Healthy M&As

ANCO Joint Stock Company, a food and drink group of Vietnamese individual investors, in April 2007 announced it would buy a milk factory of Nestle in Ba Vi, Ha Tay province. ANCO will inherit the brand Nestle for two of its products, sterilised milk and yoghurt, within one year. After that, a new brand will appear, used for products made on the production line of Nestle.

On January 18, 2007, the Ministry of Finance approved a project establishing the Dai-ichi Vietnam Life Insurance Company, the first Japanese life insurance company licenced in Vietnam. This company is established after its parent company purchased stocks of the Bao Minh-CMG Life Insurance Company.

In early May 2007, VinaCapital financial company announced its investment of $21 million in the HCM City-based Omni Saigon Hotel, equivalent to 70% of the total capital of the hotel.

These are M&A cases that have drawn public attention recently.

Karl John, General Director of the TCK Group, who is living in Hanoi, wrote in the Asia Times: “The driving force for M&A activities in Vietnam recently is high economic growth, which averaged 7.5% from 2001-2005.”

Tran Duy Hung, Director of the First Asia Ltd., said that M&As were increasing in Vietnam because of many reasons. First of all, the need for selling and purchasing enterprises is increasing.

Secondly, the form of crossed investment among enterprises is more popular in the name “strategic partner”, which is actually one kind of economic concentration.

Thirdly, the trend of making multi-field business corporations is also a premise for M&A activities.

Vietnam currently has around 300,000 small- and medium-sized enterprises. Many of them ‘die’ each day while many new ones are established and this is considered a rich source of economic concentration.

While working with enterprises, Mr Hung sees many reasons that one enterprise wants to sell itself: business losses, the reduction of business advantages after some years of operation, lack of adaptability to the new environment, new business opportunities appear and they want to change the directions of investment, receiving attractive offers from buyers.

Conversely, many want to buy for different reasons, such as to expand their businesses, to set up new companies or to acquire their rivals. In principle, M&A is a good signal for the economy because through M&A, ineffectively operating enterprises can be raised and strong ones can expand their operations and in general, the source of investment of the whole society is used more effectively.

Too new

Mr Hung said that as M&A is very new in Vietnam, the rate of successful M&A cases is low.

“Sellers and buyers don’t know clearly about the procedures of M&A. Sellers don’t know when they should sell their businesses and to whom, while buyers are afraid of making wrong decisions in buying businesses,” Mr Hung said.

According to him, most clients that are small- and medium-sized enterprises using First Asia Ltd’s consulting services don’t know that M&A falls under the rules of the Competition Law.

In the aspect of management, there is a worry that economic concentration process can lead to the formation of corporations that can rule the market or monopolise the market.

Vietnam has a system of laws stipulating economic concentration activities. According to the Law on Competition, when companies that perform economic concentration activities have a combined market share of 3-50% of the related market, their legal representative must inform the competition management agency before implementing economic concentration activities. However, many enterprises don’t know about this.

The law also bans economic concentration activities if the combined market share of the companies performing those activities accounts for more than 50% of the related market, except for some special cases.

Some big M&A cases in 2006 in Vietnam according to PwC’s report:

- Asia Pacific Breweries Ltd (APB) based in Singapore, the owner of the Vietnam Brewery Ltd (VBL), expanded its production and sales network by buying 80% of the stocks of the VBL Quang Nam Co., Ltd, a joint venture with the Quang Nam Electric Construction Company. VBL Quang Nam has the total investment capital of $13.2 million and an annual production capacity of 25 million litres of beer. Its products are Tiger and Heineken beer.

- In December 2006, Citigroup Inc. signed a memorandum of understanding on the purchase of 10% of the shares of the East Asia Bank.

- Prudential bought the stocks of the GreenFeed (Vietnam) Co, Ltd. 65% of shares of the Giang Vo Company also belong to Prudential from Samsung Corp.