MERGER CONTROL IN THE u s AND POINTERS FOR VIETNAM

MINISTRY OF EDUCATION AND TRAINING HCMC UNIVERSITY OF LAW -*** -MANAGING BOARD OF SPECIAL TRAINING PROGRAM VÕ THỊ MINH THƯ MERGER CONTROL IN THE U.S AND POINTERS FOR VIETNAM BACHELOR OF LAW – GRADUATION THESIS Commercial Law Deputy Academic Year: 2013 - 2017 HO CHI MINH CITY YEAR 2017 MINISTRY OF EDUCATION AND TRAINING HCMC UNIVERSITY OF LAW -*** -MANAGING BOARD OF SPECIAL TRAINING PROGRAM VÕ THỊ MINH THƯ MERGER CONTROL IN THE U.S AND POINTERS FOR VIETNAM BACHELOR OF LAW – GRADUATION THESIS Commercial Law Deputy Academic Year: 2013 – 2017 SUPERVISOR: DR HA THI THANH BINH STUDENT: VO THI MINH THU ID NO.: 1353801011233 CLASS: CLC38B HO CHI MINH CITY YEAR 2017 ACKNOWLEDGMENT Firstly, I would like to express my sincere gratitude for Dr Ha Thi Thanh Binh for the continuous support towards my thesis work Her dedication, patience and immense knowledge helped me complete this thesis in the best way possible Besides my supervisor, I would like to thank Lecturer Pham Hoai Huan for his insightful comments and encouragement Without his initial guidance when I first took the thesis, I would not have found the topic so compelling and make an incredible work till now My last respectful thanks goes to my family and my beloved ones who provided me though moral and emotional support in my life This has been a great journey for me and I am gratefully indebted to your support DECLARATION I hereby declare that this thesis is my own research under the supervisory guidance of Dr Ha Thi Thanh Binh All of the information other than my opinions to be used or quoted has been acknowledged by means of complete references I would take full accountability for my protest Ho Chi Minh City, 18th July, 2017 Võ Thị Minh Thư LIST OF ABBREVIATIONS Decree 116 Decree No 116/2005/ND-CP detailing the implementation of a number of articles of the Competition law DOJ Department Of Justice Draft Law The preliminary Vietnam Competition law draft (2nd draft) FTC Federal Trade Commission HHI The Herfindahl-Hirschman Index HMT Hypothetical Monopolist Test HSR Act Hart-Scott-Rodino Antitrust Improvements Act OECD The Organization for Economic Co-operation and Development SSNIP Small but Significant and Non-transitory Increase in Price The Guidelines 1984 The 1984 Merger Guidelines The Agencies The DOJ and FTC The Guidelines The 2010 Horizontal Merger Guidelines The ICN The International Competition Network U.S United States UPP Upward pricing pressure VCA Vietnam Competition Authority VCL The 2004 Vietnam Competition Law No 27/2004/QH11 TABLE OF CONTENTS LIST OF ABBREVIATIONS INTRODUCTION CHAPTER 1: TYPES OF MERGER UNDER U.S ANTITRUST LAW AND POINTERS FOR VIETNAM 1.1 Types of merger under the regime antitrust law in the U.S and Vietnam 1.1.1 Types of merger under U.S Antitrust law 1.1.2 Types of economic concentration under Vietnam Competition Law 11 1.2 Shortcomings of Vietnam economic concentration regime 12 1.3 Experiences from U.S Antitrust law and pointers for Vietnam 14 CHAPTER 2: MERGER CONTROL MECHANISM UNDER U.S ANTITRUST LAW AND POINTERS FOR VIETNAM 18 2.1 Statutory notification thresholds 18 2.1.1 Pre-merger notification thresholds under U.S Antitrust law 19 2.1.2 Shortcoming of Vietnam economic concentration regime regarding premerger notification thresholds 19 2.1.3Pointers for Vietnam 20 2.2 Criteria for prohibition 23 2.2.1 Competitive effects analysis under U.S Antitrust law 23 2.2.2 Shortcomings of Vietnam economic concentration regime regarding criteria for prohibition 40 2.2.3 Pointers for Vietnam 43 CONCLUSION 50 BIBLIOGRAPHY INTRODUCTION The necessity of the research In the current climate of globalization where the economy is in a constant state of flux, businesses are seeking to stay competitive by means of expansion and trade One particularly effective way to so is through merger - a transaction that brings about change in control of different business entities1 Merger is a vital part of any healthy economy and importantly, the primary way that companies are able to provide returns to owners and investors2 In fact, worldwide mergers have been growing in volume and value, hitting US$3.7 trillion in 2016 and third largest annual period for deal makings since recorded in 19803 The United States (hereinafter “the U.S”) dominated the top 100 deals, accounting for 54 in terms of target and 45 in terms of bidder4, proving itself to be the most sought after location for merger deals One significant culprit to explain why investors favor the U.S is its long-standing antitrust regime (started in the XIX-XX century) which is in an endeavour to support the flow of transactions, keeping the environment highly competitive With regards to the U.S antitrust regime, the three main laws are the Sherman Act and the Clayton Act, which outlaw monopolies, and the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (hereinafter “HSR Act”) The HSR Act requires the parties to a proposed acquisition transaction to furnish certain information about themselves and the deal to the Antitrust Division of the Department of Justice In a broad sense, mergers and acquisitions (or takeovers) are very similar corporate actions – they combine two initially separate firms into a single legal entity In a more specific sense, an acquisition is the generic term used for describe a transfer of ownership (the process by which the stock or asset of a corporation come to be owned by a buyer) whereas a merger is a narrow, technical term for a particular legal procedure that may or may not follow an acquisition As distinct from a merger, an acquisition does not necessarily entail amalgamation or consolidation of the firms In the U.S, mergers and acquisitions are regulated by both (i) federal statutory law and (ii) state statutory law According to such law, there is barely any different definition between “merger” and “acquisition” Therefore, in this thesis, the author will use the term “merger” in general for “mergers and acquisitions” For detail see Stanley Foster Reed, Alexandra Reed Lajoux, H