MBA Program 18th Intake (2009 – 2011) RESEARCH DISSERTATION “Merger and Acquisition of listed companies on Vietnamese Stock Exchange - Reality and Recommendation” Author: … Ha Noi, October TABLE OF CONTENTS ABBREVIATION .4 CHAPTER I: INTRODUCTION .5 1.1 Executive summary 1.2 An introduction of the research: 1.3 Rationale: 1.4 Objectives: .6 1.5 Research questions: 1.6 Scope of research .6 1.7 Methodology 1.8 Limitation of the research CHAPTER II: THEORETICAL BACKGROUND OF M&A 2.1 History of M&A and types of M&A .8 2.1.1 History of M&A 2.1.2 Types of M&A 2.2 Sample theory of M&A 10 2.3 General steps in M&A 13 2.3.1 Developing an Acquisition strategy 13 2.3.2 Choosing a target firm and valuing control, strategy 16 2.3.3 Structuring the Acquisition 19 2.3.4 Following up on the Acquisition 22 2.4 Advantages and Disadvantages of M&A for companies 23 2.4.1 Advantages .23 2.4.2 Disadvantage 24 2.5 Experience of M&A in the world 24 2.6 Role of the Investment Bank (IB) .25 CHAPTER III: M&A ACTIVITIES OF LISTED COMPANIES IN VIETNAM STOCK EXCHANGES: CURRENT SITUATION AND ANALYSIS 27 3.1 Steps and Process in M&A of listed companies in Vietnam Stock Exchanges for an acquirer 27 3.2 Case study analysis: 27 3.2.1 The merger deal of Mirae joint stock company and Mirae Fiber joint stock company 27 3.2.2 The merger between Ha Tien Cement Joint stock company and Ha Tien Cement Joint stock company .35 3.2.3 Roles of Securities Company in these above case of M&A 43 3.3 Limitations, Obstacles and Challenges 44 3.4 Causes and Reasons 46 CHAPTER IV: SOLUTION 48 4.1 For listed company .48 4.2 For Government agencies 48 4.3 For a securities company .48 CONCLUSION .50 REFERENCES 51 LIST OF TABLE .52 ABBREVIATION M&A: Merger and Acquisition BOD: Board of directors BOM: Board of managers DCF: Discounted cash flows IB: Investment bank SSC: State securities committee HNX: Ha Noi stock exchange HSX: Ho Chi Minh stock exchange VCSC: Viet Capital securities company KMR: Code of Mirae joint stock companies on HSX KMF: Code of Mirae Fiber joint stock companies on HNX HT1: Code of Ha Tien cement joint stock companies on HSX HT2: Code of Ha Tien cement joint stock companies on HSX Vicem: Vietnamese cement corporation ROC: Return on capital EBT: Earning before tax EBIT: Earning before interest and tax t: Tax ratio NKD: North Kinh Do joint stock company KDC: Kinh Do joint stock company HVG: Hung Vuong joint stock company AGF: An Giang sea food import and export joint stock company DVD: Vien Dong medical joint stock company DHT: Ha Tay medical joint stock company CHAPTER I: INTRODUCTION 1.1 Executive summary Thesis is a research of M&A activities on Vietnamese stock exchanges Listed companies which carried out M&A plan in 2009, 2010 are objectives of the research The research is not only the principals and experience from the foreign countries that Merger and Acquisition (M&A) activities happened for a long time ago, but also the facts of M&A activities on Vietnamese stock exchange Finally, the research dedicated some weak point that M&A activities on Vietnamese stock exchange such as:  The lack of experts in this sector;  The lack of experiences and training in both consulting companies (securities companies) and firms;  The lack of standard M&A procedure from government agency (State securities committee) In the opinion of a consultant (as me) and a securities companies (like my company – Agribank securities joint stock company), we need deeply understand M&A activities in stock exchange in order to encourage and expand these activities on the exchanges and financial market, which will create an dynamic and competitive economy in Vietnam now and near future 1.2 An introduction of the research: Every company has strategy to expand as large as possible because they can become a monopolist in market or take advantages of economy of scale to get more and more profit On the way to make the ambition come true, company must to invest more and more and M&A is one of methods that many recent companies use In Vietnam, after over 20 years open market and transfer to market economy, our GDP grows at high level than other ASEAN or ASIA countries High economic growth accompanies with more money for investment, there have been a lot of way to investment in Vietnam and M&A has been a newly, modern stream of investment in Vietnam The research would like to tell a story about M&A activity in Vietnam recently year and its trend in the near future 1.3 Rationale: In Vietnam, M&A activity appeared a long time ago but it has turn out to be popular recently and will be a boom in near future In recent years, there have been a lot of researches, forums and reports about M&A activities in Vietnam and Vietnamese stock exchange in particular, which express the importance of these actions for Vietnamese firms and the develop of Vietnamese economy On the other hand, my current job is a corporate financial consultant in a securities company, my desire is encouraging M&A consulting in my department in short-term and generate my Consultant Department act as Investment Banking Department or Market makers in long-term All of these reasons make appearance of this thesis to add more in researches of M&A activities Besides, it also develops my knowledge about M&A transactions both in principal and reality in Vietnam, which is the most important point 1.4 Objectives: The research will make an overview about M&A activity on Vietnamese stock exchange, find out the advantages and difficulties that firms face to Finally, the solution to firms will be seek to get benefits as much as possible wherever they want to operate M&A on Vietnamese stock exchange 1.5 Research questions: “How listed enterprises could take effective benefits from M&A on Vietnamese stock exchange?” 