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SRPP News l 14 December 2023
Overview
Public M&A transactions in Thailand are governed by various laws and regulations, such as the Public Company Act, the Securities and Exchange Act, and the notifications of the Capital Markets Supervisory Board and the Stock Exchange of Thailand. These laws and regulations set out the rules, conditions and procedures for making tender offers, disclosing information, and protecting minority shareholders.
The main means of obtaining control of a public company in Thailand
One of the main means of obtaining control of a public company in Thailand is through an acquisition of shares, either by direct purchase from existing shareholders or by a tender offer to the public. An acquisition of shares may trigger certain disclosure obligations and regulatory approvals, depending on the percentage of shares acquired and the industry of the target company. For example, an acquirer who intends to acquire 25% or more of the voting shares of a listed company must make a tender offer to all shareholders, unless an exemption applies. An acquirer who acquires 5% or more of the voting shares of a listed company must also report the acquisition to the Securities and Exchange Commission of Thailand (SEC) and the Stock Exchange of Thailand (SET) within three business days.
Another means of obtaining control of a public company in Thailand is through an amalgamation, where two or more companies merge into a new entity, causing the dissolution of the merging companies and the transfer of their assets and liabilities to the new entity. An amalgamation requires the approval of the shareholders of each merging company.
Other means of obtaining control of a public company in Thailand include a share swap, a partial business transfer, a joint venture or a scheme of arrangement, which may involve different legal and tax implications and require different levels of approval from shareholders and regulators.
Tender offer
There are three main types of tender offer
Voluntary
Mandatory
Partial
Voluntary tender offers are generally the preferred method for acquiring control of a public company in Thailand, as opposed to the hostile takeovers. Although a tender offer can be initiated voluntarily, if the acquisition of shares of a listed company results in the aggregate number of securities held by the acquirer and its concert parties as well as their related persons reaching or exceeding specific thresholds (namely, 25%, 50% or 75% of the total voting rights of such listed company), the acquirer become obligated to make a mandatory tender offer to purchase all securities of the listed company.
A mandatory tender offer is typically unconditional with limited rights to cancel during the tender offer period. However, there are specific circumstances where cancellation is permitted. These circumstances include severe damage to the target company’s status or assets (not caused by the acquirer) or a significant decrease in the target company’s share value due to the actions of the target company. In contrast, a voluntary tender offer provides more flexibility, allows the acquirer to set conditions, usually the minimum percentage of shares they wish to acquire. In such a case, if the number of shares falls below of the set minimum percentage, the acquirer may choose to withdraw the tender offer.
In addition, if the potential buyer intends to acquire only partial control, the tender offer rules impose a requirement that the number of shares held by the buyer following the partial tender offer is made cannot exceed 50% of the total voting rights of the target company. The buyer is required to obtain a waiver from the Office of the Securities and Exchange Commission (SEC) for the partial tender offer, for which approval from the target company’s shareholders is needed.
Under Section 107 of the Public Limited Company Act 1992 (B.E. 2535) (PLC Act), the direct acquisition of a business of a public company, or acquisition of a business by a public company, which includes the acquisition of shares in the target company that becomes a subsidiary as a result of the transaction, requires the public company’s shareholders’ approval by a special resolution (three-fourths of the total number of votes cast by the shareholders of the company who attend the meeting and are entitled to vote). Further, in the case of a listed company, if the acquisition is of a material size compared with the size of the listed company (various criteria are applied), it also require the shareholders’ approval by a special resolution.
Hostile bids
Hostile bids are permitted in Thailand. However, this tactic is rarely employed since there is no squeeze-out mechanism available under Thai law and most public companies have substantial shareholdings held by a family or group of shareholders.
Regulation and regulatory bodies
The principal pieces of legislation that govern public takeovers and mergers are the:
Public Limited Company Act 1992 (B.E. 2535) (PLC Act).
Securities and Exchange Act 1992 (B.E. 2535) (SEC Act).
Notification of the Capital Markets Supervisory Board No. TorJor. 12/2554 on Rules, Conditions and Procedures for the Acquisition of Securities for Business Takeovers.
Notification of the Capital Market Supervisory Board No. TorJor. 20/2551 on Rules on Entering into Material Transactions Deemed as Acquisition or Disposal of Assets.
Notification of the Board of Governors of the Stock Exchange of Thailand on Disclosure of Information and Other Acts of Listed Companies Concerning the Acquisition and Disposition of Assets 2004 (B.E. 2547).
The primary regulators are the:
Securities and Exchange Commission (SEC).
Capital Market Supervisory Board (CMSB).
Takeover Panel comprising five members nominated by the CMSB and appointed by the SEC.
Stock Exchange of Thailand (SET).
In addition, M&A activity in certain industry sectors is regulated by specific regulators. For example, the insurance business is regulated by the Office of the Insurance Commission, banking and financing businesses are regulated by the Bank of Thailand, power business is regulated by the Energy Regulatory Commission (ERC), and telecommunications is regulated by the National Telecommunications Commission (NTC). In the telecommunications sector, the Regulation on Measures for the Prevention of Anti-competitive Conduct or Unfair Competition in Telecommunications Services 2006 (B.E. 2549) and the Regulation on Measures on the Supervision of Mergers In the Telecommunications Business 2018 (B.E. 2561) were enacted to ensure fair competition in the telecommunications sector by requiring an operator to notify the National Broadcasting and Telecommunications Commission on the acquisition of a competitor in the same market.
