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Table of Contents: Chapter 1: BACKGROUND INFORMATION AND METHODOLOGY Chapter 2: DEFINITION, M&A GENERAL TREND I.M&A General Trend in Vietnam II.Definition 2.1.M&A Definition 2.2.Similarities and Differences between Mergers and Acquisitions 2.3.Three Types of M&A 2.4.Hostile takeover Chapter 3: THEORY OF MOTIVES FOR M&A I.Barriers of New Market Entrants II.Theory of Motives for M&A of Trauitwein 2.1.Disturbance Theory 2.2.Synergy Hypothesis 2.3.Adaptive Motive 2.4.Empire-Building Theory III.Conclusion and Limitations Chapter 4: CROSS-BORDER HOSTILE TAKEOVER IN VIETNAM I.Pho 24, Highland Coffee and Jolibee 1.1Background information a)Pho 24 b)Highland Coffee

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Research about M&A

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Page 1: Full Research Paper

Table of Contents:

Chapter 1: BACKGROUND INFORMATION AND METHODOLOGY

Chapter 2: DEFINITION, M&A GENERAL TREND

I.M&A General Trend in Vietnam

II.Definition

2.1.M&A Definition

2.2.Similarities and Differences between Mergers and Acquisitions

2.3.Three Types of M&A

2.4.Hostile takeover

Chapter 3: THEORY OF MOTIVES FOR M&A

I.Barriers of New Market Entrants

II.Theory of Motives for M&A of Trauitwein

2.1.Disturbance Theory

2.2.Synergy Hypothesis

2.3.Adaptive Motive

2.4.Empire-Building Theory

III.Conclusion and Limitations

Chapter 4: CROSS-BORDER HOSTILE TAKEOVER IN VIETNAM

I.Pho 24, Highland Coffee and Jolibee

1.1Background information

a)Pho 24

b)Highland Coffee

c)Jolibee

1.2.Process of Takeover

1.3.Motivations of Takeover

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a)Highland coffee and Pho24

b)Jollibee and Highland coffee

II.Bibica Joint-Stock Company and Lotte Corporation

2.1.Background information

a)Bibica Joint-Stock Company

b)Lotte Corporation

2.2.Co-operate between Bibica and Lotte

2.3.Recommendation

a)Signal of hostile takeover

b)Motivation of taking control Bibica

III.Summary

Chapter 5: INTRA-BORDER TAKEOER IN VIETNAM

I.Introduction

II.The Case: MNS and VCF

2.1.The Two Enterprises

2.2.The Bid

2.3.The Motives

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Management summary:

Although international mergers and acquisitions are not new things in Western countries, this phenomenon has just started in Vietnam for approximately 13 years. Therefore, it is considered one of the hottest subjects that arouse a lot of criticism about. This paper is conducted based on the main curious about

“What are the motives for cross-border hostile takeovers in Vietnam?”

To answer the question, the theoretical framework about Mergers and Acquisitions (M&A) as well as motives of takeovers will be contributed first. Basing on this, we then will study the two real cases of cross-border hostile takeovers in Vietnam to understand further this phenomenon. Our investigation reveals that motivations behind international takeovers in Vietnam are as same as in Western countries. Moreover, the international M&A trend also leads to the acquisition between domestic companies as the way to resist bankruptcy status in the stage of economic crisis.

The report will provide a clearer overview of motives behind cross-border hostile takeovers, which may help the Vietnamese company’s management to have a better decision making about their business when facing with the similar situations.

Furthermore, it is predicted that the phenomenon will continue happening in Vietnam in the near future and this would be a way to challenge the brand of Vietnam if they can keep their own brand name or accept to be dissolved in foreign firms completely.

However, this is an inevitable consequence of the integration process of Vietnam economy. It brings benefits about technology and knowledge transfer as well as economic development but costs the disappearances of many famous traditional brands that have existed for long time in Vietnam.

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Introduction

In recent years, Mergers and Acquisitions (M&A) activities have become a new trend which is considered in the business world. This phenomenon happened early in many developed countries in the past and has just begun in developing countries, especially in Asia. It can be true that Mergers and Acquisitions are among the most effective ways to expedite the implementation of a plan to grow rapidly for the enterprises which are suffered loss, degraded quality or diminished competitive advantage. Actually, M&A is a solution to help the firms increase business opportunities, expand the market and gain market share of competitors and avoid the stage of being bankruptcy.

However, it does not mean that M&A always creates effective impacts for business environment. In some cases, instead of cooperating together, the merged companies are tended to loss control of the human resources system or financial management problems. With many investors, M&A activities can help them take over completely other competitors in all aspects. For instance, creating a new market without need to take time to conduct a project as well as look at all the relevant information.

In specific scale, as a result of globalization, mergers and acquisitions between foreign companies and local companies have been a trend in Vietnam. To be more details, when foreign companies want to enter into a new market, they tend to make it easier through the form of joint venture with local companies. This action creates the chances for foreign companies to occupy quickly the new market because of the fully understanding of domestic market, loyalty customers, distribution chain as well as local companies’ available infrastructure in this country. That is why the foreign companies in Vietnam gradually control and finally hostile acquire the local companies. For these approaches, we want to examine the M&A in general and hostile takeover in specific in Vietnam. Therefore, we come to the main question:

What are the motives for cross-border hostile takeovers in Vietnam?

With the Objective: providing an overview about the motives of cross-board takeover in Vietnam through real cases below

Highlands coffee and Pho24 (two Vietnam companies) was acquired by Jollibee (Philippines company) (2012)

Bibica (Vietnam company) was acquired by Lotte Mart (Korea company) (current)

Those sub-questions will help to discover the main question:

1. How is takeover (acquisition) defined?2. What are the motives of takeover?3. How has cross-board acquisition happened in Vietnam?4. How do Vietnam companies learn from this phenomenon?

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Research approaches:

In the first step, we have collected relevant data from books, articles, journals, and some local and foreign websites. Additionally, there are some hypotheses which include predictions about possible relationships between the issues we want to investigate. In order to find answers to these questions, we build a clear plan to collect and organize data in systematic way.

On the other hand, we identify a problem that they want to explore through a theoretical basis, which provides a framework for our research.

Research methodology

1. Specification of the research process

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The achievement of the research paper begin with the study of the nature of ‘merge and acquisition’. The process of obtaining the data contain six week of working on research paper and collecting research data. Those process need look for the literature and academic sources, exanimate the collected materials and choosing the useful data.

