M&A transactions for private and public limited companies in Thailand can be achieved in many ways, including acquiring shares from existing shareholders of a limited company, subscribing to new shares issued by a limited company, an amalgamation of limited companies, acquiring all or part of the assets or business of a limited company, and a merger of private limited companies.
The Civil and Commercial Code is the key legislation governing private limited companies, while public limited companies are mainly governed by the Public Limited Company Act of 1992, as amended, unless listed on the Stock Exchange of Thailand (SET), in which case the Securities and Exchange Act of 1992, the Securities and Exchange Commission (SEC) Rules, the Capital Market Supervisory Board (CMSB) Rules, and the SET Rules also apply. The legal framework for most M&A transactions concerning Thai limited companies is also provided in both the code and the Public Limited Company Act.
New Type of Combination
On 7 February 2023, the Act Amending the Civil and Commercial Code came into effect, introducing a new merger scheme as another approach to business combination for private limited companies. A merger under the amended Civil and Commercial Code is a merger of two or more companies, resulting in either a new company with all merged juristic entities ceasing to exist or one of the companies continuing to exist with the other companies ceasing to exist as juristic entities.
The merger replaces the “amalgamation” in the previous version of the code, which merely prescribed a legal framework and identified the implications of mergers but did not specify a concrete legal framework for the acquisition of assets or businesses.
Arguably, the first type of merger described above is the same as an amalgamation under the previous version of the code, while the end result of the second type of merger is similar to an entire business transfer where one of the companies continues to exist after the merger. The difference is that the amended code has put the same legal procedures in place for both types of mergers, including:
- An approval resolution from a shareholders’ meeting;
- Registration of the resolution with the public registrar;
- Arrangement for a purchase of shares from disapproving shareholders;
- A notice to creditors for raising any objections;
- A joint meeting between the shareholders of all merging companies; and
- Registration of the merger with the public registrar.
After a merger (of either type), the new or surviving company assumes all assets, liabilities, rights, obligations, and responsibilities of the dissolved companies, by virtue of the amended Civil and Commercial Code.
For listed companies, the requirements and procedures under the Public Limited Company Act, the Securities and Exchange Act, the SEC Rules, the CMSB Rules, and the SET Rules also need to be considered.
Common M&A Structures
Although M&A transactions can be structured in many ways in Thailand, the acquisition of an existing limited company’s shares is the most common one. It is less complicated, has fewer legal procedures and makes for a smoother transition of business ownership (when the acquisition is of all or most of the shares) than an asset or business acquisition. The acquisition of shares in an existing limited company (often referred to as a target) can occur through an acquisition of shares from the target’s existing shareholders or through a subscription of new shares issued by the target (or through a combination of these). These two methods are described below.
In the acquisition of shares from existing shareholders, shares in a private or non-listed public company can be acquired through a share sale and purchase agreement with the selling shareholders that sets commercial terms such as the amount of shares to be sold, date of the transaction closing, selling price, pre-closing conditions, warranties and indemnities. An acquisition of shares in a private company can be executed by the selling shareholders through a simple share transfer instrument specifying the details as required by the Civil and Commercial Code, together with recording the transactions in the target company’s register of shareholders. A transfer of shares in a non-listed public company becomes effective between the parties on the endorsement and delivery of the share certificate to the purchaser, pursuant to the Public Limited Company Act.
An acquisition of shares from the existing shareholders of a listed company can be arranged with or without a sale and purchase agreement and by way of a mandatory or voluntary tender offer. An acquisition with one or more selling shareholders may trigger a mandatory tender offer for the remaining shares if it falls under certain conditions, such as the acquisition of shares reaching a trigger threshold of 25%, 50%, or 75% of the total voting rights of the target. Alternatively, a voluntary tender offer for all shares of the target or for 25% or more but less than 50% of the shares is another possible way of acquiring shares in a listed company.
An acquirer can also subscribe to newly issued shares in a private or non-listed public company, which can proceed through a share subscription agreement that includes commercial terms such as the amount of shares to be allotted and subscribed, the subscription price, pre-closing conditions, warranties, and indemnities. Under this structure, the target company needs to increase its registered capital in accordance with the legal procedures prescribed in the Civil and Commercial Code or the Public Limited Company Act, including obtaining an approval resolution of not less than three-quarters of all stock held by the shareholders in the shareholders’ meeting and having the capital increase registered with the public registrar.
As for a listed company, the increase of registered capital and offering of newly issued shares on a private placement basis must be approved by the SEC in accordance with the commission’s rules and regulations, as well as any other applicable laws. The SEC has revamped various rules relating to private placements by listed companies with a view to streamlining the offering process and reducing the documentation required for submission. Most of these rules were revised by the CMSB on 28 December 2022 and came into effect on 1 July 2023. The key amendments include elimination of the application requirement, requiring submission of an independent financial advisory opinion, simplification of the market price calculation and clarification of the offering period.
Foreign Ownership Restrictions
Thailand’s legal limitations on foreign ownership may present notable challenges for foreign investors anticipating cross-border M&A deals in the country. These limitations can impact the choice of M&A structure and a foreign investor’s controlling power over a target company.
The Foreign Business Act, 1999, is the main law governing foreign ownership of businesses in Thailand. Under the Foreign Business Act, companies registered overseas, or registered domestically with 50% or more of the shares held by non-Thais, are deemed to be foreign. Foreign companies are restricted from engaging in certain businesses in three lists in the Foreign Business Act. This means foreign investment in companies operating a restricted business is limited to less than 50% of the shares unless a foreign business license is granted, or the business is granted a conditional exemption by virtue of the provisions of the act, ministerial regulations, investment promotion laws, industrial estate laws, or treaties between Thailand and certain countries.
Furthermore, certain business types are strictly prohibited to foreign nationals under specific laws, and there is no way for a company with foreign majority ownership to operate such a business. An example of this is the land transport business under the Land Transportation Act, 1979, as amended, which can only be engaged in by a limited company with no less than 51% of its shares held by Thai nationals. Apart from that, the Land Code Act, 1954, also generally prohibits foreign nationals from owning land in Thailand unless otherwise permitted under investment promotion or industrial estate laws.
Legal considerations such as the effect of Thailand’s restrictions on foreign ownership are just one of the issues that can be made clearer by a robust legal due diligence exercise, which is especially important for foreign parties and others who may not be familiar with Thai laws. Legal due diligence entails a thorough review of corporate structure, business operations, regulatory compliance, requisite licenses, labour, property, and other relevant aspects of a target company, and this will clarify whether there are any foreign ownership restrictions concerning the target company or the proposed investment. Other comprehensive due diligence, such as tax and finance due diligence, can be carried out in parallel. These can help investors determine the most efficient M&A structure and method for carrying out legally compliant business activities through a target company in Thailand.
This article first appeared in A Comparison of M&A Laws, published by Asia Business Law Journal.