Further, foreign investment is governed by the Foreign Business Act (FBA), with the Ministry of Commerce (MOC) as the regulatory body. Under the FBA, a foreign entity is prohibited from conducting certain businesses in Thailand (such as construction, advertising, or the catch-all category “other services”) unless prior permission is obtained from the MOC. Moreover, under the Land Code, a foreign entity is prohibited from owning land in Thailand unless, among other things, an Investment Promotion Certificate is granted by the Board of Investment (BOI).
With regard to the anti-trust sector, the Trade Competition Act 2017 (B.E. 2560) (TCA) is the principal law governing takeovers and mergers in any market in Thailand. The TCA established the Trade Competition Commission (TCC) to act as a general competition regulator and to oversee M&A activities which might result in a monopoly or creation of a business operator with dominant power over the market.
Pre-bid
Due diligence
In a recommended bid, a bidder and a target company normally conduct pre-bid negotiations followed by execution of a non-disclosure agreement, or memorandum of understanding or letter of intent, which in general will impose non-disclosure obligations and enable the bidder to conduct due diligence. The bidder will have access to both publicly available and confidential information (for example, material contracts, financial documents, relevant licenses and approvals, as well as other documents reflecting contingent liabilities), which is more extensive than that available to shareholders as agreed between the bidder and the target company. However,the target company's board will need to carefully consider whether the information is market sensitive and its disclosure may constitute a criminal offence under Thailand's insider trading laws if the bidder subsequently buys shares or makes an offer on the basis of this information.
In the case where a hostile bid is dismissed by the target company, the bidder will have no access to the confidential information of the target company and must rely solely on publicly available information for conducting due diligence as there is no statutory obligation requiring a listed target company to disclose its information to a potential acquirer.
Public domain
In general, in conducting the due diligence on the target company, a bidder has access to publicly available information for both recommended and hostile bids, which includes the following information:
Corporate documents, for example, directors’ names, authorized directors, shareholders’ names, memorandum of association, and articles of association (in Thai and some in English).
Annual, half-year and quarterly reviewed financial statements (in both Thai and English.
Annual registration statement containing updated business information (in Thai).
Annual reports (in both Thai and English).
Public filings upon the occurrence of certain material events, including the acquisition or disposition of securities, and shareholder circulars and notices published on the SET and SEC websites (in both Thai and English).
Public records relating to litigation, intellectual property, land and buildings such as ongoing litigation proceedings, trademark registrations or land title documents.
Rules on maintaining secrecy until the bid is made
Under the Notification of the SET on Guidelines on Disclosure of Information of Listed Companies, the bidder and relevant parties involvedare required to maintain any information in relation to a potential bid for a listed target company strictly confidential before the bid is
made, to the highest extent possible, which should be confined to the highest possible levels of management and other employees as well as any advisors or representatives on a need-to-know basis only. However, there are exceptions under which the bidder is no longer required to maintain secrecy and should disclose certain information regarding the potential bid, including the status of the negotiation, the estimated time of the deal, or details of the financial advisers. An example of such exceptions is in the event that incorrect information which affects the stock price is leaked to the public before the bid is made or officially announced.
On the bidder approaching the target company with the potential bid regardless of whether the bidder aims to make a voluntary tender offer, the SEC requires that the bid is made public in accordance with the tender offer rules when the acquisition triggers the minimum tender offer threshold, that is, at 25%, 50% and 75% of the total voting rights of the target company, within one business day after such triggering. Further, when a definitive agreement is signed, the target company will no longer need to maintain the confidentiality of the information in relation to the bid and should disclose any material information of a factual nature which must not mislead the investors or exaggerate predictions exceeding the information necessary to enable the public to make informed investment decisions.
Pre-deal agreements with shareholders
It is common for a potential bidder to execute a memorandum of understanding or letter of intent as well as a term sheet with the key shareholders of the target company (in the case of secondary share sales) or the target company itself (in the case of primary share sales) to set out exclusivity and confidentiality undertakings as well as key commercial terms and conditions. However, an undertaking of the key shareholders to sell their shares at this stage is usually not binding.
The SET imposes a general disclosure rule requiring a listed company to report any event which affects or will affect the interests of shareholders, the decision to invest, or any change in the price of the listed shares. The disclosure must be made to the SET without delay on the date of the occurrence of the event at least one hour before the trading hours of each session or after the trading hours. In practice, this disclosure requirement would be triggered when the definitive agreements have been executed or when the bidder makes a tender offer, not at the stage of execution of a memorandum of understanding during which strict confidentiality is required. However, if the relevant parties fail to comply with the confidentiality obligation and some information regarding the potential takeover is leaked to the public, affecting the share price or an investment decision, the target company may be required to disclose certain material information to the SET to clarify any rumors.