Peter Nesvold (2007), The Art of M&A A Merger/Acquisition/Buyout Guide, 4th Edition, Mc-Graw-Hill, p and Simon Robison Editor, 2012, The Mergers and Acquisitions Review, 6th Edition, Law Business Research, p 702 Mergers regulated by Vietnam Competition law is otherwise under another definition as “economic concentration” see Section 1.1.2 below Andrew J Sherman and Milledge A Hart, 2006, Mergers and Acquisitions from A to Z, 2th Edition, Amacom, p.1 Andrew Kelly, 2016, Mergers and Acquisition Review Full Year 2016, Financial Advisors, Thomson Reuters, p.1 KPMG, 2017, 2017 M&A Predictor, KPMG International, p.4 1 (hereinafter “DOJ”) and to the Federal Trade Commission (hereinafter “FTC”)5 As recorded during its 100 years’ time of antitrust history, the U.S had undoubtedly experienced the toughest and most vigorous enforced antitrust law in the world, which has thrown new light on the worldwide competition regime and that of Vietnam is no exception Since the Doi Moi reforms in 1986, Vietnam has achieved enormous growth in its pursue of the socialist-oriented market economy with in-depth global integration With the advantage of abundant and quality labor force with competitive costs; favorable geographic location in trade with the world; and the stable security and political situation, Vietnam has been attracting foreign investment since 2000, thus making it a dynamic environment for merger activities Moreover, the process of globalization in Vietnam started in 2007 with its participation in WTO, followed by a chain of 16 free trade agreements signed with countries6 has proven that Vietnam is opening up the door for global integration Therefore, Vietnam now faces a challenge of building a strong legal framework to form and maintain a fair competition environment for all businesses, especially in the context when the Competition law has been enforced 12 years with many shortcomings to catch up with the current pace Ever since the promulgation of the Vietnam Competition Law (hereinafter “VCL”) in 2004 till the end of 2016, the Vietnam Competition Authority (hereinafter “VCA”) had processed 32 economic concentration notification dossiers and consulted 50 cases of economic concentrations7 The current VCL has shown inevitable drawbacks with lack of updated regulations on practices in restraint of competition or the position and model of the competition agency, which lead to the ineffective and lengthy competition process In particular, the regulations on economic concentration control does not allow the VCA to exercise their authority towards the transaction by evaluating the potential competitive effects; besides, the current criteria for mandatory notifications thresholds and prohibition is out-of-date and needs further amendments with the modern economy Alexandra Reed Lajoux, Charles M.Elso (2010), The Art of M&A Due Diligence Navigating Critical Steps and Uncovering Crucial Data, 2nd Edition, Mc-Graw Hill, p 238 Tu Hoang, “Vietnam involved in 16 FTAs”, http://english.thesaigontimes.vn/51556/Vietnam-involved-in-16FTAs.html (last retrieved on 01/07/2017) Vietnam Competition Authority (2017), “Explanatory report on some amendments and supplements in the Draft Competition Law”, p [TRANS: Cục Quản lý cạnh tranh, “Báo cáo giải trình thuyết minh v/v số nội dung sửa đổi, bổ sung Dự thảo Luật Cạnh tranh (sửa đổi)”, tr.2] In realization with the current situation, the Vietnamese government is drafting amendments to the VCL (hereinafter “Draft Law”) and is expecting to adopt it in May 20188 It is fundamental for the Vietnamese lawmakers to learn from the experiences of the U.S antitrust laws - world-leading competition regime – to create the most suitable competition law for the Vietnamese socio-economic situation Hence, a thorough analysis and synthesis of the U.S Antitrust law highlights in comparison with the current VCL shortcomings would give some hints to how the new VCL should be adopted On the aforementioned base, the author chooses “Merger control in the U.S and pointers for Vietnam” as a bachelor of law thesis Literature review: There are various books, researches and studies regarding mergers The HCMC University of Law’s library let alone has just over 20 materials about mergers, however, these materials mostly cover information concerning legal corridor or the economic perspective of mergers When it comes to mergers under the regime of competition law and, more specifically, the economic concentration regime under Vietnamese law, there have been a few studies, thesis and books on these matters Hereby are the most remarkable works:  Phạm Trí Hùng (2012), “Khung pháp lý điều tiết sáp nhập, mua lại doanh nghiệp Việt Nam” (Legal framework governing M&A in Vietnam): this article covers general competition regulations including a limited reference to the U.S merger control regime  Cao Thị Hoàng Oanh (2012), “Kiểm soát tập trung kinh tế theo pháp luật cạnh tranh Việt Nam Hoa Kỳ” (Economic concentration regime under Vietnam and U.S law): this thesis is outstanding with Ms Oanh’s overall viewpoints on the difference between the U.S and Vietnam competition regime, however the thesis deemphasizes the competition effects analysis process which is a highlight in the U.S antitrust system  Lê Hoàng Thanh Trường (2014), “Pháp luật cạnh tranh kiểm soát mua lại sát nhập (M&A) so sánh pháp luật Việt Nam Hoa Kỳ” (Competition law In the implementation of the National Assembly's Resolution No 22/2016 / QH14 of July 29 2016 on the new law drafting program, on April 2017, the Ministry of Industry and Trade issued the second Draft Law on Competition For details see Baker Mckenzie, “Draft of New Competition Law in Vietnam”, http://www.bakermckenzie.com/en/insight/publications/2017/04/draft-new-competition-law-of-vietnam/ (last retrieved on 01/07/2017) in controlling M&A – a comparative study between Vietnam and U.S law): this thesis demonstrates the general relation between mergers and acquisitions and competition regime with a focus on the U.S competition effects analysis process, thus suggesting