Legal adjustment on the market of business mergers and acquisitions - International experience and practice in Vietnam - 2

INTRODUCTION

1. Reason for choosing the topic

The “mergers and acquisitions market” was formed and developed, after hundreds of years of transformation and improvement, today this market is no longer strange but has become one of the criteria to evaluate the level of development and economic potential of each country in the world. On the other hand, this is also a solution or tool to improve the business environment and create internal development strength of enterprises in international relations and domestic economy. From another perspective, the mergers and acquisitions market of a country is also a measure of the level of integration of that country with the world financial system in the context when the world financial system is becoming more and more closely connected.

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In Vietnam, in recent years, the mass media and even some Vietnamese legal documents have used the term "mergers and acquisitions" to refer to the concept of M&A (Merger and Acquisition). In addition, the potential opportunity to attract capital from the stock market along with the Law on Enterprises (LOE) and the Law on Investment (LOI) 2005 have really been a strong push to promote the equitization process of state-owned enterprises (SOEs) and the efforts to expand the business of the private sector, creating an abundant supply and demand of "commodities - companies" for financial and investment activities. On a more popular playing field and a more favorable legal framework, Vietnamese enterprises in all economic sectors have quickly become familiar with and used M&A as a strategic tool to develop or restructure their enterprises, to cope with the increasingly fierce competition in the market.

Along with the market economy, the merger and acquisition (M&A) market is a high-level market that has an impact on the national economy and constantly has a strong impact on global economic growth. In countries with developed industries, the M&A market is very large in scale and at a high level of development, forming a channel for capital mobilization and corporate restructuring to fuel economic development.

Through practical operations, the Vietnamese M&A market has proven its necessity and positive role in the process of creating and supplying capital to the economy. If compared with the experience of countries with long-standing M&A markets, the constant fluctuations of the M&A market are a positive sign but also contain many potential risks for the overall development of the economy. The young age of the Vietnamese M&A market is not enough to stand firm against "financial storms" .

On February 11, 2007, Vietnam officially became the 150th member of the world's largest trade organization, WTO. The Vietnamese economy in general and the M&A market in particular are entering a more open door to integration than ever before, putting Vietnam in front of significant challenges in the face of the influx of large, capital-rich and experienced financial institutions. Vietnam will have to find a way to encourage foreign investors to bring capital and experience to enrich the country while still having to take protective measures to reduce the risks that the negative aspects of foreign investment can bring.

For the above reasons, it is urgent to carefully study the development premises and timely operating guidelines, especially to carefully prepare a stable legal corridor, contributing to helping the Vietnamese M&A market.

Vietnam develops safely in the context of integration. The practice of law-making shows that, although parallel to the economic renovation process initiated in 1996, Vietnam also carried out legal reforms to suit the development of the economy with efforts to build and perfect the legal system, it can be frankly acknowledged that the level of law-making in Vietnam still has many limitations, especially in the ability to anticipate situations to come up with appropriate regulations.

With the challenges ahead of us in a period of multilateral and diverse development, what are the provisions of Vietnamese law and how are they applied to the M&A market? With this task, researching the Vietnamese M&A market in the context of becoming an official member of the World Trade Organization (WTO) is absolutely necessary. Therefore, the author has chosen the topic: " Legal adjustment of the market for business mergers and acquisitions: International experience and practice in Vietnam" as the topic for his graduation thesis with the hope of contributing a small part to the research work and further improving the country's legal system.

2. Purpose, objects and scope of the research topic

Purpose of the topic

The purpose of the thesis is to systematize and clarify the basic issues of M&A, lessons learned from the world and correctly assess the current situation of M&A in Vietnam. From there, some solutions can be proposed to promote and improve the legal framework and market for M&A activities in Vietnam.

- Analyze basic concepts of mergers and acquisitions and the M&A market as stipulated in legal documents, helping readers understand the nature of this special type of goods as well as their circulation methods.

- Experience in M&A control of some countries in the world, drawing lessons for the business merger and acquisition market in Vietnam.

- In the context of strong development of the economy in general, introduce and evaluate in general the formation and development of the M&A market, which is still very young in Vietnam, to give readers a more comprehensive, deeper and more solid view.

- Analyze the provisions of Vietnamese law and make some recommendations for the Vietnamese M&A market.

Research object and scope:

The M&A market is a relatively new concept, especially when it has entered the common playground of many economies in the world. Meanwhile, the legal basis to meet the operation of this activity currently still has many gaps, thus making the M&A market in Vietnam not develop to its full potential. At the same time, it also causes great difficulties for the subjects when participating in that activity. Therefore, the topic aims to contribute to building a legal framework and providing solutions to facilitate the promotion of M&A activities through analyzing the provisions of current laws on M&A and analyzing and synthesizing typical M&A cases that have taken place in the international and Vietnamese markets in recent times.

3. Research method:

The thesis is based on the theoretical foundation of Marxism-Leninism, Ho Chi Minh's thought on State and law, and at the same time applies the main thoughts of the Party and State on innovation of political and legal thinking, on judicial administrative reform and on sustainable development goals.

