, the competition regulator has adopted a somewhat rigid approach to this issue. For instance, the regulator will only accept ‘nationwide’ as the widest possible relevant geographical market, reasoning that they are only concerned about the impact of the contemplated concentration on the Vietnamese market. Similarly, the authority has also rejected all drafting which proposes to ‘leave the relevant market definition open’ (even if the transaction does not have any apparent significant anticompetitive impact under any conceivable market definition) and insists that the filing parties advocate a precise definition for their assessment.
The application of the market share test is further complicated by, on the one hand, the general lack of reliable and accessible market data in Vietnam, and, on the other, the regulator’s reluctance to accept regional market shares as proxies for local shares. Critics perceive the test as a burden on businesses and argue that it should not have been retained. However, proponents maintain that market share is a relevant filing threshold and it is inconceivable that a business cannot determine its position on the market.
As mentioned above, the Competition Law 2018 does not provide for exemptions to filing or review. Any reportable transaction must be notified to, and subsequently green-lit by, the competition regulator prior to implementation. It follows that in principle intra-group mergers (eg, parent-subsidiary mergers and other types of internal restructurings) may be subject to filing requirement even if they take place entirely offshore and at the holding level. A multinational corporation intending to streamline the businesses of its member companies should therefore be mindful of the filing requirement under the Vietnamese merger control regime.
Neither the Competition Law 2018 nor the Guiding Decree provide for a notification deadline. In practice, notification can be filed after signing of the transactional documents, or as soon as a term sheet is available, preferably once the transaction structure and principle terms are sufficiently clear to identify the relevant parties and market.
The Competition Law 2018 provides for a two-stage review process. Within seven working days of receiving the notification file, the NCC must inform the filing parties whether such file is valid and complete. If the notification requires further clarification or amendment, or both, the parties will have 30 calendar days to finalise it.
The preliminary appraisal or initial review phase (Phase I) formally starts once the NCC has accepted a full and valid notification file. After a 30-caledar-day period lapses, the NCC shall:
The Competition Law 2018 introduces for the first time the concept of automatic clearance, meaning merger parties may proceed with the transaction if they have not received any response from the authority within 30 days of receiving a full and valid merger notification. The NCC cannot retroactively investigate and prosecute mergers that have been automatically green-lit even if such mergers may later be found to have a significant restrictive impact on market competition. Neither does the NCC have grounds to impose remedies or conditions on such merger.
However, the risk with this approach is that it is unclear what is meant by ‘full and valid’. On a narrow interpretation, a submission would arguably be deemed full and valid for the purposes of the 30-day clock if it contains all of the items requested in article 34.1 of the Competition Law 2018 and satisfies all formality requirements in terms of signing and legalisation and certified translation. By contrast, the general wording of the law also leaves room for a broader construction where the submission must arguably be valid both in terms of formalities as well as substantive matters, such that the 30-day clock only starts after the parties have submitted all required formality documents and the competition authority is satisfied with the parties’ response to their substantive request for information (RFI). As such, there is room for the regulator to invoke the broader interpretation as a tactic to buy time. In our experience, the regulator would almost always issue at least one RFI after receiving the parties’ initial filing to seek elaboration on the proposed relevant market definitions and provided market share estimates.
Anticipated transactions that fail to satisfy the safe harbours (see below) will proceed to the official appraisal or full review phase (Phase II).
Depending on the complexity of a case, the NCC shall, within 90 calendar days for typical mergers or a maximum of 150 calendar days in complex cases of the announcement of Phase I findings, decide whether a proposed merger is unconditionally green-lit, conditionally cleared or entirely blocked.
The NCC in Phase II has the power to ‘stop the clock’ and request the parties to provide further information: the time frame is suspended unless and until the parties have adequately satisfied all NCC’s information requests. This ‘stopping the clock’ power has limitation, however, as such requests can only be made at most on two occasions.
The NCC is also empowered to consult relevant industry regulators, who are mandated to respond within 15 calendar days of receiving the consultation request, and other third parties such as experts and industry associations, who are responsible for timely furnishing the NCC with complete and accurate information upon request.
In the filings we have advised on, the authority had reached out to the line ministry, industry association, competitors or the parties’ distributors to enquire on a wide range of matters, such as the number of undertakings active on the market in question, their market share estimates and whether the contemplated transaction poses any antitrust or consumer interest concerns. In addition, if the filing concerns imported products and the parties are unable to furnish official import data to substantiate their market share estimates, the authority would reach out to Vietnam Customs to collect the relevant data. If Vietnam Customs is similarly unable to provide the requested data, we understand that the competition regulator will rely on all information available to it at the point of assessment to produce the final findings without making any further request for information. It should go without saying that the notifying parties are responsible for the accuracy and truthfulness of any and all information provided.