Stake building
Stake building through purchasing shares or dealing in derivatives is allowed under Thai law and is commonly employed prior to launching an offer. This strategy is subjected to the disclosure requirements under the SET’s disclosure regulations and the SEC’s tender offer rules.
The following table summarizes the main benefits of owning various amounts of shares in a Thai public company.
Disclosure thresholds
Firstly, the bidder who acquires, or intends to acquire, at least and every 5% of the total voting rights of the listed company must disclose the information by submitting the report of the acquisition or disposition of the securities (Form 246-2) to the SEC within three business days after the acquisition takes place. This form includes information such as the name of the bidder and its concert parties and related persons, type and number of securities held by the bidder together with its related persons and persons acting in concert, the date and means of the acquisition, or the highest price paid by the bidder (or its related persons or persons acting in concert) to acquire those securities during a period of 90 days prior to that acquisition.
Secondly, in accordance with the tender offer rules, once an acquirer reaches thresholds of 25%, 50% or 75% of the total voting rights of the target company, they are required to declare the purpose of the acquisition and their intension regarding the control of the target company. The declaration must be made by submitting the following:
The form of announcement of their intention to make a tender offer (Form 247-3) and the report on the acquisition or disposition of the securities form (Form 246-2) to the SEC within one business day after the acquisition that reaches the 25%, 50% or 75% threshold.
The tender offer form (Form 247-4) to the SEC within seven business days after the submission of Form 247-3. In general, acquirers usually seek less than 25% of shares during the stake-building stage to avoid this mandatory tender offer requirement.
The SEC Act provides that in determining the above thresholds (either 5% or 25%, 50%, 75%), securities held by the following persons must also be taken into account:
Related persons, such as, the spouse, minor, or person holding more than 30% of the total voting rights of the bidder, including the shareholders holding more than 30% in all levels of shareholding.
Persons acting in concert of the bidder e.g. persons with a mutual intention to exercise their voting rights in the same direction as the bidder, or who allow other persons to exercise their voting rights for the purpose of achieving common control, or act in any manners prescribed by the SEC notifications.
Related persons of the persons acting in concert.
Agreements in recommended Bids
In the event that the target company’s board recommends a bid, a memorandum of understanding as well as a term sheet are usually employed between the bidder and the target company in the case where the bid is to acquire new shares of the target. Similar to the agreements into which the bidder enters with the key shareholders of the target at the pre-bid stage, these agreements are usually not binding in nature and are intended to outline the material terms and conditions prior to drafting a definitive agreement. The key issues that are covered in such agreements include:
General scope and conditions.
Confidentiality undertaking.
Restrictive covenants.
Representations and warranties of the target company.
Conditions precedent requiring the target company to duly complete the process of issuance of new shares and capital increase, and to obtain any requisite corporate approval.
Further, the bidder can agree with the target company regarding deal exclusivity, requiring the target company’s board of directors to refrain from soliciting or recommending other bids. However, in recommending a bid or providing an exclusivity undertaking, the directors of the target company must act responsibly in the best interests of the target company with due care and loyalty under their fiduciary duty owed to the target company. Additionally, one of the statutory duties of directors of a listed company is to give their opinion on a tender offer and appoint an independent financial adviser to give an opinion, which must be circulated to shareholders.
Break fees
While break fees are legally permissible in Thailand, they are less prevalent compare to other deal protection mechanisms such as non-refundable deposits or exclusivity undertakings. These mechanisms are typically used to protect the bidder rather than the target company, as the target company is already protected under the tender offer rules through the bidder’s limited rights to cancel the tender offer. Moreover, Thai courts have the authority to award damages based on the actual damages suffered by the non-breaching party as a result of a breach, and the courts are at their discretion to adjust the amount of break fee agreed by the parties if the courts deem it to be disproportionately high.
Committed funding before announcing an offer
Under Thai law, there is no requirement for committed funding prior to the announcement of an official offer. When a bidder proceed with a tender offer, the tender offer rules require the bidder to provide the SEC with information and evidence regarding the sources of funds utilized by the bidder for the takeover and a summary of the financial status and performance of the bidder over the past three years as part of the tender offer document (Form 247-4). Further, an independent financial adviser, appointed to provide an opinion on the tender offer, must also verify the bidder’s financial status and performance.
Announcing and making the offer
Making the bid public
A tender offer can generally be made on a voluntary or mandatory basis. In the case where a bidder decides to make a voluntary tender offer, the bidder publicly announces the offer through a public announcement. However, if a bidder acquires securities in the target company of up to 25%, 50% or 75% of its total voting rights without making any public announcement, the tender offer rules require the bidder to make a mandatory tender offer and its process requires making the bid public, as discussed below.
A. Mandatory tender offer
On the acquisition of securities reaching the triggering threshold, the bidder must make a mandatory tender offer for all the securities of the target company and make the bid public by submitting the following forms to the SEC:
Report on the acquisition or disposition of the securities in Form 246-2 within the next business day following the date on which the triggering threshold is reached (for secondary share acquisition), or within the next business day following the date on which the increase in the paid-up capital is registered with the MOC (for acquisition of new shares).
Statement of intention to make a tender offer in Form 247-3 within the next business day following the date on which the triggering threshold is reached along with Form 246-2 (this form is not required for acquisition of new shares).