remarks for Vietnam However, researches and studies on U.S merger control in relation to Vietnam economic concentration regime are still rare up till this time Most works focus on the overall differences between two systems with a considerable constraint of mention of realistic, rational and applicable pointers for the new Vietnam competition law Therefore, the author, with reference to the available resources and the Draft Law, will give a comprehensive look at the current situation thus giving practical suggestions for the new Vietnam Competition law Research objective: This thesis proposes to study and analyze specifically certain statutory provisions that contribute to the success of the U.S Antitrust system, thus giving hindsight and detailed remarks in order to amend the current Vietnam competition regulations With the newly updated law, Vietnam is expected to bring a level playing field for businesses as well as facilitating economic development and effectively allocating social resources Object and Scope of research Firstly, with regards to the object of research, this thesis looks into two most outstanding different blocks between the U.S Antitrust law and VCL, namely: (i) types of merger and (ii) the merger control mechanism The second chapter, in particular, will address two other sub-objects, which are: (iii) the statutory notification thresholds and (iv) criteria for prohibition Secondly, concerning the scope of research, as limited by the time span and given the nature of the bachelor’s graduation thesis, this thesis mainly focuses on the types of merger and the merger control mechanism of the two legal systems as these are the most relevant and attention-needing matters relating to the current VCL Other sectors such as competition authority or the merger review process shall not be mentioned in this thesis The author wishes to come back one day to give a more detailed and comprehensive analysis on this subject Partial Acquisitions The 2010 Guidelines include a new section on how the Agencies will evaluate acquisitions of partial interests in competing firms The Agencies also review acquisitions of minority positions involving competing firms, besides complete and permanent merger, even if such minority positions not necessarily or completely eliminate competition between the parties to the transaction The Agencies will focus on whether the acquisition: (1) gives the acquirer the ability to influence the target company’s competitive conduct, (2) reduces the acquiring firm’s incentives to compete or (3) gives the acquirer access to the target’s competitively sensitive information137 2.1.1.2 Non-horizontal mergers138 In the areas of vertical and potential competition mergers, the U.S 1984 Guidelines offered a mix of five subjective and objective criteria to determine whether mergers that affect potential competition are harmful139 Despite the continuous revisions made to the 1992 Horizontal Merger Guidelines, the 1984 Guidelines did not attract much attention from the agencies, therefore has not been updated ever since The five basic steps to analyze the non-horizontal mergers are listed as follows, in which such distinctions between vertical and potential competition mergers not add anything substantial to the analysis First is the market definition Mergers that occur where the concentration in the incumbent firm’s market140 is below a HHI of 1800 are unlikely to be challenged, with the tendency of challenge increasing with increased concentration141 Second, if new entry into the acquiring firm's market can be accomplished by firms without any specific entry advantages, the merger is unlikely to be challenged142 Third, if the entry advantage ascribed to the acquiring firm (or another advantage of comparable importance) is also possessed by three or more other firms, the merger is unlikely to be challenged as these firms would likely to compete 137 U.S Department of Justice and Federal Trade Commission, Ibid (14), §13, p.33-34 The likely adverse competitive effects of non-horizontal mergers has been clearly discussed in Section 1.1.1.2, the below content will go through the technical tools that are adopted to analyse the merger 139 James Langenfield (2009), Non-horizontal merger Guidelines in the United States and the European Commission: Time for the United States to catch up?,http://www.georgemasonlawreview.org/wpcontent/uploads/2014/03/16-4_Langenfeld.pdf (last retrieved on 01/07/2017) 140 The concentration of the market where the non-potential entrant that is part of the merger competes before the merger 141 U.S Department of Justice (1984), Ibid (79), § 4.131 142 U.S Department of Justice (1984), Ibid (79), § 4.132 138 39 with the merged firm to restraint its market power143 Fourth, if the incumbent firm has a market share of 5% or less, the merger is unlikely to be challenged However, the merger is likely to be challenged if the incumbent firm has a market share of 20% or more144 Lastly, the Agencies will consider expected efficiencies in determining whether to challenge a potential competition merger145 2.2.2 Shortcomings of Vietnam economic concentration regime regarding criteria for prohibition Article 19 VCL states that economic concentrations prohibited if the combined market share is more than 50% unless exempted by the prime minister or the minister of industry and trade (minister), as the case may be An economic concentration can be exempted from prohibition if it is (1) considered to contribute to the nation’s socioeconomic development or technology advance or (2) is at risk of dissolution or bankruptcy146 In order to calculate the combined market share, the merging firms first need to determine the relevant market Generally, the determination of relevant market in VCL is consistent with the principles that are commonly employed by other countries: based on the evaluation of demand and supply substitutability The criteria for determining the relevant market in VCL are particularly specified in Decree No 116/2005/ND-CP (hereinafter “Decree 