The NCC employs the ‘substantial lessening of competition’ approach to decide whether to block a merger.
In the initial review phase, the NCC primarily relies on the combined market share of the involved parties, the Herfindahl-Hirschman Index (HHI) and the delta between pre-merger HHI and post-merger HHI to determine whether a contemplated transaction should be green-lit. In the later phase during which a more comprehensive appraisal takes place, the NCC will assess both the significant restrictive impact and positive effects of the anticipated merger.
In the initial review phase, the NCC will unconditionally greenlight a horizontal merger if:
For a transaction between parties that are at different stages of the chain of production, distribution or supply, or whose products are ancillary within the meaning of article 6.3 of Decree 35/2020/ND-CP, clearance is unconditionally granted if the market share of each merger party in each relevant market is less than 20 per cent. One product (A) would be considered ‘ancillary’ to another product (B) under article 6.3 if A is used to enhance the functionality, effectiveness of or is necessary to the user’s enjoyment of B and accordingly there is an inverse correlation between the price of one product and the demand for the other.
One apparent anomaly with the current safe harbour regime is that on a literal interpretation it does not seem to cover ‘pure’ conglomerate mergers where the relevant products either do not have any relationship with each other or are not ‘ancillary’ within the meaning of the laws. In other words, technically (and somewhat antithetical to the effects-based approach) ‘pure’ conglomerate mergers cannot be cleared in the preliminary appraisal phase.
A contemplated transaction that fails to pass the safe harbour test must go through a more thorough assessment, which ascertains whether it will be green-lit (conditionally or unconditionally) or blocked as discussed below.
When it comes to assessing the significant restrictive impact or the ability to cause such impact, the NCC mainly focuses on competition issues such as the ability of the post-merger undertaking to foreclose the market or raise market barrier. As mandated by the Guiding Decree, the NCC needs to take all of these factors into account to the applicable extent:
In assessing the positive effect, the NCC also considers efficiencies. Accordingly, the NCC is required to rely on any one or a combination of the following factors:
It is the authors’ understanding that, in practice, the NCC is open to expand the factors relevant to the positive effect test: the aforementioned list is not exhaustive and other factors such as contribution to GDP or state budget may also be taken into account so long as the supporting data is bona fide.
In general, mergers that have a net positive impact will be more likely green-lit than not, although conditions and remedies may apply. As we experienced in the past with the former regime, this largely depends on the authority’s discretionary assessment as there was and is no specific guideline as to how each factor should be included in the equation. Until the VCCA issues a merger review guideline, prior merger consultation with the authority is recommended to anticipate a reasonable timeline for closing of a merger.
There is no formal process for complaints about, or objections to, merger clearance decision under the Competition Law 2018. An appeal can nevertheless be filed on the basis of administrative legislation, namely the Law on Complaints 2011 (as amended) and the Law on Administrative Proceedings 2015, which provide for two distinct formal appeal regimes, respectively: administrative complaint or reconsideration, and administrative litigation.
Accordingly, any party (including competitors, consumers and other third parties) dissatisfied with the decision on merger clearance [7] may choose either procedure to raise complaint or objection.
The procedure unfolds in two steps:
Alternatively, a party may choose to initiate administrative proceedings before the courts. Any administrative claim must be filed within one year from the NCC’s decision on merger clearance or the decision on complaint resolution by either the NCC or the Minister of Industry and Trade. As such, this procedure can commence without or after the conclusion of the administrative complaint but not concurrently.
Violations under the current merger control regime can be categorised into four types: failure to file, gun-jumping, unlawful mergers and unfulfilled remedies.
Failure to file a notifiable transaction contradicts the very core principle of Vietnam’s ex ante regime and results in a fine as high as 5 per cent of the respective violator’s total turnover. [8]
For failure to fully observe waiting periods or standstill obligations, except for cases where a merger is automatically cleared, the violator may be fined up to 1 per cent of its total turnover.
The merger control regulations, however, stop short of specifying which activity constitutes an implementation of concentration. The authors understand that it may not encompass auxiliary or preparatory actions such as the cessation or termination of an existing cooperation agreement between the target business and the seller.