In the literature review, this step has been conducted to find the definition of ‘merge and acquisition’ in general and concept of ‘hostile takeover’ in specific. The aim to investigate the definition of ‘merge and acquisition’ is to give reader overview of what ‘merge and acquisition’ means, criteria of them and how it happen in literature. Besides that, the research also focus on clarify the nature of ‘hostile takeover’ and importantly is motives of hostile takeover.

For the purpose of solving the main question, it was crucial to get deep into the topic and provide analyze about motives of ‘hostile takeover’ through the real case. In the process of investigate real cases, the paper will focus on giving the process of taking over as well as analyzing of hostile takeover motive of each case.

2. Literature review methodologyThe search for relevant materials for the research project contained the following sources:

Articles from journals – the main source of this research paper. Books (textbooks and e-books): help to obtain background information and improve

knowledge about theory. Theses and dissertations. Reports (organization’s reports, e.g. annual reports): is up-to-date information which is

considered as a good source of facts and background information about companies. Digital newspapers’ articles. Other types of information from websites.

2.1. Articles search methodArticles findings

Most of articles in this research paper are obtained from the journals mentioned below:

Strategic Management Journal The Quarterly Journal of Economics Journal of Banking & Finance Journal of Asian Economics International Business Review Journal of International Business Studies ECGI - Finance Working Paper Series Review of Pacific Basin Financial Markets and Policies

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Generating search terms

The first vital step must be conducted to find reliable academic articles, which are related to specific subject, is to generating the search terms. A search term is defined as a basic term of a Boolean search that is used in the process of searching the literature. The search terms or key words that we come up with in this research project by obtaining background knowledge about mergers and acquisitions topic in general and hostile takeovers in specific as well as the motivation of mergers and acquisitions are as follows: mergers and acquisitions (M&A), takeovers, hostile takeovers, friendly and hostile takeovers, motives of M&A, synergy motive, adaptive motive, managerial motive, cross-border takeovers, intra-border takeovers.

Selection of online databases and search engines

These are the databases and search engines that have been used to identify relevant articles since they will provide factual, subject-specific, high quality, reliable information and articles up to academic level which is easily accessible from home:

Saxion University of Applied Sciences catalogue/ WorldCat ScienceDirect Google Scholar Google Advanced

Selection of articles (criteria to select the items you found)

The articles were searched via search engines, for examples Google Scholar for reliable and academic findings which have correlation with the project topic. The criteria to select among hundreds of items which is found by using search terms mentioned above is based on title and a quick scanning through abstract of the articles. An easier way is using “search advanced” to limit the findings that are not related. Another prioritization to narrow the findings is always looking for latest articles that are written from 2003 afterwards. Moreover, when reading an article, there are some other ways to find related articles that are useful for the research project: noticing other authors mentioned in the reading article that used to write about the same topic or comparisons between different author’s opinions about the same definition.

1.1. Research method for other media:Besides articles, books, theses and dissertations, reports, digital newspapers’ articles and information gathered from websites were also included in the research project.

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As regards books related to M&A theory, specifically about motives of M&A, these were searched on Picarta website which allows looking for books that are available in University’s library or other areas. Google Books or Amazon can also be useful sites to review contents of a book to have an idea of what it is about or which chapter of the book you need.

Similar to articles, the search for theses and dissertations conducted using Google Scholar or Google Advanced resulted in hundreds of relevant papers that is more reliable than others that is freely on the internet; however, simultaneously these were not always accessible. Moreover, as the findings from these media were too broad, they were narrowed and selected based on titles which is associated to motives of M&A and cross-board hostile takeovers and written from 2003 afterwards.

Others media such as organizations’ reports, news on newspapers’ websites were obtained via internet. Since all cases applied in this project is in Vietnam, a developing country in Asia, most of the information were achieved from Vietnam websites that are not well-known all over the world. This research paper collected information released on websites of the most famous newspapers in Vietnam to guarantee that the information is trustworthy. Others are websites of commercial or governmental organizations which can be recognized by domain names such as .com, .org, .gov, and always provide credentials of author or the organization that is responsible for the accuracy of information. Last but not least, the contents of these websites are updated frequently and there are not discrepancies when comparing with information disclosed by others websites.

Chapter 2: DEFINITION AND M&A GENERAL TREND

I. M&A in general and in Vietnam

More than a century, waves of mergers and acquisition (M&A) have been a feature of corporate history and have become popular in the world recently. M&A is considered to be one of the shortest path as well as the most efficient operation investment because it saves resources; time

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and avoiding barriers. In the process of integration, M&A is a resource tool to attract and expand business relationships.

Each period time, this phenomenon has existed under different circumstances which are based on the merger activities in the business field. For example, horizontal mergers, vertical mergers, diversified conglomerate mergers, hostile takeovers, cross-border mergers, shareholder activism. Actually, some foreign companies tend to choose local companies in Asia when they want to enter a new market. In this case, Vietnam has also become one of these countries which are affected by M&A.

Although M&A activities are not a new phenomenon in the World, it has just begun in recent years since 2000 in Vietnam1 . Especially, just after participating in World Trade Organization (WTO) in 2006, M&A activities developed dramatically up to 113 mergers and acquisitions with total value of 1, 8 billion. Until 2009, the number of M&A increased to 295 actions with value of 1.138 billion in total. Additionally, the financial crisis, which started at the end of 2008, caused many negative effects for the global economy but also created new opportunities and challenges for M&A in Vietnam market. It can be seen that the parties always consider carefully to their benefits before conducting the process of consolidations. However, instead of cooperating to develop together, the foreign companies in Vietnam gradually control and finally hostile acquire the local companies. Through this paper, we want to understand deeper about motivations behind the cross-border hostile takeover trend in Vietnam as well as how this trend affects the domestic M&A market. We hope this could help domestic company’s managements to have a broader view about this economic phenomenon so they can have the most effective decision-making for their business.

II.Definition

2.1.M&A Definition

In modern time, Mergers and Acquisitions represent how companies buy, sell and recombine businesses. First of all, we want to present some definitions about M&A based on different sources.

According to the book Mergers and Acquisitions:

Mergers and Acquisitions occur when two or more organizations join together all or part of their operations.

In its broadest definition, a merger can refer to any takeover of one company by another when the businesses of each company are brought together as one.