Offer document in Form 247-4 within seven business days from the date on which Form 247-3 must be submitted (for secondary share acquisition), or within seven business days from the date on which Form 246-2 must be submitted (for acquisition of new shares), or such period as otherwise extended by the SEC.
B. Voluntary tender offer
The bidder can make a voluntary tender offer by announcing the business takeover as well as the expected number of shares to be acquired in any of the prescribed ways, including, advertising widely through the press, or notifying the target’s board, shareholders holding at least 10% of the total voting rights of the target company, the SET or the SEC. Following the public announcement, the bidder must submit the following forms to the SEC:
Statement of intention to make a tender offer in Form 247-3 within three business day following the public announcement.
Offer document in Form 247-4 within seven business days from the date on which Form 247-3 must be submitted or the period otherwise extended by the SEC.
Once the offer document (Form 247-4) is submitted to the SEC, whether in respect of a voluntary or mandatory offer, the tender offer become effective on the next business day following that submission. Immediately after the submission, the bidder is obligated to send the offer document, along with the acceptance form, to the SET, the target company, and the securities holders. Additionally, the bidder is required to advertise the offer document in at least two Thai-language and one English-language newspapers. Within three business days of submission, the bidder must initiate the purchase of securities in accordance with the term outlined in the offer document.
The bidder has the authority to determine the tender offer period, which should span a minimum of 25 consecutive business days but not exceed 45 consecutive business days, and the final offer date must be announced at least 15 business days before the end of the offer period.
During the offer period, if there is a competing bid, the existing bidder has the option to extend its offer period to match the duration of the competing bid’s offer period. Alternatively, the existing bidder can choose to amend its offer by submitting the relevant amendment announcement (Form 247-6-Gor) to the SEC within five business days from the date on which the competing bid is submitted to the SEC, or the last day of its own offer period, whichever is earlier.
Further, within three days prior the end of the offer period or on the business day following the last day of the period on which tenders can be cancelled, the bidder is required to submit the preliminary result of the tender offer in Form 247-6-Khor with the SEC and provide a copy to the SET. Lastly, within five business days after the end of the offer period, the bidder must submit a report on the results of the tender offer in Form 256-2 to the SEC and provide a copy to the SET.
Offer conditions
The tender offer rules allow the person who has made a public announcement of a business takeover (voluntary tender offer) to set certain pre-conditions whereby, until these pre-conditions have been satisfied, such person is not obligated to proceed with the announced tender offer and may withdraw from the tender offer by submitting a statement of cancellation of the tender offer in Form 247-5 to the SEC. There are no specific restrictions on the content of these pre-conditions, except that they must not include anything expressly prohibited by law, be impossible to fulfill, or be contrary to public order or good morals. These pre-conditions are typically the expected number of securities to be acquired.
In this regard, once the bidder has submitted a statement of cancellation of a tender offer (Form 247-5) to the SEC, they are prohibited from making another tender offer for the securities of the same company or acquiring securities in an amount that would reach the triggering threshold (25%, 50% or 75% of the total voting rights of the same company) for the period of one year following the submission of a statement of cancellation.
In addition, the tender offer rules prescribe certain circumstances in which the bidder, whether it is a person making a mandatory tender offer and a voluntary tender offer, is permitted to cancel its tender offer, provided that these events are stated clearly in the tender offer document and the SEC has no objection to such cancellation, as follows:
An occurrence of any event which can cause serious damage to the status or assets of the target company during the tender offer period.
A significant decrease in the value of the securities due to any action taken by the target company during the tender offer period.
Bid documetns
Regardless of whether it is a recommended or hostile bid, the shareholders of the target company receive two principal documents:
An offer document.
The opinion of the target company on the tender offer.
Firstly, an offer document must be prepared by the bidder’s financial adviser and submitted to the target company’s shareholders along with the acceptance of offer form immediately after it has been submitted to the SEC. The offer document must be in Thai but supporting documents can be in English. The tender offer rules prescribe that an offer document must include the following information:
Summary of the tender offer, including information in relation to the:
Details of the bidder and its financial advisers including their general information, business performance, financial position, relationships between the bidder and the target company and/or its major shareholders or directors, and any plan for disposal of securities of the target company
Information on the target company, including its general information and the business plan after the tender offer.
Additional information about the offer, such as:
Certification of information by the bidder and its adviser.
If a voluntary tender offer is subject to specific pre-conditions, there is no requirement to submit an offer document until those conditions have been satisfied.
Secondly, the target company is required to provide its opinion on the merits of the tender offer in Form 250-2 and send that opinion to the SEC and provide a copy to the SET and shareholders of the target company within 15 business days from the date of receiving the offer document. The purpose of this opinion is primarily to assist the shareholders in making an informed decision regarding acceptance of the tender offer. The requisite key information to be provided in the opinion is as follows:
Status of the target company relating to its historical and forecasted operating results and assumptions used in the forecast.
Opinion on the accuracy of the target company’s information stated in the offer document.
Any relationship or agreement between the directors of the target company and the bidder.
Opinions of the board of directors of the target company.
Opinion of the independent financial adviser who is on the SEC-approved list.