1.6 Scope of research In this research, I will concentrate only on M&A activity which was done by listed companies on Ho Chi Minh stock exchange and Ha Noi stock exchange in Vietnam, Merger and acquire among listed companies 1.7 Methodology 1.8 Limitation of the research Because of the limitation of time, knowledge and experience, the dissertation will focus only on some subjects that writer consider the main factors with listed company when operating M&A activity not for all company in Vietnam Thus, readers will be not seen the whole-view about M&A in Vietnam However, writer is looking forward from financial experts and persons who concern about this topic CHAPTER II: THEORETICAL BACKGROUND OF M&A 2.1 History of M&A and types of M&A 2.1.1 History of M&A M&A appeared earliest in United State of America in end of 19 th century Up to now, M&A has waves following: First Wave Mergers The first wave mergers commenced from 1897 to 1904 During this phase merger occurred between companies, which enjoyed monopoly over their lines of production like railroads, electricity etc… The first wave mergers that occurred during the aforesaid time period were mostly horizontal mergers that took place between heavy manufacturing industries End Of 1st Wave Merger Majority of the mergers that were conceived during the 1st phase ended in failure since they could not achieve the desired efficiency The failure was fuelled by the slowdown of the economy in 1903 followed by the stock market crash of 1904 The legal framework was not supportive either The Supreme Court passed the mandate that the anticompetitive mergers could be halted using the Sherman Act Second Wave Mergers The second wave mergers that took place from 1916 to 1929 focused on the mergers between oligopolies, rather than monopolies as in the previous phase The economic boom that followed the post World war I gave rise to these mergers Technological developments like the development of railroads and transportation by motor vehicles provided the necessary infrastructure for such mergers or acquisitions to take place The government policy encouraged firms to work in unison This policy was implemented in the 1920s The 2nd wave mergers that took place were mainly horizontal or conglomerate in nature The industries that went for merger during this phase were producers of primary metals, food products, petroleum products, transportation equipments and chemicals The investments banks played a pivotal role in facilitating the mergers and acquisitions End Of 2nd Wave Mergers The 2nd wave mergers ended with the stock market crash in 1929 and the great depression The tax relief that was provided inspired mergers in the 1940s Third Wave Mergers The mergers that took place during this period (1965-69) were mainly conglomerate mergers Mergers were inspired by high stock prices, interest rates and strict enforcement of antitrust laws The bidder firms in the 3rd wave merger were smaller than the Target Firm Mergers were financed from equities; the investment banks no longer played an important role End Of The 3rd Wave Merger The 3rd wave merger ended with the plan of the Attorney General to split conglomerates in 1968 It was also due to the poor performance of the conglomerates.Some mergers in the 1970s have set precedence The most prominent ones were the INCO-ESB merger; United Technologies and OTIS Elevator Merger are the merger between Colt Industries and Garlock Industries Fourth Wave Merger The 4th wave merger that started from 1981 and ended by 1989 was characterized by acquisition targets that wren much larger in size as compared to the 3rd wave mergers Mergers took place between the oil and gas industries, pharmaceutical industries, banking and airline industries Foreign takeovers became common with most of them being hostile takeovers The 4th Wave mergers ended with anti takeover laws, Financial Institutions Reform and the Gulf War Fifth Wave Merger The 5th Wave Merger (1992-2000) was inspired by globalization, stock market boom and deregulation The 5th Wave Merger took place mainly in the banking and telecommunications industries They were mostly equity financed rather than debt financed The mergers were driven long term rather than short term profit motives The 5th Wave Merger ended with the burst in the stock market bubble Hence we may conclude that the evolution of mergers and acquisitions has been long drawn Many economic factors have contributed its development There are several other factors that have impeded their growth As long as economic units of production exist mergers and acquisitions would continue for an ever-expanding economy 2.1.2 Types of M&A - Horizontal M&A: Occurring with