1http://www.ncseif.gov.vn/. (n.d.). Retrieved March 14, 2013, from

http://www.ncseif.gov.vn/sites/en/Pages/tinhhinhhoatdongmuaban-nd-15538.html

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A more narrow definition is the coming together of two companies of roughly equal size, pooling their resources into a single business. The stockholders or owner of both pre-merger companies have the share in the ownership of the merged business and the top management of both companies continues to hold senior management positions after the merger. An acquisition, in contrast, is the takeover of the ownership and management control of one company by another. Control is the key test of the distinction between a merger and an acquisition. (Coyle, B. 2000)2

Mergers and acquisitions are also defined as:

… terms are used to describe large transactions that fundamentally change the nature, or course, and control of the company… They are all Strategic Transactions that involve a changes or shift in control of a company and usually a corresponding shift in strategic direction. (Frankel, M.E. 2005)3

While the US Securities and Exchange Commission states that

Mergers are business combination transactions involving the combination of two or more companies into a single entity. Most state laws require that mergers be approved by at least a majority of a company's shareholders if the merger will have a significant impact on either the acquiring or target company. 4 

On one hand, a merger take places when two companies which have the same size, decide to become one new firm instead of being separately owned and operated. This type of action is more exactly referred to as merger of equal value. Company’s stocks are given up and new stocks are distributed in the stock exchange. In a merger of two corporations, the shareholders often have their shares in the old company exchanges for an equal number of shares in the merged entity.

A number of companies want to conduct merger activities to obtain financial rewards. An effective business merger can help you enter a new market, reach more consumers, freeze out a competitor. In fact, M&A process also creates a synergy – a crucial method in which the boards of directors of companies expect an increase in the value of enterprise in financial situation as well as minimization of the costs of products in the short term.

2Coyle, B. (2000). Mergers and acquisitions. Global Professional Publishing.

3Frankel, M. E. (2005). Mergers and acquisitions basics: the key steps of acquisitions, divestitures, and investments. Wiley.

4Mergers. (n.d.). U.S. Securities and Exchange Commission | Homepage. Retrieved March 15, 2013, from

http://www.sec.gov/answers/mergers.htm

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Corporate merger5

On the other hand, an acquisition is the purchase in which one bigger company will buy all or majority of shares of the smaller once. Although the result of acquisitions compared with mergers is still not clear, people are likely to prefer mergers than acquisitions since it feels more equal for both side of the transaction. In addition, there are many ways to conduct M&A. For example, the acquirer can give a tender offer to target company through form of bidding or using proxy fight or combine those techniques. There are two types of acquisitions: acquisition of assets and acquisition of shares. However, in the context of the research, we do not focus much on the way of purchasing but introduce briefly about it.

“buy”“holds”

5Palmieri, R., &Rigotti, E. (2010). The arguments of corporate directors in takeover bids.

A (including B‘s

assets and liabilities)A B

A BShares

A

B

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Acquisition of shares6

2.2. Similarities and Differences between Mergers and Acquisitions

a)Similar features:

- Changing owner and the board of directors.- After transactions, the new firm will be bigger than the old one in scale, financial

resources and human resources.

b)Different features:

Mergers AcquisitionsTransaction: non-cash, sharing stocks Transaction: payment in cash or by checkValuation: estimate the value of the target company by how many shares it owns

Valuation: estimate the value of acquired company in cash.

Human resources: the board of directors of these firms plays an equally important role after M&A process

Human resources: the board of directors of the acquired company does not have any power after M&A process.

After transaction: The merged company usually disappears and is replaced by a new company with new name.

After transaction: The acquired company still exists.

2.3.Three Types of Mergers

Horizontal Mergers Vertical Mergers Conglomerate MergersFirms involved in the same industry, selling the same products.

Firms are involved in the same industry but at different stages of product processing. For example, a manufacturer merging with a supplier of input products (backward integration), or manufacturer merging with a distributor of its finished products (downward integration).

Firms are involved in different industries.

6Palmieri, R., &Rigotti, E. (2010). The arguments of corporate directors in takeover bids.

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2.4.Hostile Takeover

Hostile takeovers are also preferred to as unfriendly takeovers, defended takeovers or contested takeovers. In those takeover situation the target company received an unsolicited unfriendly offer for all of or a fraction of the outstanding shares at a stated tender price from a corporate raider, who aspires to acquire at least a fifty percent holding in the target company in order to achieve a majority representation on the board. (Zeannett Gorzala, 2010) 7

Hostile takeover are common argued since some shareholder’s wealth fare gains are likely less than the others. Although many evidences stated that in the US and European countries, the wealth fare gains of acquirer’s shareholders are less than that of target firm’s shareholders, the situation is not the same in developing country. Some proved that the value created for foreign acquirers are more than value created for local targeted companies as supported by Mamoru Nagano and Yuan Yuan (2013). Moreover, because the weak management of local companies due to lacking of knowledge and experiences compared with their foreign partners, the foreign companies are easier to acquire the local one. It is certain that the local company’s brand will disappear after acquisition. Hence, besides the shareholder’s wealth issues, Vietnam market is losing traditional local brands that are well-known to domestic consumers. New foreign brands dominating the local market is not only weakening the economy of the country but also losing the traditional culture. This phenomenon, therefore, has recently become an alarming issue that attracts enormous arguments in Vietnam.

Chapter3: THEORY OF MOTIVES FOR MERGERS AND ACQUISITIONSI.Barriers when entering into new market (different between cross-border and intra-border acquisitions)

It is significant to know the differences between cross-border acquisitions and intra-border acquisitions or domestic acquisitions before considering the motives of them. The foreign investments compared with domestic investments may encounter with many entry market barriers and risks that are presented in the table below:

Common market entry barriers RisksImport and export dutiesLocal-content regulationsCurrency effectsPricing rulesPrice wars between competitors

Quality risks (product, process)Staff turnoverProductivity of foreign locationsCost of production factorsStaff qualifications

7Gorzala, J. (2010). The Art of Hostile Takeover Defence. Igel. p7

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Demand behaviorNationalismSpecial standard

Supplier qualityFlexibility and ability to deliverOverestimation of the local market potentialCultural barriers

Source: Sustainable manufacturing: Shaping global value creation (2012), p41-42

To overcome those difficulties, there are several alternatives for foreign investment to choose such as joint venture, licensing, internal development or mergers and acquisitions. In this paper, as mentioned above, we just focus on merger and acquisition activities as well as examine deeper motives behinds cross-border takeovers. There are many evidences showed that cross-border acquisitions could help to eliminate those barriers and bring positive wealth gains for acquiring companies. This is one of the key motives for foreign companies when they conduct the acquisition with the local company (or the target company in hostile takeovers). The research will organize those evidences in systematic ways to explain motivations behind cross-acquisition in case of Vietnam.

