In Vietnam, M&A is regulated by the Competition Law, which took effect in 2005. Certain unclear aspects have recently been discussed by the Vietnam Competition Administration Department of the Ministry of Industry and Trade for the purpose of issuing a decree for regulating M&A transactions.
Under this law, certain M&A transactions are prohibited if the parties participating in them have a combined market share of more than 50% in the relevant market for a particular product or service. Meanwhile, if parties to an M&A transaction have a combined market share of between 30% and 50%, such parties must complete notification procedures before carrying out the M&A. Where the combined market share is less than 30% or the M&A will result in a small or medium-sized enterprise, parties may proceed with the transaction without being subject to the notification requirement.
Fines and additional penalties may be imposed on enterprises in breach of competition regulations. Enterprises that breach the prohibited M&A category are subject to: (i) a fine of up to 10% of the total revenue in the financial year before the year in which the breach was committed; and (ii) compulsory demerger or split into the merged enterprise and the merging enterprise as before the merger or the compulsory resale of the assets the enterprise has acquired. In cases of failure to make the required notification of the proposed M&A, a fine of between 1% and 3% of the total revenue may be imposed on the breaching enterprises.
In practice, the Vietnamese authorities are facing problems in the enforcement of the Competition Law because of the absence of detailed guidance.
First, it is difficult to determine which entities are subject to the Competition Law, because the law generally states that it applies to foreign enterprises operating in Vietnam. The law does not clarify what kinds of operations in Vietnam are required. Therefore, it appears that a foreigner-to-foreigner merger or offshore acquisition (without any commercial presence in Vietnam) is not subject to the Competition Law and that no filing in Vietnam is required, though they may distribute the product in Vietnam and have a combined market share of more than 50%.
Second, the method of calculating the market share of an enterprise is vague. Basically, market share (with respect to a certain type of goods or services) is the percentage of turnover from sales of that enterprise over the total turnover of all enterprises conducting business in that type of goods or services in the relevant market. However, this law is unclear regarding how total turnover and relevant market are determined.
Third, it is unclear how an acquisition transaction is regulated by the Competition Law. Under that law, acquisition is defined as the purchase by one enterprise of all or part of the assets of another enterprise sufficient to control the activities of one or all of the businesses of the acquired enterprise. It is ambiguous whether the intended acquisition includes a transfer of shares among shareholders or if the demerger is considered to be the regulated acquisition.
Finally, the Competition Law is not clear regarding whether it is applicable to horizontal or vertical transactions, though its wording implies the regulation of horizontal ones only. Consequently, it is questionable whether or not the Competition Law is applicable to M&A between an offshore company and a distribution company in Vietnam.