two companies which compete directly and share the same market and the same product The result of this kind of M&A will bring to an acquirer the chance to spread market share, combine trade mark, reduce fix cost, enforce the efficiency of distribution channel…Obviously, when competitors cooperate they not only reduce opponent but also create a new strength to fire to other competitors - Vertical M&A: Occurring with firms in supply chains, for instance acquisition of firm and its supplier or its customer Vertical M&A is divided into group: (a) forward M&A, a company acquired his costumer, (b) backward M&A, a company acquired his supplier Vertical M&A makes an acquirer takes advantages of controlling and managing the quality of his and his competitors’ input or output - M&A to expand market: Applying to companies in the same industry but not the same geographic market - M&A to expand product: Applying to companies which produce different products but these products related in the same market - M&A to create groups and holdings: In this case, companies are not the same industry but they want to diversify their business into other business industries or areas 2.2 Sample theory of M&A Theory of strategy to avoid the overpayment trap in M&A The theory tells us to take proactive measures to avoid it are essential first steps It also provides specific strategies and techniques that we can use to avoid overpaying for a friendly acquisition Obviously, a buyer may overpay by miscalculating their relative negotiating position and offering a price that is significantly more than the amount a seller would accept In addition, a buyer may overpay when the price paid does not provide for an adequate return on investment There are two reasons that one buyer is willing to pay more than the other: (i) a buyer want the company because of the role the acquisition will play in fulfilling its strategic mission Such a buyer may pay a significant premium over Fair Market Value if they are under compulsion to act, unlike the hypothetical buyer in the definition of Fair Market Value who is not under a compulsion to act (ii) A given buyer may be better positioned to maximize returns from a particular acquisition Avoiding the overpayment traps involves for essential business arts: strategy, negotiation, due diligence and pricing These four arts must work together First, the art of strategy A company’s strategy is based upon its present position, where it is going and how it plans to get there The key question is “will the company’s strategy be best achieved through organic growth or by means of M&A?” Our growth objectives and strategy should define our acquisition The basic reasons for making an acquisition are to:  Leverage existing assets and capacity  Acquire needed or desired capacity 10 merged into HT1, some members of BOD would be changed, which effected to the votes of some employees of HT2 However, on 21st December 2009, HT2 reorganized General shareholders meeting to reapprove the merger plan In this meeting, there has been 77.29% stockholders agreed the decision, they accepted the rate of exchanged stocks, one stock of HT2 exchanged one stock of HT1 HT1 would issue new stocks to buy all 88 million shares of HT2 * Financial methods to value target company VCSC found out rate of exchange stocks by using estimated price through (1) Market price method (average 50 session price of HT1 and HT2 on Ho Chi Minh stock exchange to the date 3rd July 2009) (2) Discount free cash flows method VCSC calculated HT1 and HT2 stock price as following: Table 8: Stock price of HT1 and HT2 by two methods Methods HT1 (VND) HT2 (VND) Market price 19,099 17,989 Discount free cash flows 25,838 24,233 (Source: Prospectus of issuing new stock of HT1 in 2009) Basing on the stock price from Market price method and Discount free cash flow, VCSC measured the rate of exchange (stock price plus acquisition premium) A price that HT1 paid was more expensive than estimated HT2 stock price, the higher number was premium that HT2 stockholders received when the merger occurred From the successful M&A deal over the world and VCSC experiences, the consultant suggested the premium ranging from 0% to 20% Table 9: Exchange stock rate by Market price method HT2 stock price Premium 0.00% 5.00% 17,98 10.00% 15.00% 20.00% Stock price plus premium 17, 989 18, 889 19, 788 20, 688 21, 587 HT1 stock price 19,09 Exchange ratio 0.9 0.9 1.0 1.0 1.1 (Source: Prospectus of issuing new stock of HT1 in 2009) Table 10: Exchange stock rate by Discount free cash flows method 38 HT2 stock price Premium Stock price plus premium HT1 stock price Exchange ratio 24, 0.00% 233 5.00% 445 10.00% 656 0.9 25, 24,23 0.9 26, 25,83 1.0 27, 15.00% 869 20.00% 080 1.0 29, 1.1 (Source: Prospectus of issuing new stock of HT1 in 2009) According to above measurement, the exchange ratio 1:1 was accepted by both shareholders of HT1 and HT2 The ratio 1:1 means one stock of HT2 exchanged to one new issued stock of HT1 This ratio was decided on operation result of HT1 and HT2 from January to September 2009, forecasted operation result of two firms in 2009 and 2010, the market price of two to the date of making merger decision and the long-term benefit of all stockholders