II.Motive theory of Trautwein

There are many theories about motives for Mergers and Acquisitions since it was firstly activated in the wave of mergers and acquisitions (1983-1904) in The United States. According to Trautwein (1990), one of the earlier theoretical frameworks for mergers and acquisitions motivations, there are three categories of motives involving rational choice, process outcome and macroeconomic phenomenon. In the rational choice category, mergers benefits majorly belong to shareholder’s welfare with efficiency theory, monopoly theory, valuation theory and raider theory; another theory, empire-building theory, considers about manager’s benefits.

Merger as a rational choice

Merger benefits bidders

Net gains through synergies

Efficiency theory

Wealth transfer from customer

Monopoly theory

Wealth transfer from target’s shareholder

Raider theory

Net gain through private information

Valuation theory

Merger benefits managers Empire-building theory

Merger as process outcome Process theoryMerger as macroeconomic phenomenon Disturbance theory

Table: Theory of merger motives (Trautwein 1990)8

8Trautwein, F. (1990), Merger motives and merger prescriptions. Strat. Mgmt. J., 11: 283–295. doi: 10.1002/smj.4250110404

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In this paper, we just focus on synergy motive that is based on efficiency theory, adaptive motive based on process theory and managerial empire building based on empire-building theory and disturbance theory as some following reasons:

Disturbance theory to explain about the macroeconomic condition in Vietnam that leads to mergers and acquisitions trend.

Synergy is the primary motivation for majority of mergers and acquisitions either intra or cross-border all over the World.

Adaptive motives are acceptably suitable with real situation in Vietnam. Finally, it is the limitation of the research that cannot cover every factors of the

phenomenon.

However, we firstly need to approach the disturbance theory to explain briefly about the macroeconomic condition in Vietnam and how it leads to the acquisition trend. Disturbance theory by Michael Gort (1969)9 reveals that when the economic disturbances occur, variance in valuation of assets will be enlarged. To be more precise, future value of assets will become unpredictable and the non-owners may evaluate the value of those assets higher than the owners may. It stimulates mergers and acquisitions. Michael Gort indicated that the acquisition transactions will be conducted when:

The value of acquired stocks are evaluated lower than individual stocks in market (so the stock price in the market tend to be high at this moment)

In condition that the value of stocks are all low in the market, the stockholders of acquirer may consider the current price of acquired company are undervalued, which can also stimulate mergers.

Therefore, the abnormal fluctuation of stock price, either increase or decrease, will inspire mergers and acquisitions activities.

Implementation of Gort’s findings for the real situation in Vietnam: Global crisis: When the global economy are coming into deep crisis especially in the

USA and European market, many international investors turn into developing countries like Vietnam. Especially after Vietnam joined World Trade Organization (WTO) in 11th July 2006, the mergers and acquisitions developed drastically with total amount of transaction being 1.8 million US dollars10. At this period, due to the WTO regulations, legal barriers and government policies was relaxed for foreign companies that invest in Vietnam. This created a great attraction with both individual and organization foreign inventors.

It is the most suitable time to acquire a local company in Vietnam when the total domestic economy are restructuring and the stock market is falling down in 2009 after

9Gort, M. (1969). An economic disturbance theory of mergers. The Quarterly Journal of Economics, 624-642.

10http://www.ncseif.gov.vn/sites/en/Pages/tinhhinhhoatdongmuaban-nd-15538.html

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bubble stock (2006-2008)11. The foreign companies can buy local company through tender offers with significant economic price.

Compared with other countries, the total amount of investments for one company in Vietnam is also much cheaper.

Although there are researches about disturbance theory, it is hard to measure the real effects of abnormal economic events toward acquisition activities because macroeconomic environment is attributed by marvelous factors relating together. Then there will be three other hypothesizes that are mentioned above.

2.2.Synergy motive It is the most crucial motive for mergers and acquisitions in general and cross-border takeovers in specific. The synergy hypothesis indicates that the combination between two entities or two companies will bring more successful performances than individual ones (M. Bradley, A. Desai and E. Kim, 1988; Palepu and Ruback, 1992). There are many researches that support for synergy hypothesis revealing positive combined wealth gains from synergy-creating mergers and acquisitions like Eun, Richard and Scheraga (1996), Goergen and Renneboog (2003), Nagano and Yuan (2013). In his research, Trautwein (1990) also presented that the efficiency theory is applied for entry mode to overcome barriers in unfamiliar areas when a company want to enter into a new market. Efficiency theory evolves three components, namely financial, operational and managerial synergies.

Financial synergy is reached due to the lower cost of capital. One of the reasons is the larger size of the combination company. The other one is the decrease of systematic risk.

Operational synergy is the result of knowledge transfer between entities joining in the acquisition.

Managerial synergy is achieved when the acquirer’s management owns the outstanding planning and monitoring abilities of the target company.

Journal Author Primary findingsCross-border acquisitions and shareholderwealth: Tests of the synergy and internalization

Cheol S. Eun, Richard Kolodny, Carl

Scheraga(1996)

(International acquisition) shareholders, acquiring and acquired

companies earn wealth gain

Shareholder wealth effects of Europeandomestic and cross-border takeover bids

Marc GoergenLuc Renneboog(2003)

(intra-takeovers) synergy are prime motives, targets and bidders tend to

share the wealth gain

11http://www.asiaecon.org/exclusives/ex_read/79

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Cross-border acquisitions

in a transition economy:

The recent experiences of

China and India

Mamoru Nagano Yuan Yuan(2013)

(cross-border acquisitions in developing countries) cross-border acquisitions bring more wealth gain than domestic once, value created for foreign acquirers are more

than value created for local targets companies

Table: some indirect evidences that are organized in timely basis prove that cross-border acquisitions created by synergy motives gain welfare for stockholders

2.3.Adaptive motive (process theory)

Allision (1971), in his paper “Bureaucratic Politics: A Paradigm and Some Policy Implications”12 indicated that when a company comes to financial difficulties or crisis, mergers or acquisitions would be the primary alternative compared with bankruptcy. This is true with the case of Tribeco Company in Vietnam. The company after cooperating with two primary shareholders: Kinh Do (Vietnam company) in 2005 and Uni-President (Korean company) in 2007 then faced with the threat of bankruptcy in 2008 and 2009 because of its own weaknesses in management. In this situation, the Uni-President decided to buy entirely remaining shares in 2010 with the price which is approximately 24 times less than Tribeco’s share price in peak time. Uni-President then gained benefits from Tribeco’s manufacture and distribution network. In terms of Tribeco, it is better for the company to be acquired rather than to face bankruptcy scenario.

