On 9 March 2020, Tesco Plc ("Tesco") announced the sale of its operations in Thailand and Malaysia to four entities under Charoen Pokphand Group, for US$10.6 billion. The announcement came three months after Tesco first announced a strategic review of its Asian operations. Central Group and TCC Group were reportedly shortlisted for the deal.
When approached in December 2019, the anti-monopoly Trade Competition Commission ("TCC") warned that the deal, which was expected to yield more than US$10 billion and may result in the successful bidder dominating half of the market, will be subject to TCC's prior approval.
In this article, we analyse how the merger control regime in Thailand, currently enshrined in the relatively new Trade Competition Act 2017 ("Act"), impacts the Thai aspect of the deal. Merger control is no stranger to the anti-competition landscape in Thailand. It evolved from what was originally Section 26 of the predecessor of the Act, i.e., Trade Competition Act 1999, to what is now Section 51 of the Act. Both provisions spell out the requirement for TCC's approval in respect of mergers that fall under prescribed characteristics. Despite being in place since 1999, merger control was not enforced by TCC under the 1999 Act because the sub-regulations required to give effect to the then merger control were never issued.
Having undergone significant development, the current merger control regime is more comprehensive. First, under Section 51(1) of the Act, TCC must be notified of mergers that could significantly reduce competition in a market within 7 days from the date of mergers. Second, mergers that could create a monopoly or a dominant player in a market would require TCC's prior approval under Section 51(2), except where these mergers are undertaken pursuant to an internal restructuring exercise.
A monopoly is legally defined as a single player, having the absolute discretion to determine the price and product and service offerings, dominates the market, and such market player has an annual revenue of THB 1 billion or more. Here, the deal does not meet the definition of a monopoly, rather, the issue is whether CP Group will be deemed to be a dominant market player. A market player will be deemed to have a dominant market position if it fulfills one of the two conditions below:
- It has a market share of 50% or more and an annual revenue of THB 1 billion or more.
- It is one of the top three market players whose aggregate market share is 75% or more, and each of such market player's annual revenue is THB 1 billion or more.
The question at hand is whether this deal will be subject to a post-merger notification or a pre-merger approval. Crucial to determination of this issue is how 'market' will be defined by TCC. Suffice it to say, a narrow definition which includes only a handful of market players, such as a 'hypermarket' market, would trigger the requirement for prior approval because CP Group will inevitably become a dominant market player regardless of its current market share.
In light of TCC's comments, we anticipate TCC to employ a narrow definition of 'market' that triggers the pre-merger approval. Consequently, CP Group must obtain TCC's approval before closing of the deal. Based on Tesco's announcement, the agreement entered into between Tesco and CP Group is conditional on Tesco's shareholders' approval and regulatory approvals in both jurisdictions. Once CP Group files an application for approval, TCC is given 90 days from the date of application to consider the granting of approval. If decision is not made within 90 days, TCC may extend such period to another 15 days. Under the Act, failure to seek TCC's approval would attract a fine of not more than 0.5% of the transaction value.
This deal, which is expected to top the chart of Asia's largest M&A deals this year, would undoubtedly come under heavy scrutiny by TCC. As of 9 March 2020, TCC has not provided further comments with respect to this deal.
Originally published March 15th, 2020
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