In the case where the bidder amends the terms of the tender offer, the target company also is required to prepare a revised opinion (Form 250-2-Gor) and submit it to the SEC, along with a copy provided to the SET and its shareholders within five business days from the date of receiving the revised tender offer. However, there are certain circumstances where this requitement may not apply, for instance, if the bidder improves the terms of the revised tender offer, and the target company has already recommended that the shareholders accept the previous offer or recommended a minimum price that the shareholders should accept.
Employee consultation
Unless specified otherwise in the employment agreement, there is no specific requirement for the board of directors of a target company to inform or consult with its employees regarding the tender offer. Employees of the target company do not generally have any specific rights to approve or be consulted on a potential acquisition, unless they are to be transferred from their current employer to a new employer as part of an assets acquisition or business transfer.
Mandatory Offers
In the case where the bidder acquires securities in a listed company, resulting in the bidder’s shareholding reaching 25%, 50% or 75% of the total voting rights in the target company, it is required to make a mandatory tender offer for all securities of the target company. When determining the triggering threshold, the number of securities held by persons acting in concert, or related persons, or related persons of the persons acting in concert, in connection with the bidder, must be taken into consideration.
Moreover, a business takeover via the chain principle will also trigger a mandatory tender offer in the case where a person acquires shares or control, either directly or indirectly, reaching 50% of the total voting rights in a company which is already a shareholder of a listed company, and the aggregate shareholding of that person, each intermediate entity, the immediate holding entity and their respective related persons and concert parties, as well as related persons of the concert parties, reaches or exceeds the 25%, 50% or 75% threshold in the listed company.
This requirement of a mandatory tender offer may be waived, by the bidder applying for a waiver of the mandatory tender offer to the SEC prior to the acquisition, on several grounds including where:
The acquisition does not result in a change of control of the target company.
The acquisition is made to rehabilitate the business of the target company.
The acquisition of new securities is made according to the target company’s shareholders’ approval of the issuance of such new securities to the acquirer under the rules prescribed by the SEC (Whitewash).
There exist any other reasonable and appropriate grounds.
Consideration
In most public takeovers, cash is the most common form of consideration. There are also cases where the consideration consists of shares in another company (referred to as a share swap), but these cases are less common, especially for public takeovers via tender offer. This is primarily because the tender offer rules allow that the offer price can be specified with multiple alternatives, including a combination of cash and shares. However, it is mandatory for at least one of the alternatives to be in the form of case.
In the context of a share-for-share acquisition where the acquirer issues new shares in exchange for a non-cash consideration, there is not legal requirement for a valuation by a financial adviser; however, directors of a listed company, as a practical matter, generally obtain one.
Minimum consideration
There is no specific requirement for a minimum level of consideration except in the following cases:
When initiating a tender offer, whether voluntary or mandatory, the tender offer price must not be lower than the highest price at which the acquirer, any related persons or concert parties have purchased the securities of the target company during the period of 90 days prior to the date on which the tender offer documents are submitted to the SEC.
In the case of a delisting tender offer, the offer price must not be lower than the highest value of the following:
the highest price paid for the shares which has been acquired by the acquirer or any of its related persons during the period of 90 days prior to the date on which the tender offer documents are submitted to the SEC;
the weighted average market price of the shares during the period of five business days prior to the date on which the board of directors of the target company resolves to propose for consideration by the shareholders meeting of the target company the delisting of the shares from the SET, or the date on which the shareholders meeting resolves on the delisting of the shares from the SET, whichever comes first;
the net asset value of the target company calculated based on the book value which has been adjusted to reflect the latest market value of the assets and liabilities of the target company; and
the fair value of the shares of the target company as appraised by an independent financial advisor.
Consideration offered by foreign bidder
Under Thai securities laws, there is no specific legislation that governs the consideration offered by foreign bidder. Consequently, a foreign bidder is subject to the same rules and regulation as a Thai bidder. In other words, the requirements and provision that apply to Thai bidders in terms of consideration also apply to foreign bidders.
Post-bid
Compulsory purchase of minority shareholdings
There is currently no squeeze-out mechanism to compulsorily acquire minority stakes available under Thai law. In practice, after the completion of a tender offer, there are typically a small number of shareholders who cannot be traced or who may have refused to sell their shares. As long as these shareholders still hold shares in the target, delisting may not be achieved and the basic rights of these shareholders (including requesting to hold a meeting, attending, speaking and voting) must be respected. In the event that a resolution to delist the target company is passed following the completion of a tender offer, this resolution triggers the making of a mandatory offer to the dissenting minority shareholders.
Restrictions on new offers
During a period of one year from the end of the previous offer period, a bidder who has undertake a tender offer, whether voluntary or mandatory, is prohibited from initiate another tender offer. This restriction applies regardless of the outcome of the previous offer, except where the offer is made for the purposes of de-listing, provided that the bidder specifies the intention to de-list in the previous offer document.
Further, during the period of six months from the end of the previous offer period, a bidder who has undertaken a mandatory tender offer is restricted from acquiring the securities of the same target company at a price exceeding the previously offered price, regardless of the outcome the previous offer, except where:
It is an acquisition of new securities.