2.4.Empire-building theory

When concerning hostile takeovers, it is usually noticed about the agency theory. According to the definition of hostile takeovers in part I, it is called “hostile” when one side of the bid does not agree to conduct the transaction. However, we consider how much the roles of acquired company’s management are towards the transactions besides the shareholder’s decisions. Empire-building hypothesis states that management’s bonuses and compensations depend on the amount of assets under their control, so the management might try to conduct the acquisitions without considering shareholder’s wealth gains but their own benefits. The results of those acquisitions, therefore, are regularly negative or gloomy13.

Besides motivations mentioned, we also find a large pool of others like technology transfer, learning managerial skills14, hubris motive, favorable taxation, market leadership, cost

12Allison, G. T., &Halperin, M. H. (1972). Bureaucratic politics: A paradigm and some policy implications. Brookings Institution.

13Schaik, D. V. (2008). M&A in Japan: An Analysis of Merger Waves and Hostile Takeovers. Erasmus University Rotterdam.

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leadership, or being the first mover with new products or market15. However, because of the limitation of the research, we just choose three of motives among others that are mainly based on Trautwein’s piece of work to analysis the motivations of mergers and acquisitions.

Moreover, also because the limitation of information access and availability, there are rare sources about the real wealth gains of shareholders in similar cases in Vietnam, so we just base on researches about similar Asian developing countries like China to study.

Although there are many motives behind mergers and acquisitions, it is not always bring successful consequences. Besides having a strategic motivation that have a clear relation to core business, the success depends largely on many other factors such as financing for acquisitions, efficient integration planning, economic pricing and the like16. It also depends on how the success is defined at all.

All in all, the main target or motive of doing business is creating the wealth fare for shareholders so the merger and acquisition activities are not exception. However, through previous researches, we find it is interesting that mergers and acquisitions in developed countries like US, UK and European countries averagely bring less wealth gains for acquirer’s shareholders than for target company’s shareholders. “Mergers and acquisition more often destroy rather than enhance value for the acquirer shareholder.” Especially, hostile takeovers bring more wealth gains than friendly takeovers in case of UK17. In developing countries, the situation is not the same that value created for foreign acquirers are often more than value created for local target companies (Mamoru Nagano and Yuan Yuan (2013). It is, we believe that, a good starting point for further researches about the rationales behind this difference and why M&A activities are still remained in developing countries as well as what models bring the best performances for wealth fare gains.

III.Conclusion:

Disturbance, synergy, adaptive and empire-building theories are chosen to conduct the study because it is reasonably fit with the real situation in Vietnam. Moreover, the synergy motive is the most important one that will be examined deeper in the next chapter to understand more about the engine behind hostile takeovers in Vietnam.

14Dong, L., &Glaister, K. W. (2006). Motives and partner selection criteria in international strategic alliances: Perspectives of Chinese firms. International Business Review, 15(6), 577-600.

1514,16Sudarsanam, P. S. (2003). Creating value from mergers and acquisitions: the challenges: an integrated and international perspective. Prentice Hall.

16The Art of M&A, 4th edition, chapter 9, p22-2417

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Chapter 4: CROSS-BORDER HOSTILE TAKEOVER IN VIETNAM

I.Pho 24, Highland coffee and Jolibee.

1.1Background Information

a)Pho 24

In 2003, Ly Quy Trung decided to open first Pho 24 shop after some years analyzing demands and tasting of many regions. The goal of Pho24 is ‘Create a model of Pho restaurant that carries a modern style as well as traditional one of Vietnam, therefore, reaching the international aspects in all aspects’. Pho24 chose franchise chain as the main way of operating the shops. As a result, after 3 years they have total 29 shops throughout Vietnam and even two shops in Indonesia and one in Philippine. With this result, Pho24 was known as the first brand in Vietnam which succeed following franchise model like others fast food brand such as KFC, Lotteria. Otherwise, they are also success in bringing “pho” which is a symbol traditional noodle of Vietnam into a luxury fast food chain.

b)Highland coffee

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Highland coffee is a brand belonging to Viet Thai International Joint Stock Company (VTI) with a vision is ‘to tirelessly lead as the premier retail operator in Vietnam’. VTI focuses on chain stores that company owns, Highland coffee stores, and develops outlet chain as Nike model.

c)Jollibee

Jolibee is the largest fast food chain in Philippine with over 750 stores all over the world. They also have an ambition on international expanding in the USA, Vietnam, Hong Kong, Saudi Arabia and Brunei. Jollibee first come to Vietnam in 1997 with one franchise store but up to now they have totally over 30 stores.

1.2.Process of takeovers

In 2012, Highland coffee acquired 100 percent of Pho24 and after that Jollibee Corporation bought back 50% shares of VTI. By this way, after this business finished, Jollibee owns both two famous brands in Vietnam: Highland coffee and Pho24.

1.3.Motivations of takeover.

a)Highland coffee and Pho24.

There are two ways to operate their franchise chain. First, the firm created their brand, did marketing for their own chain and then conducted franchising to the franchisee like what Pho24 did. Otherwise, Highland coffee made it in another way. They themselves run their own chain without selling franchise to anyone. Therefore, a question comes up: ‘Why Highland Coffee wants to acquire Pho24 while their ways of operating are totally different?’ One answer is the rapid falling down of trustworthy rate of Pho24 brand. First of all, the price of each bowl of Pho24 increased higher than the average customer’s affordability (24,000 VND per unit to 39,000VND per unit). Moreover, Pho24 nowadays cannot guarantee and maintain the high quality of services as well as quality of each product in every franchisee. Interestingly, CEO of VTI, Mr. David Thai also admitted the weaknesses of Pho24. So what is the reason why VTI takeover Pho24. There are two motives:

The first one is about financial perspective. Although Pho24 is in depress but it is still a strong brand in Vietnam market. Therefore, with this situation of economic VTI could buy Pho24 with a much cheaper price than normal (synergy and disturbance theory).

