Mergers and Acquisitions of Company in Thailand
Mergers and acquisitions are becoming a routine occurrence in developing countries as companies use the process to expedite their growth or gather additional benefits. A recent high profile example was the merger between Burger King and Tim Horton where the smaller Canadian Tim Horton acquired the larger American Burger King in an attempt to qualify for the lower Canadian corporate tax rate. Thailand has also experienced a growth in mergers and acquisitions as Thai conglomerates attempt to spread their reach throughout Asia.
What is Mergers and Acquisitions?
Mergers and Acquisitions is the process of combining of two or more companies for a strategic purpose and potentially increase shareholder value. The distinction between mergers and acquisitions are generally the size of the companies. When two companies are roughly the same size, they are said to merge into one company. When one company is much larger than the other company, the larger company is said to “acquire” the smaller company.
Types of Mergers
There are many types of mergers. A horizontal merger is when two competing companies with similar products and markets decide to merge. A vertical merger is when a customer acquires with one of its suppliers. A market extension merger is when two companies selling similar products in different markets decide to merge. A product extension merger is a merger between two companies that sell different products in the same market. A conglomeration is when two companies do not have anything in common but decide to merge. Each of these different types of mergers will have effects on their local markets and product competition.
What are the laws in Thailand?
Foreign investment in Thailand is governed by the Foreign Business Act of 1999. The Foreign Business Act restricts foreigners participating in certain businesses and limits foreign ownership in other forms of businesses. The foreign business act will generally limit the possibility of a foreign company absorbing a Thai company in Thailand. Most foreign owned companies in Thailand are restricted from becoming majority owners of a Thai company without government approval.
The Board of Investments and some international treaties allow certain foreign owned businesses to operate in Thailand without the restrictions of the Foreign Business Act. The Board of Investments provides incentives and privileges to foreign companies that start operations in targeted industries. A bilateral treaty between Thailand and a foreign nation sometimes provides special privileges to citizens of the foreign nation like Americans. With certain exemptions, Americans are exempt from the restrictions of the Foreign Business Act.
The Trade Competition Act of 1999 restricts mergers of businesses that may result in a monopoly or unfair competition without special permission by the Trade Competition Commission. The TCA prevents businesses from abusing a dominant position in market share. Companies that individually hold market share of at least 50% or is one of top three companies that collectively hold at least 75% market share are stated to have a dominant position. Dominant businesses are restricted in their business operations including mergers and acquisitions.
Merger and Acquisition Process
The process of mergers and acquisitions is very complicated. For public companies, there is generally a public agreement to merge their operations followed by a vote of the shareholders. In a merger of private companies, the party of the smaller company usually agrees to sell their shares to the party of the larger company.
There are also tax issues, labor regulations, and existing contracts which can result in a messy and complex integration process. It is important to seek the counsel of an experience corporate attorney prior to initiating the process of mergers or acquisitions.
See also our Mergers and Acquisition page.
About the Author (Author Profile)
Siam Legal is an international law firm with experienced lawyers, attorneys, and solicitors both in Thailand law and international law. This Thailand law firm offers comprehensive legal services in Thailand to both local and foreign clients for Litigation such as civil & criminal cases, labor disputes, commercial cases, divorce, adoption, extradition, fraud, and drug cases. Other legal expertise of the law firm varied in cases involving corporate law such as company registration & Thailand BOI, family law, property law, and private investigation.