The offer is made for the purposes of de-listing, provided that the bidder specifies the intention to de-list in the previous offer document.
In addition, the bidder is prohibited from undertaking any action which is materially different from those specified in the offer document for the period of one year from the end of the previous offer period, unless the following conditions are met
A shareholders’ meeting of the target company approves such action with at least three-fourths of the total number of votes by the shareholders who attend the meeting and has the right to vote.
The SEC has been notified accordingly.
De-listing
De-listing can be proceeded with on either a voluntary or involuntary basis. A listed company wishing to de-list its securities must:
Appoint an independent financial advisor, approved by the independent directors, to provide its opinion on the merits of the de-listing to the general shareholders who are not connected with the offeror.
Notify the SET of the resolution of the listed company’s board of directors approving the de-listing by the date on which the resolution is made or at least one hour before the first session of trading hours of the following business day.
Find an offeror to make a general offer to purchase securities from the securities holder.
Hold a shareholders’ meeting to approve the de-listing with a vote of at least three- fourths of the total issued securities of the listed company, without dissenting votes from shareholders holding more than 10% of the total securities.
Submit an application to de-list its securities to the SET for its approval.
Following the receipt of the SET’s approval, the listed company will make the relevant tender offer to purchase the securities to be made in accordance with the SEC and CMSB rules.
Target's response
During the period before the bid is made, there is generally no specific restriction on the target’s board of directors taking defensive measures against a hostile takeover. However, the directors’ use of defensive measures must be consistent with the board of directors' fiduciary duty and duty of care to act in the best interests of the company. While the use of "poison pills" is almost unknown in Thailand, as most takeovers usually have the support of the target company's board of directors, it would be possible for the board of directors of a target company either to adopt the "pac-man" defence (acquiring shares in the bidder) or to solicit a higher offer from a "white knight".
However, once the bid is made, the target company is restricted from undertaking certain activities during a takeover, including:
Offering its new shares.
Acquiring or disposing of its material assets.
Incurring indebtedness.
Entering into or terminating a material contract not in the ordinary course of business.
Buying back shares.
Declaring an extraordinary interim dividend.
Tax
Investors, whether Thai or foreign, operating business in Thailand are liable to corporate income tax for capital gains generated from the sale of shares in a listed company or a company incorporated in Thailand. The applicable tax rate is 20% of the net profit. There is no withholding tax is required for such investors. However, foreign investors who do not conduct business in Thailand are typically subject to a 15% withholding tax, unless such tax is otherwise exempted or reduced under the applicable double taxation treaties.
Capital gains arising out of the sale of shares on the SET by an individual, both Thai or non-Thai, are exempt from income tax. Furthermore, there are no value added tax (VAT), specific business tax (SBT), or stamp duty is levied on capital gains from the share sales, however, a 7% VAT on service fees and commissions, such as a tender offer agent fee, are is typically applicable.
Other regulatory restrictions
Approvals under merger control rules
The TCA prohibits mergers and acquisitions of businesses that may lead in a monopoly or creation of a business operator with dominance over the market unless prior approval is obtained from the TCC. The thresholds for the pre-merger approval refer to a business operator with dominant market power, which includes having a market share of 50% or more in the previous year and a sales turnover of at least THB1 billion. Alternatively, it includes any combination of the top three business operators whose market share in the previous year totals 75% or more and their sales turnover of at least THB1 billion (excluding any business operator with a market share below 10% or a sales turnover of less than THB1 billion). Failure to obtain this prior approval from the TCC, the TCA imposes an administrative fine of up to 0.5% of the merger value on the merging entities. When filing for approval with the TCC, the TCC has a period of 90 days (with a possible extension of 15 days) to issue the decision. Therefore, this pre-approval process is likely to impact the public offer timetable and bidders may be required to specify the TTC approval as one of the conditions precedent in making an announcement of the public offer.
Additionally, according to the TCA, mergers or acquisitions that could substantially diminish competition in a market requirenotification to the TCC withinseven days following the completion of the mergers. Failure to notify the TCC of such merger is an offence, and it may result in an administrative fine of up to THB200,000, along with a daily fine up to THB10,000 each day the violation persist.
Foreign business license requirement
When a share transfer occurs, it may result in a target company becoming majority owned by foreign shareholders. In such case, if the target company engages in a business restricted to foreigners under the FBA, obtaining a foreign business licence from the MOC may be necessary.
In some cases, a share transfer may result in the change of nationality of the major shareholders that ultimately own and control a company in Thailand, which enjoys privileges to operate a business in Thailand by virtue of a treaty to which Thailand is a party. In this case, the target company can be required to obtain a foreign business licence from the MOC as well.
Other regulatory approvals
This depends on the business sector of the target company. For example, if the target company is a financial institution, approval from the Bank of Thailand is required for any person wishing to hold more than 10% of such target company.
Third-party approvals
Other third-party approvals will depend on the existence of any change of control provision which requires the target company to obtain consent from a lender, major supplier, concessionaire or joint venture partner prior to the transfer of a certain number of shares in the target company.
