The Government recently promulgated the long awaited Decree No. 35/2020/ND-CP guiding the Competition Law 2018 (Guiding Decree). The Guiding Decree will take effect on 15 May 2020 and offers a closer look into Vietnam’s new merger control regime, elaborating on provisions concerning notification thresholds, safe harbours, and the substantive assessment of a contemplated merger.
This legal briefing will focus on the impact of the Guiding Decree on Vietnam’s reformed merger control regime.
Businesses, particularly MNCs, should have a better sense as to whether an anticipated transaction is subject to the filing requirements, and if so, what a comprehensive assessment would entail.
1. New concepts introduced. One of the key guidelines provided by the Guiding Decree is about the meaning of ‘control’. An undertaking (A) will be deemed to exercise control over another undertaking (B) or one of B’s business lines if:
- A owns more than 50% of B’s charter capital or voting shares; or
- A owns or has the right to exploit more than 50% of B’s assets in one or all of B’s business lines; or
- A has any of the following rights:
⦁ Appoint or dismiss the majority or all of the members of B’s Board of Management, Chairman of the Members’ Council, or (General) Director; or
⦁ Amend B’s constitutional documents; or
⦁ Decide on important issues relating to B’s business operations such as organisational structure, business lines, scale of business, or the raising and utilisation of capital.
The ‘control’ concept is significant to mergers for two reasons. First, it clarifies the meaning of ‘acquisition’ and, by extension, the inquiry on whether a contemplated transaction is of a type caught by the regime. Second, it is pertinent to the concept of ‘group of related undertakings’, which the Guiding Decree defines as a group of undertakings that are under common control of one or more member undertakings in the group or share the same management. As seen below, application of certain jurisdictional thresholds takes into account not only the undertakings to the transactions but also the respective group to which they belong.
2. New sets of jurisdictional thresholds. The Guiding Decree introduces two sets of jurisdictional thresholds, one applicable to transactions in virtually all sectors, the other reserved for transactions involving credit institutions (CIs), insurers and securities companies.
General thresholds: a contemplated concentration, except for one involving any of the above listed undertakings, must be notified to the competition authority if any of the following thresholds is met:
Total assets or total sales/purchase turnover of either transaction undertaking or the respective group of related undertakings VND 3 trillion
Transaction value VND 1 trillion
Combined market share 20%
Specific thresholds: a contemplated transaction involving CIs, insurers and securities companies must submit notice if it crosses any of the following thresholds:
Of note, the total assets/turnover and combined market share values refer to those as of the fiscal year prior to the year of the anticipated transaction. The transaction value thresholds in both cases are not applicable to offshore deals.
3. Safe harbours. Safe harbours, which are based on the Herfindahl-Hirschman Index (or HHI) and market share, are another noteworthy provision of the Guiding Decree. Accordingly, a contemplated transaction which meets any of the following conditions will be cleared:
For horizontal mergers:
- the combined market share is less than 20%; or
- the combined market share is at least 20%, and either (i) the post-merger HHI is less than 1,800, or (ii) the post-merger HHI exceeds 1,800 and Delta is lower than 100.
For vertical mergers, the market share of each undertaking is less than 20% in their respective relevant market.
4. Substantive assessment. When appraising a contemplated merger in the full review or official appraisal phase, the competition authority will look at the extent of both its restrictive and positive impact on competition.
Regarding the assessment of restrictive impact, relevant factors include, inter alia:
- pre- and post-merger combined market share and concentration ratio;
- competitive advantages brought by the merger in terms of, among others, product characteristics, financial capacity and technology; and
- the post-merger undertaking’s ability to (i) raise price or increase return on sales, or to (ii) exclude or impede other undertakings from market penetration or expansion.
With respect to positive effect assessment, pertinent factors include:
- impact on development of industry, science and technology in alignment with the State’s master plans as evidenced by, for instance, economies of scale and application of scientific and technological innovations;
- impact on the development of SMEs; and
- advancement of so-called ‘national champions.’
A decree on the establishment of the new competition watchdog, i.e. the National Competition Commission, is on the horizon and expected to be released later this year. An official at the current competition agency also signalled the authority’s intention of issuing specific guidelines for merger control by mid-2020 at the earliest. These developments are expected to give business executives and counsels a better understanding as to how the new merger control rules apply to anticipated transactions.
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 legal advice, please contact our Partners.
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