SCL
“Legal Issues and Practices in Relation to
M&A Transactions”
presented by
Picharn Sukparangsee
at
the Conference on
“Mergers & Acquisitions 2010”
arranged by
the Asia Business Forum
on May 13-14, 2010
at Royal Orchid Sheraton Hotel , Bangkok
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
2
Requirements for directors and executives of a company
issuing securities
Disqualifications of directors and executives
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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
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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 offer
1. 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.
Notes
1. 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 concert
3. 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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Connected Transaction
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
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Connected Transaction
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 NTA
2. 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)
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Previous Regulation
New Regulation
1. Only a connected transaction
1. Include a connected transaction
between the listed company and/or
between a subsidiary and a
its subsidiary and a connected
connected person of a subsidiary.
person of the listed company, not
the 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 3. General commercial transactions
general commercial conditions can
with special conditions shall be
be carried out by the management.
approved by the board of directors.
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Acquisition and disposition of Assets
Types of transactions
1. 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 Regulation
2.1 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 Purchase / Asset Purchase
Share 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 forwarded
5. Litigations remain with the company.
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Share Purchase / Asset Purchase
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.
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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
13
Key Legal Contracts that govern M&A deals
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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
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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
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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
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Legal Considerations for foreign investors regarding M&A
transactions
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.
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Legal Considerations for foreign investors regarding M&A
transactions
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
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Legal Considerations for foreign investors regarding M&A
transactions
Corporate Structure
• A complicated structure should be created
for protection of foreign investment in
Thailand and avoidance of foreign
shareholding limit.
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Legal Considerations for foreign investors regarding M&A
transactions
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.
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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
21
Dispute Resolution and Legal Risk Management
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.
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Dispute Resolution and Legal Risk Management
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.
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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
24
Practical approaches to avoid disputes and litigation
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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
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Case Study
A holding of a telecommunication company
Holdings
49%
99.99%
C Holding
30.96%
P Shareholder
A Investment
49%
99.94%
49%
Thai Holding
S Shareholder
20%
Bank
A Holding
C Holding
9.9%
38.62%
10.97%
Holding Company
Foreign Company
42.86%
19.26%
41.1%
Operating
Company 1
51.38%
Operating
Company 2
53%
Operating
Company 3
50%
Operating
Company 4
100%
13.45%
Operating
Company 5
40.02%
Operating
Company 6
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Case Study
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.
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Case Study
Corporate structure
M&F
Trust
B
A
Offshore Company
A
Offshore Company
B
Company B
Fund A
Fund B
Offshore
Company C
Company B
Fund C
Company A
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SCL
THANK YOU
Picharn Sukparangsee
PARTNER
SIAM CITY LAW OFFICES LIMITED
20th Floor, Rajanakarn Building,
183 South Sathorn Road,
Bangkok 10120, Thailand
Tel: (662) 676-6667 – 8
Fax: (662) 676-6188-9
E-mail : picharn@siamcitylaw.com
www.siamcitylaw.com