To carry out this topic, the author used dialectical materialism methodology and other specific methods such as economic analysis, information collection and synthesis, statistics, comparison, evaluation, and combination of theory and practice.

The thesis also uses documents compiled from domestic and foreign books and newspapers, and from reports of leading experts in related fields.

4. Thesis structure

With the issues raised above, in addition to the introduction, conclusion and list of references, the main content of the thesis is divided into 3 chapters:

Chapter I: Basic theoretical issues on the market of business mergers and acquisitions

Chapter II: Legal regulation of the market for business mergers and acquisitions in Vietnam.

Chapter III: Experience in the global mergers and acquisitions (M&A) market, lessons learned. Directions for improving the M&A market in Vietnam.

This is a general topic, requiring extensive knowledge, many references as well as a long research time. Although the author has tried his best, due to certain limitations in theory, knowledge as well as practical experience, this thesis certainly cannot avoid shortcomings and defects. The author is looking forward to receiving comments from teachers and students, those who are interested in this issue to make the thesis more complete.

To achieve the results as today, it is impossible without the enthusiastic help of teacher Associate Professor, Dr. Nguyen Trung Tin. The author would like to sincerely thank the teacher, who has wholeheartedly guided and created conditions to help the author complete this thesis.

CHAPTER 1

BASIC THEORETICAL ISSUES ON MERGERS AND ACQUISITIONS (M&A)

M&A (abbreviation of the English phrase "Mergers and Acquisitions" ) is used to refer to the activity of a business seeking to acquire all or a sufficient proportion of shares or assets of another business to be able to control all decisions of that business.

This ratio may vary according to specific provisions in the Enterprise Law of each country. For example, in Vietnam, this ratio is 75%, in case the Charter of the target company stipulates a lower rate (minimum 65%), that rate will apply[6]. After the transaction is completed, the target company will cease operations (be merged) or become a subsidiary of the acquiring company.

If the target company's brand is judged to still have value to maintain product market share, it can be retained as an independent brand (as in the case of BP's purchase of Castrol), or merged into a common brand, as in the case of the merger of two American oil companies, Exxon and Mobil, into Exxon–Mobil[23] in 1999.

The success or failure of M&A activities is of great importance to shareholders, creditors as well as other subjects in the relationship of business management, business practices in each country and business relations. Companies around the world have invested billions of dollars to carry out M&A transactions. The phrase "mergers and acquisitions" is a phrase that represents different activities such as company acquisitions and business mergers. However, these two activities also have some similarities. That is why these two words are linked together when spoken, causing confusion.

1.1. Business buying and selling activities

1.1.1. Concept

A company acquisition is the purchase of a company, called the target company, by another company. According to Clause 3 - Article 17 of the 2005 Law on Enterprises, "A company acquisition is a company that purchases all or part of another company enough to control or dominate all or one of the business lines of the acquired company" . For example: Company A acquires 51% of the capital of Company B - B does not cease operations, is still a legal entity under the provisions of law, and is present in the market but is under the control of A.

A corporate acquisition can be friendly or hostile.

A friendly merger is when two companies agree to enter into negotiations to combine. A hostile merger is when the target company (the company being acquired) is reluctant to let another company take control of its company or the company being acquired has no information about the acquisition.

Corporate acquisitions are usually a case of a larger company buying a smaller company. But sometimes a smaller company gains control of a larger or well-established company and retains that reputation. This is called a reverse takeover.

1.1.2. Forms of business trading activities

A business acquisition, in essence, is not an activity that results in the establishment of a new business but rather the formation of a new business to replace the old one. A business acquisition is when one company buys another company and the shares of the acquiring company remain on the market.

In the market, the acquired company may remain or disappear depending on the goals and wishes of the two parties involved in the acquisition.

Firstly, if we consider the nature of M&A transactions, we can divide M&A activities into 2 types:

Friendly business sale : this is a form of sale that takes place with the consent of both parties because both parties feel satisfied with the deal[2].

Hostile acquisition : This is an acquisition without the consent and cooperation of the senior managers of the acquired company. In this case, the acquiring company will use its financial resources to acquire another company, which can be more clearly understood as a takeover of the target company[2]. The goal of this transaction is that the acquiring company wants to eliminate competition from the target company.

Second, if we consider the form of implementation in buying and selling transactions, M&A activities also have 2 forms:

The company buys shares of the target company. This purchase will change the capital structure of the target company and in turn, the transfer will change the assets of the company. However, the acquired company still maintains its business activities, business form and the company must bear all the debts that occurred in the past, and all the risks that the company has to face in the business environment of the company. Thus, the shares of the acquired company still exist in the market.

The acquiring company will purchase some or all of the assets of the target company. In this form, the cash received by the target company from the acquisition will be distributed to the shareholders of the company in the form of cash returned or in the form of payment of the debts incurred by the target company. This is a form of transaction commonly done for