February 23, 2020 10:54

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Winners and losers in integration - Lesson 3: Unknowns after acquisition

09:56 | 22/08/2019

VCN - Many enterprises have accepted selling off their shares, even being taken over by "sharks" with the desire of restructuring to strengthen and develop their brand. But not all handshakes bring good results.

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The disagreement among shareholders makes Bibicanot struggle to compete with rivals in the industry. Photo: collection

Some go up

According to a financial report of second quarter 2019 of Saigon Beer and Beverage Joint Stock Company (Sabeco - SAB stock code), in the first six months of 2019, thanks to good control of costs, profit increased higher than revenue. Net revenue increased only 9 percent over the same period in 2018, reaching18,424 billion VND, but profit grew14 percent, reaching 2,658 billion VND. In the second quarter of 2019, after-tax profit of this company was 1,530 billion VND. This is the highest quarterly profit after ThaiBev beverage group has held shares more than 18 months and restructured Sabeco, and set a record since the company listed on the market.

Previously, after buying a more than 53 percent stake in Sabeco from Ministry of Industry and Trade at the end of 2017, ThaiBev has officially taken over and operated since April 2018. Currently, most of the Board of Management and the Board of Directors belong to ThaiBev Group .

Since ThaiBev holds Sabeco, this enterprise has made positive changes in management and administration. Specifically, Ban Viet Securities Company (VCSC) forecasted that ThaiBev Sabeco would reach compounded annual growth rate (CAGR) of earnings per share (EPS) 20 percent in 2018-2021 thanks to improving market share and profit margin. Accordingly, Sabeco's market share would increase thanks to more effective brand strategy and marketing activities, new products at retail points and improvement of sales capacity. Along with that, the average selling price is also expected to improve thanks to the increase of the contribution of Saigon Special and the increase of selling prices due to the improvement of brand strength.

VCSC experts believe that the new board of management will find a lot of value for Sabeco. SAB's current General Manager, Chief Financial Officer and Sales Manager is Singaporean with extensive experience in the beer industry, including past senior positions in Asian beer companies - Pacific, such as Heineken. Meanwhile, the Marketing Director, Supply Chain Manager and Production Manager are leading experts in the country. Therefore, the international standard operating methods and the deep understanding of the domestic market will awaken the sleeping giant Sabeco.

The Vietnamese beer market has been dominated by four big companies: Sabeco, Heineken, Habeco and Carlsberg. If the State divestment at Habeco continues to be delayed, Habeco and Carlsberg will lose market share gradually to Sabeco and Heineken. Based on data from the Vietnam Beer - Alcohol - Beverage Association (VBA), VCSC forecasts SAB's market share will increase from 42.6 percent in 2018 to 45.5 percent in 2021, led by Saigon Special.

Similar to Sabeco, the financial report of second quarter 2019 of Chuong Duong Beverage JSC recorded 8.5 billion VND of net profit in the first half of 2019, a strong increase compared to the figure of 583 million VND in the first half of 2018. This growth also comes from effective control of expenses during the period. Specifically, the first six months revenue of the company reached 139 billion, down nearly 7 percent compared to the same period in 2018. Meanwhile, the total financial costs, selling expenses and management expenses in the period were only over 33 billion VND, a decrease of 19 percent, which improved profit significantly.

Previously, in 2017, Chuong Duong suffered losses of more than 3 billion dong due to the narrowing of market share and large costs to maintain sales channels and agents. After that, when the new boss of Sabeco, ThaiBev had strong intervention actions into the operation of Chuong Duong, the business efficiency of the company was initially improved. However, due to the strong development of rival brands, consumption of Chuong Duong’s sarsi water was still down by 20 percent in 2018, the revenue was only 297 billion VND, the lowest level in the last nine years. But, via further analysis of the production and business situation, the company began to restructure and had positive signals. After four consecutive quarters of losses, in the second quarter of 2018, Chuong Duong had a profit of 1 billion dong. Although it did not meet the production target, at the end of 2018,the company turned profit of over 5 billion VND, surpassing 39 percent of the plan thanks to cost savings. Accordingly, in 2019, the company believes to planincrease7 percent of the expected consumption volume, by 25 million litres, revenue increased 20 percent to333 billion VND, planned profit increases 84 percent at 9.6 billions dong. The leadership of Chuong Duong’s sarsi water affirmed the commitment to complete the plan.

"The rice is not good, the soup is not sweet"

Not as smooth as Sabeco, the restructuring at Bibica has been more difficult. Currently, two major shareholders of Bibica are Pan Group (50.07 percent) and Lotte Group (44.03 percent).Since 2007, Bibica has signed a strategic cooperation contract with Lotte and transferred 30 percent of the shares to this group. This is expected to help Bibica get support in technology and capital to expand production capacity, develop new products, as well as strengthen its brand, thereby bringing new development.

However, contradictions between Lotte and domestic shareholders are persistent for many years, Bibica is always in the power struggle between domestic and foreign shareholders. At one stage, some of Bibica's investment projects were unable to implement because shareholders did not reach consensus. This creates barriers for Bibica in the competitive battle in the fierce confectionery market. Recently, although the company's business has been stable and begun to grow again, conflicts among the two major shareholder groups still exist.

Most recently, PAN Group Board of Directors has approved to buy 7.7 million shares of Bibica, equivalent to 49.93 percent of capital at the price of 68,500 VND per share. The purpose of the transaction, according to PAN Group, is to increase ownership and long-term investment in Bibica. To buy these shares, PAN Group expects to spend about527.5 billion VND and make bids within 30-60 days after obtaining approval from the State Securities Commission. If the transaction on buying 49.93 percent of this capital is successful, the shareholders of PAN Group could bring the ownership rate of Bibica to 100 percent.

In 2018, Bibica recorded revenue of 1,420 billion VND and after-tax profit of nearly 110 billion VND. On average, in the last 5 years, revenue only grew by 4.8 percent per year but after-tax profit grew by 13 percent. In 2019, the company aims to increase revenue to 1,600 billion VNDand profit equivalent to last year. At the end of the first 6 months of 2019, the company only achieved over 500 billion VND in revenue, equivalent to the same period last year and after-tax profit was nearly 52 billion VND, up 23 percent. However, compared to the plan, the company only completed 32 percent of targeted revenue and 47 percent of targeted profit.

According to statistics of authorities, only in the first seven months of 2019, the total value of mergers and acquisitions (M&A) in Vietnam reached nearly US$5.43 billion. In which, 10 typical M&A deals in 2019 were voted by 2019 M&A Forum are: SK Group bought Vingroup and Masan shares; Saigon Coop bought Auchan supermarket chain; Thaco bought shares of Hoang Anh Gia Lai; Vingroup acquires Achos and Fivimart; Taisho bought Hau Giang Pharmacy; Mitsui became Minh Phu's strategic shareholder; VinamilkboughtGTN Foods; Gelex bought Viglacera shares; Sojitz bought shares of PAN Group; SonKim Land released to strategic partners. It is forecasted that M&A value may reach nearly US$ 7.6 billion in 2019.

Experts see M&A activities have played an active role in the process of transferring and restructuring domestic enterprises when Vietnam is actively integrating into the international economy. At the same time, domestic and foreign investors are increasingly interested in M&A activities in Vietnam, reflected in the increasing number of successful deals with many high value deals.

By Khai Ky /Binh Minh