116”) The objective of defining the relevant market in a competition restriction case is to define a limitation to evaluate the substitution ability of products/services in a particular geographical area The first problem with the VCL is that the relationship between the relevant product market and geographic market is dialectical; therefore, they cannot be separated in the process of analyzing the relevant market147 Article 3(1) VCL, on the other hand, defines the relevant market as relevant market of products and relevant geographical market This accidentally sets apart these two markets, which are inseparable and distorts the nature of relevant market 143 U.S Department of Justice (1984), Ibid (79), § 4.133 U.S Department of Justice (1984), Ibid (79), § 4.134 145 Cognizable efficiencies include, but are not limited to, achieving economies of scale, better integration of production facilities, plant specialization, lower transportation costs, and similar efficiencies relating to specific manufacturing, servicing, or distribution operations of the merging firms The agency may also consider claimed efficiencies resulting from reductions in general selling, administrative, and overhead expenses, or that otherwise not relate to specific manufacturing, servicing, or distribution operations of the merging firms, although, as a practical matter, these types of efficiencies may be difficult to demonstrate For details see U.S Department of Justice (1984), Ibid (79), § 3.5 146 Article 19 VCL 147 Vietnam Competition Authority, “A brief review report – Vietnam Competition Legislation”, Hanoi, p 11 144 40 definition Defining relevant market is not a simple summation of relevant market of products and relevant geographical market but it is a process of evaluating the interchangeable ability of a specific product in a specific geographical area bilaterally Second, according to Article 4(1) Decree 116, the substitution capability of products/services is considered in terms of “characteristics, purpose of use and price” However, Decree 116 did not include the interchangeability of a service because apparently from the regulations of Article 4(5)(a): “similar physic, chemical characteristics, technical properties, side effects on users and absorbability”, it does not comprehensively cover the interchangeability of a service Moreover, a product is deemed substitutable for one another only if it meets the three criteria laid in the VCL This could lead to an inaccurate reflection of the real competition context For example a product may have multiple purpose of use, and the determination of such purpose immensely depends on the subjective opinion of the competition authority The relevant product/service market therefore would be defined in a narrower way which would make that product/service the monopoly/dominant enterprise in the relevant market Third, as regards the substitution in terms of price, Article 4(5)(c) Decree 116 states that: Products or services shall be regarded as interchangeable in price if, in case of an increase of over 10% in the prices of such products or services which is maintained for six consecutive months, over 50% of a random sample of 1,000 consumers living in a relevant geographical area switch or intend to buy other products or services with the characteristics or intended use similar to products or services which they are using or intend to use This can be regarded as a simple form of SSNIP test, which is widely adoptedworldwide by competition authorities However, the above regulation, requiring that an increase of 10% in price and a “50% of a random sample”, shown inevitable shortcomings as being inflexible and too rigid because with 10% increase in price, there are high chances that more than 50% of the customers will stop buying that product/service148 The U.S Antitrust employs a more flexible approach which allows Vietnam Competition Authority – Ministry of Industry and Trade (2012), “Vietnam Economic Concentration Report 2012”, Ha Noi, p 60 [TRANS: Cục Quản lý cạnh tranh – Bộ Công Thương (2012), “Báo cáo tập trung kinh tế Việt Nam năm 2012”, Hà Nội, trang 60] 148 41 the Agencies to use an amplitude from 5% to 10% on price increase depending on the nature of each case The strict regulation of Article 4(5)(c) VCL commonly leads to the result that the relevant market is defined as the market of that product/service, or can be understood that the enterprise, which is being investigated, is the monopoly in the relevant market In many cases, this does not reflect the real market competition properly After the determination of the relevant market, VCL employs the market-based criteria to analyze a case for prohibition As discussed above, it is difficult for firms to determine their “combined market share” Besides, Article 18 VCL principally only bars transaction with the combined market share reaching more than 50%, therefore, any case with a lower market share than 50% will not be abandoned In other words, notification process is simply a redefining process to precisely re-determine the combined market share of the merging firms, not a process to analyze the competitive effects of the merger This approach leads to numerous shortcomings as a competitive effect analysis of a merger does not only look whether adverse competitive effects have already resulted from the merger, but also whether such effects are likely to arise in the future The statistic of market share only represents the firm’s competitive ability in the past and presence, while the market is changing constantly leading to the fluctuation of its participants’ shares Therefore, in many cases, the current combined market share of the merging firms falls within 50% as prohibited by the VCL, but after the merger, this number can go up beyond the thresholds Besides, a fixed threshold of 50% does not effectively reflect the current trend of the market since a recent survey shows that most economic concentration has up to 30% combined share on the relevant market 149 In short, the “combined market share” criterion