Second reason is to diversify their products to compete strongly with other competitors (synergy motive in case of horizontal merger). Because Highland Coffee follows its own way to control all their chain, therefore, controlling quality of services and products is easily in their hand (managerial synergy). In result, they could provide both high-quality coffee and also offer a luxury traditional food of Vietnam like it used to. If they succeed in this, Highland coffee can attract more customers in various segmentation.

b)Jollibee and Highland coffee.

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No longer than the time Highland successfully acquired Pho24, VTI agreed to sell 50% of their shares to Jollibee Corporation. In these deals, Jollibee decided to buy 50% shares from Vietnam department and 60% shares Hong Kong department with 25 million dollars. In addition, Jollibee offer borrow up to 35 million dollars with just 5% interest. So what are the motivations of Jollibee to buy Highland coffee? First of all, Jollibee wants to expand their business activities in Vietnam besides increases their strength in competing with KFC and Lotteria.

Table: Shop amount of some fast food brand in Vietnam.

As can be seen in the chart, although Jollibee is a quite famous brand in Asia, the number of Jollibee shops (30 shops) is extremely small compared with the other two brands are KFC (130 shops) and Lotteria (133 shops). With the success in acquiring the chain of Pho24 restaurants, Jollibee can significantly increase their chain of stores as well as diversify their products to attract more customers.Another motive for taking over Highland coffee and Pho24 is to provide a high quality traditional Vietnam food and coffee into market in the Asia and other regions by putting them into the menu in every Jollibee stores (synergy motive). Finally, this is the preparation for the fight with Starbucks Coffee when this brand comes into Vietnam market. Compared with all coffee brands in Vietnam, Trung Nguyen is the strongest rival not only in Vietnam but also in other countries’ market. Therefore, the takeover of Trung Nguyen is impossible in current situation. Only Highland Coffee could help to achieve needed factors to compete with Starbucks as well as is suitable for the financial situation of Jollibee.

II.Bibica Joint-Stock Company and Lotte Corporation

1.1Background Information

a)Bibica Joint-Stock Company

Bibica is a famous company manufacturing cake and candy products. The company established in 1999 with total capital of 25 billion VND. Bibica is the second largest company behind Kinh

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Do Corporation in the food industry. They won twelve times “Vietnam high quality product award”, an award showing how much the Vietnam consumer trust in a brand.

b)Lotte Corporation

Lotte Corporation is a Korean enterprise with main operations in production and distribution of food and many other products, building, entertaining, and tourism and so on. Lotte Vietnam was established in 1998 and operated under a form of Joint Venture Company until 2007. In October 2007, the Lotte spitted out of the Joint Venture and became a limited liability company with 100 percent foreign capital. The Lotte Vietnam focuses on producing high quality of chewing gums and candy.

2.Process of takeovers.

In 4 October 2007, a contract to cooperate between Bibica and Lotte Corporation was signed. According to the contract, Bibica transferred 30% their stock to Lotte. On the other hand, after signing the contract, Lotte will support Bibica in products chain technology, sale training, R&D and also marketing. Moreover, when becoming a partner with Lotte, Bibica became the main products supplier of Lotte in Vietnam along with having opportunity to export their products to Korea.

A year later, Lotte increased their stock owning to 35.65%. Now the portion of shares which Lotte owns reaches 38%.

After acquiring about 38% of Bibica, Lotte showed their first idea of takeover Bibica by some tricks to make Bibica fall to troubles:

In 2008, in the first meeting of shareholders, Lotte promoted Mr Dong Jin Park, who is represented for the capital of Lotte in Bibica, to become the new chairman of the Board of Director.

After putting people into Bibica, Lotte had some decisions that leaded Bibica to a lot of difficulties. First of all, Lotte used their rights of controlling the company to prevent Bibica to use the brand of Chocopie as the main product in Vietnam market. Therefore, Bibica had to launch its own product with an enormous cost.

On the other hand, according to the agreement, Lotte would help Bibica in building two factories and exporting their products to Korea. However, the process of building the factory in Hung Yen has not been completed. Moreover, some products of Bibica which are self-designed could not export to Korea due to some rejection of Lotte.

In 24 March 2012, in the shareholders meeting, the chairman of the company, Mr Jung Woo Lee, announced the plan to rename the company to Lotte-Bibica and promote one person to the Board of Diretors.

3.Motives of takeovers

a)Signal of hostile takeover.

Looking through the whole process of cooperation between the two firms, we can see some signals of the ambition of takeover of Bibica by Lotte.

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By buying shares of Bibica step by step, now they already earn 39% of shares. Putting their representative as CEO of the company, therefore, they have a significant

power in their hands to make advantage decisions for them. Decision making is insufficient to the benefits of Bibica. Forcing Bibica to launch new brand of product but not Chocopie or obstructing

Bibica to export their products to Korea.

All this action costs Bibica a lot and makes it losing its profitable. In general, after 5 years of cooperation, although the revenue of Bibica increased years after years from 545 billion VND (2008) to 627 billion VND (2009), 788 billion VND (2010) and finally reached a peak of over 1000 billion VND (2011), their earnings after tax did not increase equally. In 2008, bibica’s profit was 57 billion VND but this number declined to 42 billion VND in 2009 and there was just a slightly rise to 46.4 billion VND.

At first, according to CEO of Lotte, the aim is forcing Bibica to become financial independent with Lotte. Following the plan, Bibica had to invest more than 236 billion VND while according to Mr. Chien, the ex-chairman of Bibica, they could guarantee to pay just about 100 billion VND. Therefore, Lotte would offer to support the remaining money for the investment. Finally, according to a shareholder, Mr Le Minh Thang: “ the value of the investing which is much more higher than the resources of the company can lead Bibica into a situation of relying on Lotte in financial perspective”.

Finally, changing the name of the company to ‘Lotte-Bibica’ could be the clearest signal that Lotte aim at fully controlling Bibica. Although it did not come true due to the rejection of the minority shareholders, Lotte still want to invest more to Bibica if they have a chance.

b)Motivation of taking control Bibica.

Acquiring Bibica is the fastest and the most efficient way to enter Vietnam market because Bibica is one of the largest firms in manufacturing cakes and candies just after King Do (based on diagram). If the takeover is success, Lotte could have a complete distribution system throughout the whole country from Bibica.

