scl legal issues and practices in relation to m&a transactions presented by picharn sukparangsee...

SCL

“Legal Issues and Practices in Relation to M&A Transactions”

presented by

Picharn Sukparangseeat

the Conference on “Mergers & Acquisitions 2010”

arranged by

the Asia Business Forumon May 13-14, 2010

at Royal Orchid Sheraton Hotel , Bangkok

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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

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Disqualifications of directors and executives

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

Requirements for directors and executives of a company issuing securities

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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 offer1. 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.

Notes1. 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 concert3. 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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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

Connected Transaction

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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 NTA2. 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)

Connected Transaction

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Previous Regulation Previous Regulation New Regulation New Regulation

1. Only a connected transaction between the listed company and/or its subsidiary and a connected person of the listed company, not the subsidiary.

1. Include a connected transaction between a subsidiary and a connected person of a 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 general commercial conditions can be carried out by the management.

3. General commercial transactions with special conditions shall be approved by the board of directors.

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Acquisition and disposition of Assets

Types of transactions1. 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 Regulation2.1 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 purchaseShare 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 forwarded5. Litigations remain with the company.

Share Purchase / Asset Purchase

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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.

Share Purchase / Asset Purchase

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Contents




M&A transactions



Case Study

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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



Legal Considerations for foreign investors

regarding M&A transactions


Practical approaches to avoid disputes and

litigation

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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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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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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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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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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




M&A transactions



Case Study

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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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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




M&A transactions



Case Study

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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

Operating

Company 1

Operating

Company 2

Operating

Company 3

Operating

Company 4

Foreign Company

Operating

Company 5

Operating

Company 6

49%

42.86%

51.38%

53%

50%

13.45%

40.02%

100%

Holdings

A Investment

C Holding

C Holding

Holding Company

Thai Holding

Bank

99.99%

99.94%

49%

49%

41.1%

9.9%

38.62% 10.97

%

P Shareholder S Sharehol

der

19.26%

20%

30.96%

A Holding

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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.

Case Study

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Corporate structureCorporate structure

Trust

Offshore Company A

Offshore Company B

Fund A

Fund B Fund C

Company A

M & F

A B

Offshore Company C

Company B

Company B

Case Study

SCLPicharn Sukparangsee

PARTNER

SIAM CITY LAW OFFICES LIMITED20th Floor, Rajanakarn Building,

183 South Sathorn Road, Bangkok 10120, ThailandTel: (662) 676-6667 – 8

Fax: (662) 676-6188-9E-mail : [email protected]

www.siamcitylaw.com

THANK YOU

http://www.siamcitylaw.com/

scl legal issues and practices in relation to m&a transactions presented by picharn sukparangsee...

Documents

transaction slide

previous transaction

significant transaction

size of transaction

small transaction

medium transaction

large transaction

normal business transaction