is insufficient to prove a firm’s competitive ability in the near future of an economic concentration The VCL also provides direct regulations on exemptions for economic concentrations prohibited by Article 18, such as the case where one or more of the participants in economic concentration is/are in danger of dissolution or bankruptcy; the economic concentration has an effect of expanding export or contributing to socioeconomic development, technical and technological advance150 The waiver mechanism is indeed, to the author’s points of view, necessary as certain economic concentrations 149 150 Vietnam Competition Authority – Ministry of Industry and Trade (2012), Ibid (148), p 51 Article 19 VCL 42 bring tremendous benefits to the economy However, the over-detailed regulations of exemptionunintentionally omit other cases where economic concentrations bring actual efficiencies The U.S Antitrust law does not specifically list out exemption cases; instead, the Agencies base on the “Rule of Reason” principle to evaluate the competitive effects of a merger151, which ensures a balance between the listing method and the reasonable approach in terms of economics 2.2.3 Pointers for Vietnam The Draft Law has made substantially different approach to the prohibition of economic concentration, which is the shift from the mono-criteria of combine market share to a comprehensive set of criteria152 With the above analysis of the U.S Antitrust system, the author hence recommends the following regarding prohibition criteria: First, the market definition is not an end in itself, but is rather an exercise designed to determine competitive effects of an economic concentration by identifying which good/service in which geographic locations significantly constrain the competitive behavior of the merging firms With the current regulation of a simple SSNIP test, instead of using a fixed amount of “10% increase in price” and “over 50% of random sample of 1000 customers”, it is suggested that a benchmark of price increase between 5% and 10% lasting for the foreseeable future (commonly six months or one year) would be more appropriate Competition authority should also consider not only whether products are functional substitutes, but also whether they are good economic substitutes for sufficient numbers of customers in order to make a SSNIP unprofitable The ICN suggests that in considering the likely reaction of customers to a price increase, competition authority should evaluate the available evidence relating to the likelihood of product substitution by customers in response to a SSNIP Relevant evidence often includes, but is not limited to: • The characteristics, prices, functions, and customer usage of the product(s) in evaluation; • Evidence that customers have shifted or have considered shifting purchases between products in response to relative changes in price or other 151 Vietnam Competition Authority, Ibid (73), p.39 Article 29 Draft Law The set of criteria includes: (1) market structure and market concentration; (2) the ability to substantially lessen competition; and (3) the procompetitive effects of economic concentration on the market 152 43 competitive variables In some cases, competition authority may be able to derive such evidence from empirical analysis of quantitative data, such as through calculation of own price or cross price elasticities of demand; • The margins between price and marginal or incremental cost, as higher margins as a fraction of price may imply that consumers are less price sensitive; • Evidence that sellers base business decisions on the prospect of buyer substitution between products in response to relative changes in price or other competitive variables; • Evidence regarding the strength and nature of customer preferences among products (for example, brand loyalty, preferences for certain product performance or compatibility standards, etc.); and • The time and costs required to switch products, as high switching costs relative to the value of a product tend to make substitution less likely.153 Such a range of numerous criteria for the determination of product market will allow the competition authority to effectively recognize possibility of competition concerns of the economic concentration, then proceed deeper analysis The same principle shall be made to the geographic market definition, where the competition authority identify an area in which a hypothetical profit-maximizing monopolist would impose profitably at least a SSNIP, assuming the terms of sale of all products at all other locations were held constant154 Moreover, the experience from the U.S Antitrust regime shows that certain groups of customers are more likely to be harmed than others155 by an economic concentration If a hypothetical monopolist would price differently to different groups of customers (or to customers in different locations), competition authority should evaluate the likely demand responses of each such buyer group If a hypothetical monopolist would exercise market power only, or especially, in sales to a targeted group of customers (or customers in certain areas), competition authority may delineate a relevant product market consisting of a particular use by groups of customers of the product (or a relevant geographic market consisting of International Competition Network (2017), “ICN Recommended Practices for Merger Analysis”, http://www.internationalcompetitionnetwork.org/uploads/library/doc1107.pdf (last retrieved on 01/07/2017) 154 International Competition Network (2017), Ibid (153) 155 See Targeted Customer and Price Discrimination, Section 2.2.1.1 153 44 specific locations of customers), for which a hypothetical monopolist would profitably impose at least a SSNIP156 Second, although a market shareplays a vital role in competitive effect analysis, it should not be a decisive condition forrestriction of business concentration Competition authorities across the global recognize the use of the HHI test in order to estimate the market concentration, thus helps identify