The detail measurement of stock price by Discount free cash flow method: Table 11: Measurement of HT1 stock price by DCF method Million VND Earning before tax (EBT) Interest Earning before interest and tax (EBIT) Tax ratio EBIT*(1-t) Depreciation Operating cash flows Minus: - Change in working capital - Change in invesment Free cash flows 2009 191,3 71 198,2 19 389,5 90 14.9% 331,5 41 134,9 51 466,4 92 2010 236,8 49 381,6 66 618,5 15 11.5% 547,3 86 407,6 21 955,0 07 Year 2011 331,3 63 420,3 53 751,7 16 19.9% 602,1 25 648,9 23 1,251,0 48 (62,03 8) (1,234,56 6) (830,11 2) 137,9 93 (5,401,01 0) (4,308,01 0) (93,09 7) (109,13 2) 1,048,8 19 2012 531,1 40 377,1 74 908,3 14 19.6% 730,2 84 658,4 19 1,388,7 03 (36,09 6) (112,34 7) 1,240,2 60 2013 63,811 24,806 88,617 25% 41,463 68,233 1,4 09,696 ( 23,001) (1 15,742) 1,2 70,953 39 Million VND Discount rate Year 2011 11.90% 767,4 06 Cash flows to equity Number of outstanding stocks 2013 12.34% 34,593 9,1 55,512 7,1 45,356 45,069 4,4 48,209 2,8 42,216 110,00 0,000 Stock price (VND/stock) 25,838 Cash flows NPV Cash flows NPV from 2013 to forever 2009 11.41% (765,38 1) 2010 12.62% (3,552,07 3) 2012 12.68% 805,2 99 Total firm value Plus: cash Minus: Debt (Source: Prospectus of issuing new stock of HT1 in 2009) Table 12: Measurement of HT2 stock price by DCF Million VND Earning before tax (EBT) Interest Earning before interest and tax (EBIT) Tax ratio EBIT*(1-t) Depreciation Operating cash flows Minus: - Change in working capital - Change in investment Free cash flows Discount rate Cash flows NPV Cash flows NPV from 2013 to forever Total firm value 2009 195, 155 46, 216 241, 371 17.0% 200, 338 204, 523 404, 861 2010 195, 166 127, 982 323, 148 16.3% 270, 475 248, 869 519, 344 (89,0 02) (834,8 64) (519,0 05) 12.62% (474,7 65) (7,6 45) (107,3 60) 404, 339 13.06% 327, 031 Year 2011 239,74 215,18 454,93 21.4% 357,57 413,04 770,62 (4,416 ) (3,755,157) (2,988,950) 12.17% (2,155,886) 2012 399,0 94 201,6 84 600,7 78 21.8% 469,8 08 612,1 44 1,081,9 52 (7,7 68) (189,03 1) 885,1 53 12.96% 565,1 48 2013 88,581 78,628 67,209 25% 00,407 29,868 1,1 30,275 (3,834) (1 96,956) 29,485 12.96% 68,904 5,1 27,520 3,8 57,952 40 Million VND 2009 2010 Year 2011 2012 Plus: cash 2013 Cash flows to equity Number of outstanding stocks 93,240 1,8 18,662 2,1 32,530 88,0 00,000 Stock price (VND/stock) 24,233 Minus: Debt (Source: Prospectus of issuing new stock of HT1 in 2009) * Document submitted to State securities committee HT1 and VCSC together prepared and submitted new issuing stocks document to State securities committee This is a compulsory procedure to allow a public company issuing new stocks As the merger of KMR and KMF, required documents of HT1 and HT2 as following: a) Prospectus of HT1 to explain the issuing new stocks b) Certificate of business registration (HT1 and HT2) c) Company charter (HT1 and HT2) d) Financial statement of two (2 recently years and last quarter) e) Curriculum Vitae of BOM and BOD of HT1 f) Commitment of non-violation Article 153 – Vietnamese corporation law about merger regulation (procedure of merger, non-monopoly….) g) Consulting contract (between HT1 and Viet Capital securities) h) Stock issuing registration i) Decision of BOM approved the issuing documents j) Decision of General shareholders meeting approved the merger plan (HT1 and HT2) k) Decision of BOM approved the merger plan (both firms) l) The merger contract was signed by HT1 and HT2 m) Draft of new company charter n) Commitment of non-violation foreigner’s own rate (foreigners are not allowed taking over 49% shares of a Joint stock company) * Issue new stocks to exchange with stock of HT1 41 On 10th March 2010, State securities committee provided Permission Note (number 530/UBCK/GCN) to allow HT1 to issue new 88 million stocks for the merger with HT2 In accordance with Vietnamese law, all stocks has already distributed to stockholders within ninety days * Listed additional stocks On 31st May 2010, Ho Chi Minh stock exchange accepted for HT1 to list 88 million new issued stocks on the stock exchange All these stocks were traded on Ho Chi Minh stock from 6th June 2010 Finally, after nine months from the first announcement, the merger of HT1 and HT2 was completed Company after M&A After merging, HT1 suggested business plan of 2010 as Gross margin 6,653 billion VND, Earning before tax 320 billion VND Comparing to business result of HT1 and HT2 in 2009, Gross margin would be higher but Earing before tax of in 2010 would be less than 11.07% To explain for this number, BOM of HT1 said that: First, HT1 would begin to repay for loan of project Binh Phuoc, Huu Phu in 2010, which would increase Sales then Gross margin; Second, cement would not allow increase sell price while all input price would increase In the fact of 2010, business result of HT1 as following Table 13: Business result of HT1 as following Plan %Done/pla n Items Unit Done Total sales Ton 6,050,00 4,249,50 70.2% Net margin Billion VND 6,653.58 4,739.83 71.2% Earning before tax, interest, depreciation and amortization Billion VND 1,353.29 694.91 51.3% Earning before tax Billion VND 320.26 153.94 48.1% Net income Billion VND 267.70 115.69 43.2% Dividend % 10% 5% (Source: Annual report HT1 in 2010) Real