One more motive that Lotte takeover Bibica is they can easily run the company by their own way (managerial synergy). However, Lotte are recently facing troubles with local shareholders because it could violate benefits of them.

Final motive of Lotte is eliminating competitors. As we know, the current relationship between two companies is just cooperation. Although Lotte now have a rights to control the operation of the company, Bibica still can produce and launch their own products. Thus, there is a potential competing inside the joint venture; it could be harm to Lotte’s benefits. Eventually, taking over Bibica will help them to accumulate enormous resources to compete with King Do, the strongest cake manufacturer in Vietnam.

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III.Conclusion

As regards three motives for mergers and acquisitions mentioned in previous chapter: disturbance, synergy, adaptive motive and managerial empire building, in the two cases that we present, two enterprises both have synergy motive when acquiring their targets because both firms all want to enter the Vietnam market quickly and get success as soon as possible. However, the aim of the two motives is quite different. In Lotte and Bibica case, they want a wealth gains transferred from customers. This statement is clearly proved in the analysis part. Lotte has received wealth from the operations of selling its own products as well as Bibica’s products, which was shown on the increase in revenue since the cooperation began. In addition, information about supply chain, factory and existed products could help Lotte to enter deeply into Vietnam market without costing so many resources. On the other hand, the synergy motive of Jollibee when acquired Highland coffee and Pho24 restaurants is creating a stronger firm that could compete with any rivals. As mention below, with the large chain of Highland Coffee and Pho 24 along with their high quality, Jollibee now have more stores and various high-quality products to serve any consumers in foods and beverages market. Finally, Jollibee believe in capability of fighting with other huge brands in fast food industry like KFC, Lotteria and Starbucks.

Chapter 5: INTRA-BORDER HOSTILE TAKEOVERS IN VIETNAMI.Introduction:

Following the trend of mergers and acquisitions between foreign and local companies, there has been more and more deals made between Vietnamese domestic companies. Moreover, due to financial difficulty, a lot of enterprises recently encounter troubles or are at the edge of going bankrupt. Meanwhile, the stock prices keep decreasing. These factors of the economics are the best opportunities to acquire other businesses. While, most of the acquisition deals have been carried out in recent years were conducted in which the acquiring firm planned to collect shares of the target company on the securities market. These included the deals between Hung Vuong and AGF, PNJ and SFC, Masan Consumer and VFC, etc. However, some takeovers seem to undergo quietly and unexpectedly to the target company, which are considered the hostile takeovers. Hostile takeover between domestic companies appears in Vietnam the first time when Vien Dong Pharmacy aimed at controlling Ha Tay Pharmacy in 2010 but got failure and came to bankrupt; however, this provide an obvious evidence of hostile takeovers within Vietnam companies. In this chapter of the research, we will present an example of applying intra-border takeover in the case of Masan Consumer (MSN) and Vinacafe Bien Hoa (VCF). The structure of the case is as follows: brief introduction of the two firms, the bid and the motivation for takeover.

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II.The case: MSN & VCF

1.1.The two enterprises:

Masan Group Corporation (MSN) is one of the largest private sector enterprises in Vietnam focusing on building market-leading businesses in different industries to achieve its aim at dominating over the long-term. Masan Consumer, a subsidiary of Masan Group, is among the largest consumer companies in manufacturing and distributing food products including different kinds of sauces, instant noodles and edible oils. Starting operations in 2000, the company has gradually developed its products portfolio and distribution channels to match the expectations or needs of customers as well as established an image and reputation of the firm with best quality and taste in a number of product categories. Masan Group report for immediate release illustrated their CEOs’ opinion about acquisition plan of company:

Madhur Maini, CEO of Masan Group, commented, “We are focused on diversifying our food platform into a broader consumer operating platform and tapping our war chest for strategic M&A.”

Truong Cong Thang, CEO of Masan Consumer, commented, “Coffee is a core consumer product in Vietnam and requires a deep understanding of consumer behavior. We are committed to assisting Vinacafe accelerate its growth strategy by leveraging our branding, research and distribution platform.”

(“Masan Group Subsidiary Masan Consumer Acquires 50.11% of Vinacafe Shares Lays Foundation for Beverage Strategy”, 2011)

Vinacafe Bien Hoa is the largest instant coffee manufacturer in Vietnam, commanding for about 40% market share, and concentrates on processing instant coffee for domestic market. According to Vietnam charmber of commerce and industry in “Why Masan Consumer acquires VCF” (2011), “An analyst from Habubank Securities Company said Vinacafe Bien Hoa is a long-standing coffee company with more than 30 years’ experience and a nationwide distribution network. At the present time, Vinacafe takes the lead in the Vietnamese coffee market with more than 40 percent of market share, followed by Nescafe with 35 percent.”

“The Vietnamese coffee market is forecast to keep a high annual growth of 8-10 percent in the years to come, higher than the world average of 6 - 7 percent. Domestic consumption currently accounts for just 6 percent of production capacity, while VCF is a market leader in instant coffee thanks to its broad distribution network and good business situation. Thus, Masan Consumer’s tender offer is likely aimed at controlling the instant coffee market.” (H.D., 2011)

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1.2.The bid:

On November 10, 2011 Masan Group Corporation announced that Masan Consumer, its subsidiary, has successfully acquired Vinacafe Bien Hoa Joint Stock Company (VCF) at VND 80,000 per share (US$ 3.84). To be more specific, 50.11% of the shares outstanding of VCF had been transferred to MSN for approximately US$ 51 million in cash. Actually, Masan Consumer had intended to takeover VCF since 2006; however, the official acquisition plan was just announced on September 8, 2011. Meanwhile, Vinacafe Bien Hoa’s business performance is quite good and recently invested in a new coffee processing plant with an annual capacity of 3,200 tons/year that will increase its total production capacity to 4,400 tons/year. The new facilities were put into operation in March 2012.