economic concentrations that are more likely to have adverse competitive effects Therefore, a study in economic theory with empirical evidence of the Vietnamese’s socio-economic development should be taken into account while building a suitable HHI framework Third, relating to the three criteria set out in Article 29 Draft Law for competitive effect analysis, the author suggests omitting the (1) “market structure and market concentration”, and keeping the remaining two According to the U.S Antitrust experience, in order for a firm to exercise its market power to harm competition, first it needs to have substantial market share and the market should be highly concentrated Therefore, the definition of market structure and market concentration play an important part of the adverse competitive effect analysis, since they provide an indication of a firm’s incentives to coordinate its actions with rivals and its ability unilaterally to exercise market power Thus, it should only be used as a tool to assist in determining whether the economic concentration can substantially lessen the competition Moreover, a comprehensive analysis to seek for evidence of both pro and anticompetitive effects in an economic concentration is the most difficult task among all In conducting competitive effects analysis, competition authority should consider whether an economic concentration likely will result in anticompetitive unilateral or coordinated effects, and such analysis of either the unilateral or coordinated effects framework should be clearly grounded in both sound economics and the facts of the particular case157 Regarding unilateral effects, competition authority should assess whether the economic concentration is likely to harm competition significantly by creating or enhancing the merged firm’s ability or incentives to exercise market power independently In this case, the authority should put more weight on HHI test which 156 157 International Competition Network (2017), Ibid (153) International Competition Network , Ibid (153) 45 examines specific features of the market that can affect the merged firm’s behaviour From the experience of the U.S Antitrust regime, in assessing the unilateral effects of an economic concentration, the authority should apply the economic theory and model that best suits the case at hand Specifically, there are different models that an economic concentration can take place including, but not limited to: • Economic concentration to monopoly: this is a combination the only two rivals in a properly defined relevant market In examining a combining the only two rivals in a relevant market, the authority should assess whether any competitive constraints exist, such as ease of entry, which would preclude the unilateral exercise of market power by the merged firm • Economic concentration of competitors in differentiated product markets: this is a combination of competing suppliers of differentiated products that may raise the potential for significant anticompetitive unilateral effects if a sufficient proportion of consumers view the products combined by the economic concentration as their first and second choices (or closest substitutes) The authority should assess whether the economic concentration would allow the merged firm profitably to increase price on one or more products after the economic concentration, or whether sufficient customers would switch to products of other competitors so as to render such a price increase unprofitable for the merged firm • Economic concentration of competitors in undifferentiated product markets: In examining an economic concentrationthat would combine competing suppliers of undifferentiated products158 in markets in which firms are distinguished primarily by capacity, competition authority should consider whether the merged firm would find it profitable to raise price by reducing output below the level that would have prevailed absent the economic concentration The exercise of market power in such markets is probable only if competitors of the merged firm likely would not respond to the price increase and output reduction by the merged firm with increases in their own outputs sufficient in the aggregate to make the unilateral action of the merged firm unprofitable This may occur if non-merging firms face binding capacity constraints that could not be economically relaxed in a timely manner, or if existing excess capacity is significantly more costly to operate than capacity currently in use In Also called fungible products – products that are instrinsically identical (for example gasoline, milk, et.c) that can be easily substituted by products from other suppliers Such products complete only on the basis of price and availability, and require highlighted perceived differences to achieve differentiation 158 46 such cases, competitors may find it more profitable to raise price than expand output, resulting in additional anticompetitive unilateral effects159 • Economic concentration of rivals in bidding or auction markets: there are numerous forms of this type For example, some models focus on whether the economic concentration would combine the two lowest-cost bidders Other models focus on whether the economic concentration would result in a competitively significant reduction in the number of bidders The authority should determine the appropriate model on case-to-case basic Regarding the analysis for coordinated effects, competition authority should assess whether the economic concentration increases the likelihood that firms in the market will successfully coordinate their behaviour or strengthen existing coordination in a manner that harms competition significantly Specifically, in conducting coordinated effects analysis, the authority should assess whether the conditions that are generally necessary for successful coordination are present: (a) the ability to identify terms of coordination, (b) the ability to detect deviations from the terms of coordination, and (c) the ability to punish deviations that would undermine