Foreign ownership restrictions
FBA
The operation of certain businesses in Thailand by foreign entities is restricted by the FBA under the administration of the MOC. For the purpose of the FBA restrictions, a "foreigner" is classified as a foreign individual, a company incorporated outside Thailand, or a company incorporated in Thailand that is majority-owned (50% of the total capital or more) by foreign individuals or foreign companies.
The FBA establishes three lists of business categories in which the participation of foreign nationals is either prohibited or subject to restrictions. Foreign nationals are prohibited from participating in the businesses specified in List 1, which includes antique trading, broadcasting, farming, and forestry.
Foreign nationals are restricted from participating in businesses relating to national security, arts, culture, tradition, customs and folklore, handicraft or natural resources and the environment, as specified in List 2 unless they obtain prior permission from the MOC and approval from the Thai Cabinet.
Foreign nationals are also restricted from participating in the businesses specified in List 3 unless they obtain a permission from the MOC. List 3 comprises 21 categories of restricted businesses, including accountancy, engineering, construction (with certain exceptions), retailing and wholesaling (with certain exceptions), advertising, hotel operation (excluding hotel management), tour guiding, sale of food and beverages, and the catch-all category "other services".
Certain service businesses are exempt from the FBA by virtue of Ministerial Regulations such as:
Commercial banking business and the related businesses of commercial banks.
Bank representative offices.
Life insurance and non-life insurance businesses.
Securities business and other businesses under the law on securities.
Asset management company business.
Business where a government unit or state enterprise is a party.
BOI
A foreigner engaging in a restricted business can be exempt from most of the requirements under the FBA if it has been granted investment promotion from the BOI, permission to operate industrial or export businesses by the Industrial Estate Authority of Thailand, or may be eligible under an international treaty, such as the Treaty of Amity between the United States and Thailand. In this regard, it must notify the MOC and obtain a foreign business certificate (FBC) from the MOC. Generally, the administrative process for obtaining this certificate is less onerous than that of obtaining a foreign business licence (FBL). Further, the BOI offers various tax and non-tax incentives, such as permission to own land or exemption from corporate income tax.
The Land Code 1954 (B.E. 2497) prescribes a more stringent definition of the term "foreigner" and impose restriction on companies that have less than 51% of registered capital owned by Thai nationals and less than half of the shareholders who are Thai nationals. Such companies are prohibited from owning land in Thailand. Thus, companies aiming to acquire land for their business operations in Thailand must comply with both the foreign-shareholding requirements under the FBA and the provision of the Land Code.
Besides the foreignshareholding restriction prescribed under the FBA, there are other specificforeign ownership restrictions for some highly regulated industries in Thailand, such as financial institutions, insurance, telecommunications, shipping and land transportation.
Financial institutions or insurance businesses
A foreigner is restricted from holding more than 25% of the total voting rights in a financial institution or an insurance company. However, the Bank of Thailand (in the case of a financial institution) or the Office of Insurance Commission (in the case of an insurance company) may allow a foreigner to hold up to 49%, and the Minister of Finance, on the recommendation of the Bank of Thailand or the Office of Insurance Commission, as the case may be, may allow non-Thai nationals to hold more than 49% if such company is in financial distress or an increase in foreign shareholding will strengthen the stability of that company or the overall business system.
Telecommunications business
A foreign-owned company incorporated under Thai law which wishes to operate a telecommunications business must have less than 50% of its total issued shares with voting rights owned by foreign entities to be qualified to apply for a licence to provide certain types of services in the telecommunications business. However, there is no restriction on foreign directors of telecommunications companies.
Shipping business
A company owning a vessel operating in Thai territorial waters is required to have at least 70% of the total paid-up shares owned by Thai entities, and at least half of its directors must be Thai. For a company owning a Thai vessel used in international marine transport, at least 51% of the total shares must be owned by Thai entities, and at least half of its directors must also be Thai.
Land transport business
A company wishing to operate public or private transport businesses must be incorporated in Thailand and have at least 51% of its capital held by Thai entities unless otherwise allowed by the land transport supervision committee due to necessity or special circumstances on a case-by-case basis.
Are there any restrictions on repatriation of profits or exchange control rules for foreign companies?
Restrictions on repatriation of profits or exchange control rules for foreign companies
In accordance with Thai exchange control rules, the repatriation of profits is generally permitted upon the submission of certain documents to commercial banks acting as authorised agents of the Bank of Thailand. If foreign currency is being purchased from a commercial bank for the purpose of repatriating profits or distributing dividend to shareholders abroad may require submission of documents evidencing such profit or dividend declaration, such as documents evidencing the ownership of shares or money to be repatriated, audited financial statement of the company showing profits and a notice of declaration of dividends, to the commercial bank. Further, in the case where the amount remitted is USD 200,000 or more, a form must also be submitted to the commercial bank together with documents or evidence as to the particular transaction.
On the other hand, there is no limit on the amount of foreign currency that can be transferred or brought into Thailand. However, a person receiving foreign currency from abroad shall bring such funds into Thailand immediately, and sell the funds to a commercial bank or deposit them in a foreign currency account with a commercial bank within 360 days of receipt, except for foreigners temporarily staying in Thailand for three months or less, foreign embassies, or international organisations including their staff with diplomatic privileges and immunities.