VCF’s share capital is disclosed in “Why Masan Consumer acquires VCF” to be over VND 265 billion, equivalent to 26.5 million shares in which Vinacafe, State-owned Vietnam National Coffee Corporation, held the biggest proportion with 37.3 percent. Masan Consumer’s tender offer for 50.11 percent of stock can only be reached because Masan Consumer has planned for this deal and has relied on the supports of third parties to possibly purchase the stake that Vinacafe, the largest shareholder of Vinacafe Bien Hoa, cut down from 50.26 percent to 37.3 percent in May 2011 and the ones from other shareholders. “In case Vinacafe does not divest and other investment funds do not change hands (one fund with 17 percent of stake), Masan Consumer will be unlikely to buy 50.11 percent of stake at registered price because VCF’s liquidity will be very low. Thus, there is a possibility that VCF has reached an agreement to buy back shares from some investment funds and the tender volume will not be as big as registered.” (H.D., 2011).Mr. Huynh Anh Tuan, General Director of SJC, Securities Joint Stock Company, said “Masan Consumer may have completed its deal by purchasing shares from funds wholly divested in VCF like Vina Capital, VF1, Vietcombank Fund and Vietnam Holding scoured some on the stock market and agreed to purchase from the two major shareholders.” namely Beta Securities with 8.63 percent and Mr. Tran Quang Loc with 7.7 percent. (H.D., 2011)

Vinacafe Bien Hoa Joint Stock Corporation's manager has finally approved to sell 50.11 percent stake after a meeting with the representative of Masan Consumer. After acquiring 50.11 percent shares of VCF, Masan Consumer will become strategic shareholder and it is not hard for Masan to control the operations of Vinacafe Bien Hoa.

1.3.The motives:

Yi-Cheng Shih & Bai-Jia Hsu’s (2009) study found the following:

The synergy motive suggests that takeovers occur because of economic gains that result from merging the resources of the two firms. The economic gain is derived from an

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increase in operational efficiency, an increase in market power, or some form of financial gain. (p. 546-547)

Vinacafe Bien Hoa, the company that occupies the biggest portion in instant coffee market shares (40%), is well-known not only in Vietnam but also in different countries in the world. The takeover will save time and cost spending on developing a brand new product as well as take advantage of the brand and available distribution chain of the target company (like previous chapter, major motives are still based on synergy hypothesis). The main products including sauces and instant noodles that bring most of the profits for Masan is not growing any more. This is the time that Masan has to find another direction. After carefully considering, Vinacafe Bien Hoa is the most appropriate target company that meets all the conditions of Masan Group to acquire. Vinacafe Bien Hoa is the leading instant coffee brand in Vietnam market

Vinacafe Bien Hoa supports Masan not only in penetrating into coffee market in Vietnam in which Starbuck, the most popular coffee brand in the world, want to enter but also in listing on the international market. Investing in beverages helps Masan to develop and become a multi-sector company, a rising trend among Vietnam enterprises. With these advantages, the reason why Masan Consumer determined to acquire Vinacafe is not hard to understand.

III.Conclusion:

In this chapter, the motivation of hostile takeover is clearly clarified through a real evidence of the deal between two leading companies in Vietnam’s food and beverages industry: Masan Consumer, one of Masan Group’s subsidiaries, and Vinacafe Bien Hoa. It is, in this case, the application of synergy motives refered in Chapter 2 of this research paper, in which one firm merges with or acquires another to take advantage of the assets or other resources of the two enterprises to reach its final target. This motive is commonly experienced in both cross-border and intra-border takeovers, especially when a company wants to enter a new market.Though, whether these cases of intra-border takeovers really result in an operational efficiency, financial gains or rises in market prices for these companies in Vietnam is still a question, takeovers among Vietnam companies are witnessed as a rising trend.

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Conclusion and limitation

1. Conclusion

After conducting our research about the phenomenon of hostile takeover local company in Vietnam by foreign partner, we could achieve more knowledge about mergers and acquisition in general and hostile takeovers in specific. Here is our conclusion of what we have done to answer the research question: “What are the motives for cross-border takeovers of Vietnam companies?”

First of all, this phenomenon has some distinct effects to the target company as well as the local competitors. As for the victims, after being acquired they will lose the controlling of their own company that they have made efforts to set up and develop. Moreover, if these domestic brands are eliminated after being acquired, the results will be that Vietnam market will lose a lot of traditional brands of products and the domestic market could be weakened. On the other hand, if foreign company succeeds in acquiring another company, there will be a big problem that other companies in the same industry have to compete with a stronger rival compared with the old one. Actually, the foreign firms that come to Vietnam are usually multinational corporations and these companies have an absolutely strong power in financial term. Therefore, it is really tough for other Vietnam companies to fight against such big

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companies, which own a lot of famous brands, high quality products and strong capital resources.

Secondly, when taking everything into account, it is obvious that the trend of hostile takeovers happened is based on the motive of synergy. With the nature of being a tool to overcome the barriers when come into a new market, synergy seems to be the best motivation for foreign firms. Therefore, in two real cases examined above, the synergy motive is always used.

Last but not least, this nature of invasion a new market is just suitable for the foreign enterprises. When Vietnam companies apply this phenomenon to acquire others Vietnam firms, the main motive of them is also synergy but the aim is different. The acquiring firms do not really aim at hostile takeovers of the target companies; their target is to achieve a better performance, to get stronger in the market to compete with other rivals and to take the leading position in the economic field.

However, in our point of view, the reason that synergy motive will be developed in the future is due to the fact that Vietnam market is widely opening now to trade with many other countries in the world; therefore, the invasion of foreign companies to Vietnam market is inevitable. In addition, the potential of Vietnam economics is increasing rapidly because of stability of political system, this result in attracting an enormous of foreigner investors. Moreover, the weakness of Vietnam companies in financial and managerial perspectives is also a reason for outside companies to use hostile takeovers rather than friendly ones. However, for the Vietnam Company, due to the adaptive motive of hostile takeover, it is better for a strong company to acquire a crisis company therefore they will be stronger to compete with foreign company.

Finally, the trend of hostile takeovers from outside-country companies to the local ones is unavoidable. Therefore, all Vietnam companies should prepare carefully to face the problems. Furthermore, it can be said that acquisition between Vietnam companies is a wise step in getting stronger and fighting against being acquired by big corporation.

2. Limitation

Concerning about limitation of our research, the first limitation is the level of trustworthiness of our sources of information. In our research, because we assumed cases happened in Vietnam and previous researches written about hostile takeovers in case of Vietnam are limited therefore, almost all information we relied on are from Vietnam newspapers and websites. Although we tried to choose information from the biggest and most famous newspapers in Vietnam and always use articles that are written in English, it seems not so trustworthy like globally famous websites in financial fields. The second limitation is that we referred three kinds of motivation for hostile takeovers in our research; however, the cases happened in Vietnam just go for synergy motive so we could not provide a reality point of view in others two motives.

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