the coordinated interaction Factors that are often relevant in making this assessment include, but are not limited to: • Past behaviour of merging firms: the authority should consider information on the pre-economic concentration characteristics of the markets concerned, including the past behaviour of firms in assessing the likelihood of coordinated effects Evidence of past coordination is important and may prove that all three conditions for successful coordination are present if the relevant market characteristics have not changed appreciably or are not likely to so in the near future • Entry or expansion: the authority should also consider the actions of competitors not expected to participate in the coordination (“non-coordinating competitors”) and potential competitors, which may be sufficient in time, scope, and likelihood to jeopardise the outcome expected from coordination For instance, the existence of non-coordinating competitors with the ability to expand capacity to take sales from coordinating firms may deter or disrupt coordination The authority should 159 International Competition Network, Ibid (153) 47 therefore consider the existence and significance of barriers to entry and expansion into the relevant market(s) since low barriers to entry and expansion may render successful coordination unlikely or impossible Fourth, considering entry, competition authority should consider whether entry of other competitiors would deter or offset the likely anticompetitive effects of an economic concentration Competition agencies should focus on entry and/or expansion that would occur as a result of the post-transaction competitive situation as well as entry and expansion that is likely to take place independent of the economic concentration For the entry to effectively restrain the merged entity, the authority should consider whether entry would be: (a) timely; (b) likely; and, (c) sufficient in nature, scale and scope160 From the experience of the U.S Antitrust law, entry is considered (a) timely if an entrant can have a rapid impact in the relevant market that customers are not significantly harmed by the economic concentration; (b) likely if a potential entrant would be profitable, taking into consideration all costs, the likely output level and the likely price; and (c) sufficient if it would deter or counteract the competitive effects of concern Fifth, regarding efficiencies, it is important for the authority to put more weight on this procompetitive analysis The general objective of the VCL is said to (i) maintain a fair competition environment, (ii) protect the customers’ rights and (iii) enhance Vietnamese enterprises’ competitive abilities in the global integration era161 Among the three, the last objective is one of the most prerequisite priority of Vietnam in the upcoming years to promote the economy Therefore, a comprehensive procompetitive effect analysis, together with the anticompetitive effect analysis, is indeed fundamental in assessing an economic concentration In assessing claims that an economic concentration will not harm competition significantly because it will produce efficiencies, competition authority should carefully review information provided by the merging parties on whether the claimed efficiencies are (a) case specific, (b) sufficient enough to counteract the potential harm of the proposed transaction (for example, by likely enhancing the merged firm’s ability and incentive to lower prices, increase 160 International Competition Network , Ibid (153) Pham Hoai Huan (2017), “Comments on the competitive effect analysis of the economic concentration”, Workshop for comments on the economic concentration regime in the Competition Draft law (amended) [TRANS: Phạm Hồi Huấn (2017), “Góp ý tiêu chí đánh giá tác động hạn chế cạnh tranh tập trung kinh tế”, Hội thảo lấy ý kiến đóng góp quy định kiểm soát tập trung kinh tế dự thảo Luật cạnh tranh (sửa đổi)] 161 48 quality, or otherwise compete in a way that is beneficial to consumers), and (c) properly substantiated.162 Lastly, concerning the failing and exiting assets, competition authority should consider claims by the merging parties that an economic concentration will not harm competition because the acquired firm and its assets would have exited the market absent the economic concentration in any event In such case, the authority should determine whether: (a) the firm is unable to meet its financial obligations in the imminent future; (b) there would be no serious prospect of reorganizing the business; (c) there would be no credible less anticompetitive alternative outcome than the economic concentration in question; and, (d) the firm and its assets would exit the market in the imminent future absent the economic concentration.163 Conclusion The study in Chapter points out the advancements in the U.S Antitrust law and concurrently demonstrating the shortcomings of the VCL, which showcases the urge for a suitable Vietnamese revised competition regime In addition to adopting the elite of such developed antitrust system, Vietnamese legislators also need to build a set of provisions in conformity with the context of Vietnamese economy, common practice and customs of doing business 162 163 International Competition Network, Ibid (153) International Competition Network, Ibid (153) 49 CONCLUSION By employing a comparative study between the U.S Antitrust law and the VCL, the author has made some distinctive comments on the pros and cons of each legal system With that said, the author briefs the most outstanding and valuable studies in this study: First, the VCL should expand its scope of governance towards (i) economic concentrationstaking place outside the territory of Vietnam but having substantial anticompetitive effects on the Vietnamese market and (ii) vertical and potential competition economic concentration Second, from the experience of the U.S Antitrust regime, it is essential to adoptmore objectively quantifiable criteria for notification thresholds and competitive effect analysis Specifically, for