There are several processes in which companies may employ to make way for an expansion of their operations, market reach and financial status. These procedures are above board with laws in effect to guide these companies and two of these corporate maneuvers are merger and acquisition.
Mergers and acquisitions are not limited to a particular place as these can happen involving corporate entities from two different localities or even countries. Thailand is home to some of these companies to have engaged in or are actively engaging M&A.
In the Kingdom, the key legislations which oversee mergers and acquisitions are the following:
- Foreign Business Act B.E. 2542 (1999)
- Trade Competition Act B.E. 2542 (1999)
- Public Company Act B.E. 2535 (1992)
- Security and Exchange Act B.E. 2535 (1992)
The FBA provides restrictions on which business activities foreign companies may be allowed to be involved in. On the other hand the TCA provides prohibitions particularly Section 25, through the Trade Competition Commission, to make sure that takeovers or agreements between companies would not lead to a monopoly.
Chapter 12 of the PCA, the third law, provides for the prescription on the process that should take place during a merger. Lastly, the Chapter 8 of the Security and Exchange Act specifically provides for “the prevention of unfair securities and trading practices” plus the roles and responsibilities of key personnel of a publicly listed company such as the directors and other executives.
Difference between a merger and acquisition
So often are the terms used together but they do have glaring differences. Firstly, a merger is a process in which one company combines with another company. This process leads to the formation of a single business entity. On another note, an acquisition is a process in which one company purchases another company’s assets or shares and gain control over it.
The importance of due diligence
Conducting due diligence prior to any move for merger or acquisition is highly important since the procedure provides the involved corporate entities, their proponents and shareholders a greater perspective on the company to be merged with or to be acquired in due time. Due diligence allows for a detailed view on the company’s financial stature, assets and liabilities as well as possible involvement of a legal resolved or ongoing court proceedings.
Whatever would be uncovered by due diligence may be used during negotiations. They may highlight several issues, if there are any, and used these as leeway to gain better foothold on the negotiations to the advantage of their companies such as reducing the price per share and tender offer among others.
An overview of the involved stages in a merger or acquisition
Firstly, the involved companies agree to execute a Memorandum of Understanding (MOU) or Letter of Intent for a merger or acquisition. The confidentiality and binding terms would be specified on the MOU. Such process would then be followed by an acquiring or involved company conducting due diligence in order for the proponents to know the financial, legal and assets status among others of the other involved company. As mentioned in the earlier section, there can be items that may be uncovered by due diligence which can be used effectively during the negotiation process.
When negotiations are done and the issues already settled, the business entities would then have to prepare the Sales and Purchase Agreements along with other pertinent documents as these would be signed and stamped with the official company seal. Afterwards, these would be validated as prescribed by the Civil and Commercial Code of the Kingdom.
A brief description of the company merger process
The merging companies would each invite their respective shareholders (through mail notice or a public announcement on a local newspaper) for a meeting and the possibly pass a special resolution for a merger. The resolution is considered to have satisfied the prescription set by law if ¾ of the total shares of those present favor an amalgamation of the two companies.
The special resolutions passed by each company should then be registered within 14 days after which their resolved to merge should also be published on a local newspaper. Both business entities should then inform the respective shareholders of the impending merger through registered mail. An opposition for the planned corporate move should be made known within 60 days after sending the notice as a shareholder’s meeting of both companies shall occur after the prescription period. Once the resolution for merger is approved by a combined shareholder’s meeting, the newly formed company may be registered within 14 days.
For legal help in starting the company merger process or company acquisition process, please visit Siam Legal’s Merger and Acquisition page.