The third group of violations consists of the two following conducts:
Given that a merger can only be blocked on the basis of prohibited concentrations, these violations may seem similar on the surface, as they concern the unlawful completion of mergers. The key difference lies in whether a merger has been notified. If the parties fail to notify a reportable transaction and the transaction is later found to be a prohibited concentration, they will be held liable for two violations under Vietnam’s ex ante merger control regime: conducting an unnotified and unlawful merger.
Merger parties who are granted a conditional clearance but fail to satisfy any of the entailing conditions will face a fine as high as 3 per cent of total turnover.
In addition to pecuniary penalties, the Competition Law 2018 also provides for supplementary sanction, such as revocation of certificate of incorporation and remedies, in the form of either clearance conditions or remedial measures for illegal mergers.
Essentially, like many other regimes, there are two types of remedies: structural and behavioural. The former includes mandatory demerger or divestiture whilst the latter is available in the form of subjection to the state’s control in terms of price or other commercial terms. The NCC may, if necessary, propose other remedies aimed at alleviating the restrictive impact or enhancing the positive effects brought by the merger, or both.
Although the Competition Law 2018 does not explicitly provide for a framework for remedy negotiation, the merger parties may nonetheless discuss with the NCC on the matter at virtually any time during the regulatory process, given the authority’s openness to consultation requests. Any meaningful discussion rounds will most likely take place during Phase II, particularly once the NCC has gathered all necessary data and the authority’s information requests are addressed.
In addition to proposed remedies, merger parties may also, and are recommended to, bring forward ancillary restraints (eg, non-competition agreement in discussion) so as to avoid being challenged by the NCC in the future. Ancillary restraints are not covered by the merger clearance decision (ie, only the merger itself is green-lit) but may nonetheless be included therein as part of clearance conditions. Accordingly, as competition issues are one of the NCC’s main focuses in Phase II, the authority may require the merger undertaking to remove or revise ancillary restraints if they give rise to competition concern.
Given the absence of provisions on a negotiation process for proposed remedies and ancillary restraints, whether these remedies and restrictions will be accepted in whole or in part is entirely at the discretion of the NCC, which has considerable leeway to review and approve them. In general, the authority will more likely accept proposed remedies than not if they are offered in good faith and adequately address all competition concerns.
Insofar as conditional clearances are concerned, the authors understand that the regulator has not specifically required any party to divest or restructure as a condition to greenlight a transaction.
With the introduction of the Competition Law 2018 and new statutory guiding instruments, the competition landscape in Vietnam is expected to see a drastic change in the coming years. The newly adopted effects-based approach is arguably the most welcome reform as it reflects the shift in how the NCC would analyse and appraise each merger on the merit of its impact on the domestic market, rather than the sole market share of the post-merger undertaking as was the case under the former regime.
Notwithstanding this positive development, the Competition Law 2018 is not without its shortcomings. The lack of an apparent exemption to the filing requirement (especially for transactions that are inherently harmless to competition such as intra-group mergers) and safe harbours for ‘pure’ conglomerate mergers will create unnecessary burden to both the regulator and filing parties. Many have also voiced concern over the regulator’s rigid approach in merger review, such as its refusal to leave the market definition open in certain cases or accept a wider geographic market than nationwide in scope. That said, these caveats are foreseeable in a relatively young regime. It is expected that the authority’s approach will gradually converge towards internationally recognised standards to foster consistency in enforcement as well as a friendly business environment unhampered by onerous regulatory processes.
[1] OECD Competition Committee, Suspensory Effects of Merger Notifications and Gun Jumping – Background Note by the Secretariat, DAF/COMP(2018)11, 20 February 2019, p. 5, https://one.oecd.org/document/DAF/COMP(2018)11/en/pdf; OECD Competition Committee, Executive Summary of the Roundtable on Investigations of Consummated and Non-Notifiable Mergers, DAF/COMP/WP3/M(2014)1/ANN3/FINAL, 11 March 2015, p. 2, http://www.oecd.org/officialdocuments/publicdisplaydocumentpdf/?cote=DAF/COMP/WP3/ M(2014)1/ANN3/FINAL&doclanguage=en.
[2] Law on Insurance Business 2000 (as amended), articles 69(1)(e),(h).
[3] Law on Credit Institutions 2010 (as amended), article 153(1).
[4] Telecommunications Law 2009 (as amended), article 19(5).
[5] Guiding Decree, article 10(1)(b).
[6] Guiding Decree, article 13(3).
[7] Even the omission of act by the NCC at the end of Phase I (ie, not issuing any Phase I findings at all) can be appealed as well.
[8] The total turnover used in this section refers to that in the relevant market of each respective violator in the fiscal year prior to the violation.
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