Disclosure requirement
Following an announcement of a tender offer, if the bidder has disclosed to any individual in particular any material information which has not been disclosed in the offer document, the bidder must add such information to the offer document submitted to the SEC by the end of the following business day and deliver such information to the target company, all securities holders of the target company, and the SET.
Other restrictions
Restricted actions following making a tender offer. After the tender offer is made, the bidder cannot acquire securities in the target company by any means other than those prescribed in the offer document during the relevant offer period. Further, directors are restricted from undertaking certain activities during a takeover, such as offering its new shares, acquiring, or disposing of its material assets, buying back shares, or declaring an extraordinary interim dividend.
Market misconduct and inside information misuse. It is an offence under the SEC Act for any person to disclose any market sensitive information in relation to financial status, performance, securities prices, or other information concerning the listed target company that is false or misleading in a material particular and may affect the price of the target company’s securities or investment decisions. Moreover, providing to the public an investment analysis or a forward-looking statement based on false or distorted data, which may be misleading in a material particular, in a way that can affect the price of the target company’s securities or investment decisions, is also prohibited under the SEC Act. Therefore, the persons who provide information or opinions to the public, regardless of whether they are parties to the bid, should be extremely cautious in disclosing the information relating to the bid. However, forward-looking statements based on actual and not distorted facts available at the time may be permissible even if the outcomes in the future turn out to be different from those forecasted.
Apart from market misconduct, the SEC Act prohibits a person who is aware of or possesses inside information (directors, executives or advisors of the listed target company are presumed to be ‘insiders’) from seeking unfair benefits by trading the target company’s securities, or passing on the inside information to another person in the case that they know (or should have known) that such other person will seek unfair advantage by trading the target company’s securities. It is initially presumed under the SEC Act that an insider, as well as their close relatives who engage in irregular trading of the company securities before material information has been disclosed publicly, may have engaged in insider trading. Further, it is illegal for intermediaries or their employees to use advance information on clients’ trading orders of securities to execute their own orders before the clients’, or disclose such information for other persons to do the same, in a way that may cause the clients to be placed in a disadvantageous position (front running).
The sanctions for failure to comply with these market misconduct and insider trading prohibitions are a maximum sentence of imprisonment of two years, or a fine of THB500,000 up to THB2 million, or both.
The SEC Act also prescribes civil penalties as an alternative sanction for theseoffences, which includes a monetary penalty, disgorgement, banning from trading on the stock exchange for a period of not morethan five years, being prohibited from holding a management positionin a listed company or a securities company for a period of not more than ten years, and/or reimbursement of investigation costs. In the case where the alleged offender has agreed to comply with the measures under the civil penalty and has paid for the civil penalty in full, the right to institute civil proceedings and criminal prosecution would be extinguished.
Recent legal development
The provisions on market misconduct and insider trading in the SEC Act were amended in 2016 to enhance enforcement efficiency on these offences and introduce civil penalties as an alternative sanction. The amended SEC Act categorizes market misconduct into four types as follows:
Disclosure of information which may influence securities prices or investment decisions.
Misuse of inside information.
Market manipulation, including executing trading orders to mislead other persons regarding the price or trading volume of securities, or executing trading orders on a continual basis to make the price or trading volume of such securities inconsistent with normal market conditions.
Disrupting or delaying the functioning of the trading system of the trading by placing orders within a trading system to make the price or trading volume of securities inconsistent with normal market conditions.
The 2016 amendments also prohibit the use of a nominee account or allow one’s trading account to be used to commit a market misconduct offence.
In addition, the tender offer rules were amended by the CMSB in September 2019 with the following main changes:
a restriction on the existing exemption from tender offer obligation - a shareholder (including the group under Thai securities law) who owns shares in a listed company above or equal to the tender offer trigger point (25%, 50% or 75% of voting rights in the listed company) due to the listed company (i) buying back its shares, or (ii) making a rights offer, is exempt from the tender offer obligation, but under the 2019 amendment, if the shareholder who has benefited from the exemption because of the share buyback or the rights offer later purchases any number of shares in such listed company while still owning shares above the trigger point, such shareholder will have to make a tender offer; and
an additional reason for waiver of tender offer obligations - in the situation where a shareholder is obliged to make a tender offer because of a restructuring action with specific features but such shareholder does not intend to takeover the company, the tender offer obligation may be waived on restructuring grounds according to the 2019 amendment, subject to approval of the SEC.
To ease administrative burdens on the private sector, in May 2022, the SEC increased flexibility in making a tender offer, by eliminating a requirement to submit hard copy documents and replacing it with online submission.
Last but not least, the SEC launched a project in 2022 to revise the regulations affecting the business sector and reduce the burden of unnecessary costs. This project, known as the "regulatory guillotine", aims to streamline and update the rules on takeovers and other aspects of capital market regulations. The project is still ongoing and the final amendments have not been finalized yet.
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Author: Panuwat Chalongkuamdee (Founding Partner), Natthanun Suksomboon (Associate), and Rung Rudeenorawate (Associate)
You may view Panuwat's profile here.
You may view Natthanun's profile here.
You may view Rung's profile here.