Net income 2010 was not as much as Target 2010 because of some following reasons: 42 - The supply of cement was excess the demand - The distribution system was not stable and unity after merging, its need more time to work well - New projects of HT1 were launched later than plan because these projects were under control of new managers after the merger which caused the late of running them - Threat of competition was higher than 2009 since many competitors suggested lower price and more attractive promotion - Input cost was more expensive so Cost of goods sold increased Quarter I, 2011 HT1 lost 56 billion VND because of financial cost was 240 billion VND (interest cost 202.05 billion VND) However, in Quarter II 2011, company had profit 56.49 billion VND but this number decrease 34% than the same period of 2010 3.2.3 Roles of Securities Company in these above case of M&A In two cases, the way they merged that an acquirer issued new stocks to exchange all stocks of a target company Thus, a securities company did as a consultant to carry out the merger to follow Vietnamese law In which, a consulting contract with a securities company is a compulsory requirement if one joint stock company issues stocks to over 100 investors The securities company will go with firms from the beginning to the end of the merger First, they consult the acquirer to approve the plan in the shareholder meeting This step is very important because it allows the merger to become true or not, in these cases, it must be 75% shareholders of buyer and seller accept Thus, the securities ought to be careful in (a) calculating stock price; (b) preparing documents of the shareholder meeting; (c) hearing reactions from shareholders of two firms, BOM and BOD of two, investors and market… in order to give to the merger plan which is accepted by enough shareholders Second, the securities company will help company to prepare all requiring documents to summit State securities committee This step confirms issuing stocks be legal or not By own relationship with State securities committee and experiences, the securities company is a bridge between firms and government agency to ensure the issuance will be accepted by State securities committee In addition, the securities company consults two firms to public information as requirement of Vietnamese law, which Vietnamese companies always make mistake Finally, the securities company accompanies with the acquirer follow time to issue, distribute and list stocks on the stock exchange In these cases, the securities company did not the intermediary to connect two firms as the role of investment bank in M&A deal over the world It is seem to only 43 some roles such as an adviser of valuation, part of structuring of the deal and preparing the necessary documents 3.3 Limitations, Obstacles and Challenges By studying two cases of merger as KMR and KMF; HT1 and HT2 and another M&A deals have occurred on Vietnamese stock exchanges since 2009, some limitations and challenges can be indicated such as One, M&A actions on Vietnamese stock exchange appeared late and number of successful deals has limited Although M&A deals appeared in Vietnam financial market in middle of 1990s such as Unilever bought P/S – a Vietnamese toothpaste producer…., M&A on stock exchanges happened officially in 2010 - 10 years after Vietnamese stock exchanges was born It is said that last year (2010) was a flourish years of M&A activities on Vietnamese stock exchange but there were only mergers and acquisitions by public offer buying or selling shares to strategic investors but only one deal in total deals was successful We can suggest some example: The merger deals: Apart from two deals of KMR - KMF and HT1 – HT2, North Kinh Do joint stock company (NKD) merged in to Kinh Do joint stock (KDC) company the third merger deal on stock exchange The acquisition deals: In 2010, there was only one acquisition deal that Hung Vuong joint stock company (HVG) bought stocks of An Giang sea food import and export joint stock company (AGF) was successful The deal increased the holding ratio of HVG in AGF to 51% There are some other examples of acquisition deals such as: Prudential Vietnam bought fund certification PRUBF1; Vien Dong medical jsc (DVD) bought stocks of Ha Tay medical jsc (DHT) In comparison with nearly 1,000 listed companies on Vietnamese stock exchange in this time, the number of completed M&A deals was too small Two, types of M&A has not been diversified Issuing new stocks to exchange stocks of target companies has been the most complicated M&A type was used on the exchanges Acquisition only carried out through buying on public stocks of target companies There have not appeared M&A deals with transferring cash or underwriting from financial institutes or buying debts and assets of target company… In the world, M&A transactions were appeared in many and many kinds and the financial institutes are the place when M&A types were born Three, up to now, M&A transactions only happened between firms that have closely relationship with each other such as daughter company combined with mother company like the merger of North Kinh Do joint stock company and Kinh Do joint stock company; or firms have