Mergers and Acquisitions Helps In Market Positioning

The underlying principle of mergers and acquisitions (M&A) is the development strategy for competitiveness enhancement and market positioning.

Apart from obvious benefits to businesses, these affairs also do well to consumers as well as reflect competitiveness of the market economy.

The food industry has witnessed many enterprises’ application of M&A as a principal strategy for long-term development. M&A transactions in candy and sugar industry Firstly, Kinh Do Joint Stock Company (KDC) bought Wall ice cream brand of Unilever for ownership of the factory, distribution channels and market share that was 50pct of the Vietnam’s ice cream market. Many additional transactions were executed afterwards making a large-scale food corporation.

Its next targets are to raise the ownership ratio at Vinabico, Kinh Do Binh Duong, Kinh Do Sai Gon and some others to 100pct.

What the giant aims at is not only to increase production capacity, scale of production, market share but to diversify products as well for a dominant position in the confectionery and food market.

The manufacturer itself is not hesitant to reveal intention to become a reputable brand name in the regional market. Motivation for survival would, thus, prompt other players to join up with either KDC or other long established partners.

Increasingly, KDC’s popularity is expanding with more than 200 agents and 400,000 retail outlets nationwide, 25 Kinh Do Bakery stores in Hanoi and HCM City.

The widespread appearance of Merino and Celano together with Wall ice cream brand has weakened the position of traditional Trang Tien brand name and some other Korean’s.

Similarly, with principal concentration on production, Thanh Thanh Cong Joint Stock Company has spread from a small processing unit to a solid sugar maker.

Its success is largely attributed to joint collaboration and capital contribution to satellite enterprises such as Ninh Hoa, La Nga, Phan Rang, Bien Hoa, and BourBon Tay Ninh.

For the time being, the maker has no intention to acquire 100pct of stake in those which it contributes capital and obtain dominant ownership. Still, it is reckoned that it would soon to come when a closed manufacturing procedure has been finalised, which would then make it a strong brand name in the local market.

The reality shows that a range of its products that are currently taking lead in the market are widely distributed in southern supermarkets and retail stores.

To Masan Consumer affair

As a unit of Masan Group (MSN) which has made several largest M&A deals over the recent times (acquisition of Nui Phao Mining Company Ltd and selling 10pct of equity share capital with the value of US $130 million and $ 159 million respectively), Masan Consumer Corporation (MSF) have recently revealed its offer to purchase 50.11pct equity capital (or 13.32 million shares) of Vinacafe Bien Hoa Joint Stock Company (VCF).

Until August 31, 2011, Ma San Consumer Corporation has not owned any shares of Vinacafe Bien Hoa Joint Stock Company. The mass media in recent days has seen a great deal of information from VCF indicating that this public offer could turn into a hostile takeover.

As such, MSF is likely to encounter plenty of obstacles to reach the goal. Still, MSF could stand a good chance of being successful for the giant earlier reached a draft deal with some of its large shareholders.

Obviously, the acquisition of a business of biggest market share in the coffee and instant drinks market, MSF signals its clear intention of conglomerate mergers towards multi-sector vertical development.

Should the buyout work out, MSF would not only add an additional product to its current supply chain including instant noodles, fish sauce, soya sauce, cooking oil, etc but penetrate into the beverage market with the advantages of a reputable firm.

Consumer benefits

From these M&A emerges the question of whether such affairs do good or harm to consumers which would take time to be answered. Yet, the market management agencies have failed to pay appropriate attention to the intense competition, likely market dominance and monopoly behind M&A, according to a M&A consultant at TNK Capital.

From the management and customers’ perspectives, both positive and negative implications of such deals would hardly be clearly indentified given the Vietnam’s currently incomprehensive competition law.

Normally, consumer rights in the US and other developed nations are usually taken into serious consideration. Should a takeover, for instance, bring about domination and monopoly; the relevant management body could make document compiling to file a lawsuit against that firm.

Yet, such practice has not been available in Vietnam which could mean the consequent economic growth being compromised by distortion of the market mechanism.-StoxPlus.com

Tags: competitiveness enhancement and market position, M & A, Mergers and acquisitions, Vietnam stock market, Vietnam stock news