notification thresholds, the author suggests eliminating the “combined market share” base, and replace instead with the test on turnover and transaction’s size with relevant evidence that the parties have substantial profit-generating activities in Vietnam For the competitive effects analysis, the author suggests employing a comprehensive set of criteria to effectively identify and challenge anticompetitivelyeconomic concentrations while avoiding unnecessary interference with those that are either competitively beneficial or neutral This would include, but not limited to: market definition, unilateral/coordinated effect analysis, entry, efficiencies, failing and exiting assets With the view to give material remarks on the forthcoming revised VCL, the author hopes that her thesis “Merger control in U.S Antitrust law and pointers for Vietnam” could bring helpful insights for the amendment process as well as any in-depth study on this matter 50 BIBLIOGRAPHY A Legal documents Vietnamese regulations Law on Competition (Law No 27/2004/QH11) dated December 03, 2004 Decree No 116/2005/ND-CP of the Government dated September 15, 2005 detailing the implementation of a number of articles of the Competition law Decree No 71/2014/ND-CP of the Government dated July 21, 2014 regulations of Law on Competition on imposition of penalties for violations against Law on Competition Foreign regulations The 1992 U.S Horizontal Merger Guidelines dated April 2, 1992; revised April 8, 1997 The 2010 U.S Horizontal Merger Guidelines dated August 19, 2010 The 1984 U.S Merger Guidelines Commentary on the U.S Horizontal Merger Guidelines dated March The Hart-Scott-Rodino Antitrust Improvements Act of 1976 2006 B References Vietnamese Nguyen Huu Huyen (2017), Types of economic concentrations and control object, Workshop for comments on the economic concentration regime in the Competition Draft law (amended) [TRANS: Nguyễn Hữu Huyên (2017), Các hình thức tập trung kinh tế cần kiểm soát đối tượng kiểm soát, Hội thảo lấy ý kiến đóng góp quy định kiểm sốt tập trung kinh tế Dự thảo Luật cạnh tranh (sửa đổi)] 10 Nguyen Ngoc Son, “Comments on the economic concentration regime in the Competition Draft Law – Second Draft” [TRANS: NguyễnNgọcSơn, “Góp ý chế định tập trung kinh tế Dự thảo Luật Cạnh Tranh – Dự thảo 2”] 11 Pham Hoai Huan (2017), “Comments on the competitive effect analysis of the economic concentration”, Workshop for comments on the economic concentration regime in the Competition Draft law (amended) [TRANS: Phạm Hồi Huấn (2017), “Góp ý tiêu chí đánh giá tác động hạn chế cạnh tranh tập trung kinh tế”, Hội thảo lấy ý kiến đóng góp quy định kiểm soát tập trung kinh tế dự thảo Luật cạnh tranh (sửa đổi)] 12 Vietnam Competition Authority – Ministry of Industry and Trade (2012), “Vietnam Economic Concentration Report 2012”, Ha Noi [TRANS: Cục Quản lý cạnh tranh – Bộ Công Thương (2012), “Báo cáo tập trung kinh tế Việt Nam năm 2012”, Hà Nội] 13 Vietnam Competition Authority (2012), Economic Concentration Report, Ministry of Industry and Trade 14 Vietnam Competition Authority (2017), “Explanatory report on some amendments and supplements in the Draft Competition Law” [TRANS: Cục Quản lý cạnh tranh, “Báo cáo giải trình thuyết minh v/v số nội dung sửa đổi, bổ sung Dự thảo Luật Cạnh tranh (sửa đổi)”] 15 Vietnam Competition Authority, “A brief review report – Vietnam Competition Legislation”, Hanoi English 16 Alexandra Reed Lajoux, Charles M.Elso (2010), The Art of M&A Due Diligence Navigating Critical Steps and Uncovering Crucial Data, 2nd Edition, McGraw Hill 17 Andrew J Sherman and Milledge A Hart, 2006, Mergers and Acquisitions from A to Z, 2th Edition, Amacom 18 Andrew Kelly, 2016, Mergers and Acquisition Review Full Year 2016, Financial Advisors, Thomson Reuters 19 Carl Shapiro, “The 2010 Horizontal Merger Guidelines: from hedgehog to fox in forty years”, Antitrust Law Journal, Vol 77 20 Cristina Caffarra, Serge Moresi (2010), “Issues and Significance Beyond US Enforcement”, Mlex Magazine 21 Keith N Hylton (2010), Antitrust law and Economics Encyclopedia of law and economics, Edward Elgar Publishing Inc, U.S 22 KPMG, 2017, 2017 M&A Predictor, KPMG International 23 Robert J Carbaugh (2011), Contemporary Economics – An applications th approach, Edition, M.E Sharpe Inc 24 Simon Robison Editor, 2012, The Mergers and Acquisitions Review, 6th Edition, Law Business Research 25 Stanley Foster Reed, Alexandra Reed Lajoux, H Peter Nesvold (2007), The Art of M&A A Merger/Acquisition/Buyout Guide, 4th Edition, Mc-Graw-Hill 26 U.S Federal Trade Commission, Guide to Antitrust Laws, An FTC Guide to Mergers, Competitive Effects Internet references Vietnamese 27 28 29 http://english.thesaigontimes.vn/ http://www.bakermckenzie.com/ http://bizhub.vn 30 http://vietnamnews.vn 31 http://english.vietnamnet.vn English 32 http://epublications.bond.edu.au 33 https://www.weil.com 34 35 36 37 38 39 40 http://www.oecd.org http://www.latimes.com https://www.forbes.com http://money.cnn.com https://www.theverge.com http://www.wilmerhale.com https://www.sidley.com 41 42 43 44 45 46 http://www.natlawreview.com http://scholarship.law.georgetown.edu http://ec.europa.eu https://www.dealstreetasia.com https://www.ftc.gov https://www.justice.gov 47 48 49 50 51 52 http://www.oecd.org http://www.internationalcompetitionnetwork.org https://www.americanbar.org https://www.law.ox.ac.uk https://www.courtlistener.com http://www.georgemasonlawreview.org ... base, the author chooses ? ?Merger control in the U. S and pointers for Vietnam? ?? as a bachelor of law thesis Literature review: There are various books, researches and studies regarding mergers The. .. are functional substitutes, but also whether they are good economic substitutes for sufficient numbers of customers in order to make a SSNIP unprofitable The ICN suggests that in considering the. .. this thesis is laid out as follows: Chapter I: Types of merger under U. S Antitrust law and pointers for Vietnam Chapter II: Merger control mechanism under U. S Antitrust law and pointers for Vietnam