Forms and conditions of buying a company

1. What is business acquisition?

Company acquisition, or business acquisition, is the process in which a company purchases a majority or the entirety of the assets or ownership of a target company to gain control over its operations.

Definition of buying a company

2. Forms of business acquisition

The business acquisition market typically involves 4 forms of business acquisition: Friendly Takeover, Hostile Takeover, Reverse Takeover, and Backflip Takeover. In this article, we will explore some of these types of business acquisitions.

a. Friendly Takeover:

A friendly takeover refers to business acquisition transactions that meet the criteria of "Agreeable to buy and sell." In these deals, both the buyer and the seller achieve their respective objectives and benefits. Specifically, the buyer sends a proposal to the Board of Directors/Board of Trustees of the target company. Subsequently, the target company assesses whether the benefits of the transaction truly align with their desired goals. If it is deemed suitable, the transaction proceeds successfully.

b. Hostile Takeover:

In stark contrast to a friendly takeover, a hostile takeover occurs when the target company does not agree with the intentions or proposals of the acquiring party. The Board of Directors/Board of Trustees of the target company completely rejects the demands and proposals made by the acquiring company. However, the acquiring party continues to pursue the deal until it is achieved.

The acquiring party when buying a company may take the following actions:

• Publicly announce a higher tender offer price for the target company, which is typically above the market price.
• Implement measures to intervene with each member of the Board of Directors/Board of Trustees, persuading them to agree. For those who disagree, they will seek ways to replace them with new individuals.
• Quietly acquire enough shares of the target company to influence the decision-making of the Board of Directors.

With this form, the acquiring party often faces various inherent risks, which may involve legal or financial issues of the target company.

Form of business acquisition

c. Reverse Takeover:

In the stock market, the term "Reverse Takeover" is equivalent to "Backdoor Listing." This term refers to a situation where a company that does not meet the listing requirements buys a company to gain control over a previously listed company. As a result, their company will naturally be listed on the market by changing the name of the stock. In simple terms, the buyer only sees the name of the acquired company, while the actual value of the stock represents the value of the previously unlisted company.

d. Backflip Takeover:

Lastly, we have the Backflip Takeover. In simple terms, this concept refers to the process where a company transforms itself into a subsidiary of the acquiring company. This type of buying a company is often employed when the target company has a better reputation than the acquiring company but is facing financial issues.

3. Conditions for buying a company:

To buy a company, participating companies must submit an economic concentration notification file to the National Competition Commission before buying a company if it falls within the threshold for economic concentration notification. The economic concentration threshold depends on the following four criteria:

• Total assets of the participating companies involved in the transaction in the Vietnamese market.
• Total revenue of the participating companies involved in the transaction in the Vietnamese market.
• Transaction value of the company acquisition process.
• Combined market share in the relevant markets of the acquiring company.

Conditions for buying a company

If the transaction does not fall within the economic concentration notification threshold, the business acquisition can be carried out according to the general provisions of the Enterprise Law regarding the purchase of shares or capital contributions of the enterprise.

Conclusion:

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