been separated from one company like KMR, KMF and HT1, HT2 In other words, destination of M&A deals in Vietnam stock exchanges is creating synergy from combination as economies of scale, greater pricing power, combination of different functional strengths and high growth in new or existing 44 market Thus, Vietnamese firms choose vertical merger and acquisition, this type of M&A expresses strength of synergy clearly, which explained why companies on Vietnamese stock exchange also merge and acquire another in the same sector Merger and acquisition in different sectors (horizontal M&A) such as firms in on supply chain has not been popular in Vietnam Four, securities companies have not acted as the role of Investment bank like the diligence, synergy valuation, structure of the deal, carry out the due diligence, provide funding guarantee, funding and post merger support in putting the new business model in place Their duties were quite simple which focused on preparing documents and consulting firms to obey law, regulations If we compare the main duties that a Vietnamese securities company did with the role of Investment bank, there have not been deeply analysis, detail measurement of synergies and benefits that firms may receive after merger and acquisition such as how much of market share; how much of sale, cost, revenues and profit; how strong of distribution channel; and forecast the target of firm in short and medium period….They also did not calculate disadvantages and challenges that firms ought to face to in short, medium and longterm such as how to manage organization, how to deal with different companies’ culture, how to deal with suppliers, employees and shareholders if conflict happen….In conclusion, Vietnamese securities company can’t help firms to dedicate and control problems of the post-deal performance of merged companies, which is the most important because consulting these problem effect if companies exist or not In case of KMF and KMR; HT1 and HT2, the valuation of price for the merger, Viet Capital securities company had not so many proofs to appraise stock price of target firms, which was in the usage of premium paid to stockholders of target firms (they said that “ The premium is usually used from 20% to 50% in order to acquirer takes control of target company”) The way that consultant used was not deeply comparison and explanation Five, Government agency (State securities committee) has been confused in dealing with reviewing the documents of M&A transactions There was not a procedure for this organization to review and accept the merger and acquisition, their decision much depend for react from outside For instance, in 2010, Vien Dong medical joint stock company (DVD) offered to buy stocks of Ha Tay medical joint stock company (DHT), both of them were listed companies DVD wanted to take the control on in DHT by buying stock of DHT on stock exchanges In order to finance for this acquisition, DVD issued new stocks and State securities committee accepted for them to issue and gave company a permission note After that, DHT took DVD to the court because DHT did not want to be acquired Finally, State securities committee revoked the permission note with following reasons: - DVD did not demonstrate real revenues - DVD announced wrong information which caused many damage for stockholders 45 After some limitations of M&A activities in Vietnam stock exchange, I would like to dedicate some challenges that listed companies have to face to now or next five years, as following: First, combined firms must encounter many difficulties and challenges about corporate management, conflict settle, organization culture shock and government agencies conduction…However, listed companies have not been supported from both Consulting firms or Government agencies (as State securities committee, Tax authorities….) Second, listed companies must announce all information about companies, which effects stock price so much If the plan or strategy of merger and acquisition of firms is not well prepared, well organization or not influent steps, lack of experiences in consulting, stock price will be impact extremely Then it will influence emotion of both shareholders and potential investors Finally, this will influence the result of M&A activities Third, there lacks of experiences, knowledge of M&A, capital resources and network of firms that Vietnamese securities companies face to now and next five years If firms need to M&A deal, they may find target firms by themselves and has not much chance to support from consulting organizations like securities companies Fourth, the resources of Vietnamese firms about capital, management… are in limitation Thus, vertical M&A will be challenged to listed firms They will not have many opportunities to merger and acquisition their suppliers and distributors on stock exchanges Finally, listed companies must face to threat of merger and acquisition more and more In many case, they not know they are targeting 3.4 Causes and Reasons In general, M&A deal in Vietnam with listed company follows the principal that used in M&A deal all over the world However, there are some cautions that make M&A on listed company in particular and all Vietnamese