Logistics deal catches attention of competition agency

September 04, 2020 | 14:17
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The logistics businesses involved in a proposed merger could face financial penalties if it turns out sufficient notification that was not offered prior to completion of the deal.
1507p14 logistics deal catches attention of competition agency
Logistics deal catches attention of competition agency - illustration photo/ Shutterstock

On August 18, the Vietnam Competition and Consumer Protection Authority (VCCA) requested that Indo Trans Logistics Corporation (ITL) and Southern Logistics JSC (STG) provide information concerning their acquisition deal. On the same day, ITL confirmed the successful completion of its acquisition of STG in a 97-per-cent takeover, officially merging the two businesses into one.

The company stated on its website that the merger will be “the perfect move to make a complete logistics ecosystem for ITL and an important milestone on our journey to conquer the region and continue to provide our customers and partners with integrated, diversified, and cost-optimised logistics solutions, contributing to bringing more value to Vietnam’s logistics industry.”

ITL will purchase 57.199 million shares of STG around 53.8 million shares, equivalent to nearly 55 per cent, were owned by ITL subsidiary Gelex Logistics Co., Ltd. Despite not having directly bought STG shares, ITL has engaged in a contract with Gelex Logistics to purchase 100 per cent shares of the latter. It is said that the VCCA also sent other relevant authorities to uncover whether the deal has been completed or not.

ITL, which has been provided with a financing package of $70 million by the International Finance Corporation, a member of the World Bank Group, said, “ITL is currently carry out diligence documents requested by the VCCA and will announce it later.” It added, “ITL understands the provisions of the laws and always complies with these regulations,” and refused to give further details on its strategy after the deal at the moment when it was touched by VIR’s question.

Reporting to the Business Registration Management Agency under the Ministry of Planning and Investment, Gelex Logistics said that its owner and legal representative had changed to Dang Doan Kien, vice president in charge of ITL’s Investment Division, from June 25.

Currently, STG is listed on the Ho Chi Minh City Stock Exchange with market capitalisation of VND1.803 trillion ($78.4 million). According to the stock price estimated at the end of August 17 session at VND18,350 (80 US cents), the transaction is expected to be worth more than VND1.78 trillion ($77.4 million).

In the information request letter, the VCCA also recommends related parties to comply with the provisions of articles 33 and 34 of the Law on Competition if the merger filing thresholds are met.

Merger filing is mandatory for a proposed merger with total assets in the Vietnamese market of the enterprise or group of affiliated enterprises was VND3 trillion ($130.43 million) or more in the financial year immediately preceding the year of the proposed implementation of economic concentration. The threshold is also triggered if total sales turnover or input purchase turnover in the Vietnamese market of the enterprise or group of affiliated enterprises is the same amount in the same situation. Besides that, mergers are also required to be filed if its value is VND1 trillion ($43.47 million) or more.

Though the Law on Competition does not prescribe what stage in the timetable the parties shall formally notify the transaction, a proposed merger must be notified before its completion. A fine of up to 5 per cent of each violator’s total turnover earned from the relevant market in the financial year preceding the incident may be imposed for the breach of filing responsibility.

However, the National Competition Commission – the legitimate institution with jurisdiction over merger control but has not yet been established – would need to launch an investigation into possible merger control infringement within three years of the date the alleged violation is committed. Therefore, it is more pressing than ever that the commission becomes operational and the new Vietnamese merger control regime gets off to a good start.

ITL is a premier regional solutions provider for integrated logistics, aviation services, warehousing, freight management, and distribution. In particular, ITL has been leading aviation services in the Indochina region, representing more than 22 airlines such as Thai Airways, Qatar Airways, Jetstar, AirFrance, Delta, and Vietnam Airlines and, pre-pandemic, was transporting goods on more than 300 flights every week with capacity of more than 150,000 tonnes of cargo per year.

The company also supports local companies to develop their business to international markets with integrated logistics services, including air, sea, rail, ground, multimodal transportation, and customs clearance.

Meanwhile, STG is a Vietnamese-based company engaged in the transportation industry with a warehouse system of more than 230,000 square metres located in the centre of Ho Chi Minh City and neighbouring areas and industrial zones bordering the Saigon River. This facilitates both road and water freight transportation, as STG provides freight forwarding services, as well as air, rail, water, road, and multimodal freight transportation services.

By Hoang Lam

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