Greater Strength To Compete Better
Mergers and acquisitions are becoming popularas businesses look to strengthen competitiveness now that Vietnamis a
World Trade Organization member
By staff writers
Mergers and acquisitions are a form of direct investment where investors spend money
to acquire a company or merge their operations with existing businesses to boost their
competitiveness. This activity is expected to pick up strongly now that Vietnam is a World Trade
Organization member, as businesses merge to increase competitiveness.
It is accepted that many weak businesses will not survive the torrid times ahead and they should
end their existence with some grace by bowing to the inevitable and merging with stronger ones
or accept to be bought outright. In addition, many foreign investors may want to buy shares of
Vietnamese enterprises, while local businesses also have the need to sell part of their shares to
form partnership or ease the financial burden.
Definite trend
In recent years, acquisitions and mergers have been a mainstay of business news. Kinh Do Corp., a confectionery maker, has
acquired the Wall’s ice cream business from Unilever and a major stake in the soft drink company Tribeco. The Saigon Finance
Joint Stock Company has merged with a commercial joint stock bank in Danang to form Viet A Bank.
A noted case of acquisition recently was that of a foreign company by a local business. Donacorp in Dong Nai Province bought the
foreign-owned Cheerfield Vina for only US$1. Cheerfield Vina has invested US$3.6 million in producing shoe sole forms, but
incurred debt of VND34 billion (US$2.2 million) and faced bankruptcy after three years of operation. According to Pham Duc Binh,
Donacorp general director, the company studied the possibility of restoring Cheerfield Vina’s business and believes it can earn
some money after liquidating its debt and selling it.
Even foreign-invested enterprises in Vietnam have taken to merging. LG Electronics Vietnam and LG MECA Electronics have
merged to form a stronger company. National Panasonic has merged its two subsidiaries in Vietnam to form a single company for
better management and to meet the greater competition.
Merging and acquisition activities are often seen in the production sector due to the pressure to cut production costs. The principle
is that when a company can produce on a large scale, it is able to reduce production costs significantly. Banks can merge with each
other to increase their financial strength. Mergers in this sector are greatly expected in the near future.
According to the State Bank of Vietnam’s requirement, a commercial bank must have charter capital of at least VND1 trillion
(US64 million) by the end of 2007. Banks that fail to reach this level must be dissolved or merged. At present, more than 80% of
the commercial banks in Vietnam have capital below this level. Financial experts have forecast that about 20% of the banks will not

Monopoly and how to evaluate the company to be merged or acquired. Nguyen Ngoc Bich, a legal expert, says disputes may arise
when shareholders of the two parties disagree on the terms of merging or the price of shares.
Foreign investors engaged in merging and acquisition may face the problem of shareholding. In principle, the Investment Law does
not restrict foreign investors to invest directly in Vietnamese companies, except for those operating in conditional sectors. However,
at present, the current rule still restricts the capital contribution and share purchase by foreign investors at less than 30% of the
charter capital of an enterprise. The rule, contained in Decision 36/2003/QD-TTg on capital contribution and share purchase in
Vietnamese enterprises by foreign investors, is causing a bottleneck in the procedure for the transfer of enterprises. Lawyer Nguyen
Dinh Nha from the Vision law firm says the file for company acquisition by one of his clients is being held at the HCM City
Department of Planning and Investment on the grounds that there are no guidelines to make a decision.
Tran Trong Hieu, says a Singapore company is ready to spend US$75 million to buy a company that owns a real estate project in
Vinh Phuc Province but it does not seem to be able to get the necessary permission.
In some cases, foreign investors have to give funds to other people to buy the over-the-limit shares in the company they want to
acquire. This poses risks for the investors because the surrogate buyers may not want to continue to cooperate and disputes may
arise.
Authorities have pledged to amend this rule to comply with the Investment Law and Vietnam’s commitments to the WTO. The
Ministry of Planning and Investment’s study board for state enterprise reform and development is drafting regulations on business
acquisition, whose scope is expected to expand to foreign businesses. The regulations will also allow the acquisition of State-owned
enterprises with large capital, as long as they are not enterprises where the State must hold a stake and the enterprises are not in the
equitization category. The current rule allows the acquisition of SOEs with capital of less than VND5 billion.
Strong Player Plans New Moves
Kinh Do Corporation’s achievements during 2006 were capped by the State’s recognition of its success with the
presentation of the Labor Order, 3rd class, at a ceremony held at the Opera House in HCM City on December 30. Here,
the company’s management talks with the Weekly about its strategies for growth.
Kinh Do had an eventful year in 2006. What was best in the company’s performance?
Mr. Tran Kim Thanh, Kinh Do chairman: Business grew by 30% as in previous years,
but I think that the success is greater, as we have listed on the stock exchange, put into place
better management methods and gained good management experience.
The 30% growth rate is quite high for a business in the confectionery trade. Our sales reached
nearly VND2 trillion (US$125 million), with profit of VND230 billion (nearly US$14.4
million). We paid taxes totaling VND120 billion (US$7.5 million) and provided jobs for 6,000

we think now is the right time for investment. Vietnam has joined the WTO and many foreign businesses, especially multinationals,
will have a demand for offices. Many local businesses also want offices in the downtown to enhance their image. Meanwhile, the
supply is not enough to satisfy the demand, and office rents are rising. The same thing is happening in the housing and commercial
center sectors.
In addition, we have mobilized funds in the stock market. So, we must use the funds effectively to win the confidence of investors.
For the immediate future, we plan to open the eight-story commercial building of the Hung Vuong Plaza in the middle of this year.
Nearly all the space in the building has been leased by big tenants like Parkson and Megastar Media. The apartment section will be
completed this year, but 70% of apartments have been sold.
But surely it’s not easy to find locations and capital to develop these projects?
We have favorable conditions to invest in real estate. We have built up our Kinh Do brand into a prestigious name, so HCM City
authorities have confidence in our capacity and allocate big projects to us. Many banks and investment funds have also provided
capital for our projects. Some banks are ready to provide big loans for customers to buy apartments and houses in our projects. We
believe that we will fare as well in real estate as we have in food.
Some of Kinh Do’s subsidiaries will be merged this year. Can you give us details of this move?
We plan to list on the international stock exchange over the next two or three years, specifically on the Singapore Stock Exchange.
But to be eligible for listing we must have a large-scale operation. So, we will merge affiliated food companies to increase our
stature and attract the interest of international investors.
How will the merging be implemented?
This year we will merge North Kinh Do into Kinh Do Corp. Then we will merge food production subsidiaries. With this move, we
expect to become a leading food company in Vietnam and a big player in the business in Southeast Asia. We will try to reach a
capital level of trillions of dong by the time we list on the international exchange.
Kinh Do has also been active in acquiring other companies. What are the results and what is the plan for the future?
We have acquired Wall’s ice cream from Unilever and part of the soft drink company Tribeco. We have been successful in turning
the ice cream unit into a profitable business. As regards Tribeco, it’s a new acquisition, so no immediate result is available. We are
investing funds and technology to increase the production capacity of the company and diversify its products. We have also
restructured Tribeco to boost its competitiveness.
We will acquire some other food companies if we find good business opportunities. We will also increase alliances and partnerships
with local and foreign businesses to boost our strength.
Besides real estate and food, what future business areas are you interested in?
The financial market holds a great attraction for us.