firms in general still takes a lot of time and money, as following: - M&A activities are in the initial step because of Vietnamese stock exchange is fledgling M&A activities in the USA have over 100 years of experience, which accompanied with the taking form and development of its stock exchange Vietnamese listed companies still flinch when they have demand for merging or acquiring another since they understand their un-experiences, un- knowledge, they also understand they not expect full help from consulting organization (securities company) and State securities commission Companies are worried about a chaos business activities or bad effects on their stock price on stock market 46 - Pre-preparation has not done as professional process, which manifests that securities companies have not detail measurement all benefits and difficulties that companies will confront Even the finding of target companies still is weak point of securities companies - There have not been a legal regulation or law of M&A only, both enterprise and state management agencies have still done and research at the same time in order to make the right way for M&A deal In videlicet, Vietnamese corporate law 2005 dedicated a company’s merger in Article 154 It is definite and written out procedure Vietnamese competition law 2004 prohibits the merger that causes monopoly on market And Vietnamese securities law only stipulates an offer buying which applies to companies on the stock exchange, it does not adjust all the steps of merger and acquisition - Valuation methods applied are simple and not enough, thus, stock price issue in M&A It sometimes did not appreciated with appropriate price - M&A activities are in the early developed step and the less knowledge and experience have been accumulated So the preparation and action were so confused and un-practised, which were showed the choice of premium paid for target firm - Number of experts in this sector is small in securities companies Up to now, there have been only Viet Capital securities joint stock company and Bao Viet securities joint stock company consulted the merger for listed companies Viet capital had deals and Bao Viet had deal - Investment Bank has not been full functions and expression in Vietnamese financial market Their functions only exist in securities companies but it advises about law, regulation and documents only - Sometimes, the explicit of information is violated, which caused the wrong consideration of an acquirer, investors and consulting organizations 47 CHAPTER IV: SOLUTION 4.1 For listed company M&A activities are in company’s long-term strategies, which might be done if company is strong in capital, management and has reputation in the market In order to improve M&A activities in Vietnamese listed companies, some recommendations are indicated as below: Companies must improve their corporate management to make companies more and more professional This will help companies not make mistake and confused in managing combined firms after the merger and acquisition To this well, listed companies managers and directors have to understand profoundly about business sector; strength, weakness, opportunities and challenges that companies have in short and long – term Companies managers and directors also catch up target companies’ business and synergies which companies will give after the merger and acquisition If they can define these synergies as much detail as well, the merger and acquisition will be much successful Companies ought to have strategy for M&A activities, which must be followed as companies’ mission and strategy When each M&A deal occurs, managers and directors with support of consulting organizations generate a detail plan, steps for the deal in order to decline confusion and difficulties Listed companies should study the way that global companies used for their merger and acquisition From international experiences, companies will be successful in their horizontal M&A and expand the merger and acquisition to their supplier, distributors, customers or firms in different sectors 4.2 For Government agencies All relevant Government agencies such as Ministry of Finance, State securities committee, Ministry of plan and investment together set up a law and regulation which only adjust M&A activities in Viet Nam State securities committee has responsibility for researching and creating draft of this law and regulation State securities committee should public procedures, required documents for M&A transactions to help company reduce time and cost for being accepted by State securities committee State securities committee should have many supports listed companies about the ways to work with other government agencies such as Tax authorities, local plan and investment agency to reduce time for company after the merger and acquisition 4.3 For a securities company 48 In Vietnamese stock exchange, each listed company has to need consulting from a securities company whenever it wants to a merger and acquisition; Consultants of Vietnamese securities companies must increase knowledge and experiences in M&A deals especially experiences from the fact In order to things above, securities companies ought to closely with firms to understand all demands of firms in M&A strategy; Vietnamese securities companies need to expand the list of firms which are a source of “goods” for M&A demand; Securities companies promote to find, connect and expand relationship with commercial banks, investment funds and other financial institutions to finance to firms in M&A deals; Consultants have to educate more about economic sectors, firms and valuation methods, which will help them to measure benefits and harms more and more exactly that firms may face to both in short-term and long-term; to calculate the stock price for merging and acquiring fit to market the most Vietnamese securities companies should transfer their business to role and activities of Investment bank as soon as possible Because of having function of Investment bank will help them to provide services synchronously and create forces then make more and more profit 49 CONCLUSION Although M&A activities have presented and executed in Vietnam, there have not been as many as well on stock exchanges and their activities were not diversified The short of experiences, self-confidences, educations of listed companies, securities companies (acting as a consultant) and government agencies (such as State securities committee) caused the limitation of these activities on stock exchange in Vietnam To intensify M&A activities on Vietnamese stock exchanges, we need dynamic, aggressive and enforcing from consulting organizations (securities companies) They are intermediate organization to connect, satisfy requests and demands of firms, which base on their wide system of firm customers, relationship with many financial institutions (commercial banks, funds) who can effort support firm in financing firms in the merger and acquisition Securities companies also have closely contact with government agencies in order to reflect all difficulties, wishes of firms to government agencies, which will help firm to be able to save time, money and fell happy, convenient Besides, securities companies are also the organizations that deeply understand about law, regulations and they are also experts in financial analysis All of which explain that firms need their advices for setting M&A strategy and carrying out M&A activities which is a business service of securities firms If companies use this service, they will reduce time and resources in M&A deals still create synergies and take advantages of M&A activities However, up to now, Vietnamese securities companies not have full abilities to meet all firms’ demand for M&A activities The weakest point of them is unpractised Thus, if they want to develop M&A activities on Vietnamese stock exchange (which will create a huge profit for securities companies because it is a high competent service), they must be more active to educate, train and joint into market, which will be a chance for them to catch up realities, experiences and settle with real case study These actions will enrich their abilities and forces when providing M&A services on stock exchange I would like to thank … who helps me so much in finding the way for research and complete my master thesis Ha Noi, 18th September 2011 50 REFERENCES Aswath Damodaran, Corporate Finance – Theory and practice, second edition, John Wiley & Son, inc History of merger and acquisition http://www.economywatch.com/mergers-acquisitions/history.html - Acquisition marketplace review – An journal of Applied M&A theory - http://www.mergerdigest.com/ http://cafef.vn/ Annual report of Mirae joint stock company 2010 Annual report of Ha Tien Cement joint stock company 2010 Prospectus of issuing new stock of Mirae joint stock company in 2009 Prospectus of issuing new stock of Ha Tien Cement joint stock company in 2009 Financial statement of Mirae joint stock company in 2010 10 Financial statement of Ha Tien and Ha Tien cement joint stock company in Quarter 2009 51 LIST OF TABLE Table 1: Stock price of KMR and KMF by two methods Table 2: Stock price of KMR by DCF method on 30/6/2009 Table 3: Stock price of KMF by DCF method on 30/6/2009 Table 4: Stock exchange ratio of KMR and KMF by using Average market stock price Table 5: Stock exchange ration of KMR and KMF by using price from DCF Table 6: Business result of KMR in 2010 compares to 2010 plan Table 7: Ratio of liabilities on Total asset and Equity of HT1 and HT2 Table 8: Stock price of HT1 and HT2 by two methods Table 9: Exchange stock rate by market price method Table 10: Exchange stock rate by DCF method Table 11: Measurement of HT1 stock price by DCF Table 12: Measurement of HT2 stock price by DCF Table 13: Business result of HT1 in 2010 52 ... VIETNAM STOCK EXCHANGES: ANALYSIS OF LISTED COMPANIES IN CURRENT SITUATION AND 3.1 Steps and Process in M&A of listed companies in Vietnam Stock Exchanges for an acquirer - Announcement of listed companies. .. done by listed companies on Ho Chi Minh stock exchange and Ha Noi stock exchange in Vietnam, Merger and acquire among listed companies 1.7 Methodology 1.8 Limitation of the research Because of the... stock of KMR in 2009) (*) Averaging close price of 50 sessions of KMR on Ho Chi Minh stock exchange and of KMF on Ha Noi stock exchange to the date 16/10/2009 (**) Stock price by DCF method on