THE CASE STUDY APPLIES BETWEEN MASAN AND VINGROUP IN VIETNAM MARKET

VIETNAM GENERAL CONFEDERATION OF LABOUR TON DUC THANG UNIVERSITY FACULTY OF BUSINESS ADMINITRATION GROUP REPORT SUBJECT: NEGOTIATON THE FAST-CHANGING ANALYSIS BUSINESS ENVIRONMENT IN RET

VIETNAM GENERAL CONFEDERATION OF LABOUR

TON DUC THANG UNIVERSITY FACULTY OF BUSINESS ADMINITRATION

GROUP REPORT SUBJECT: NEGOTIATON THE FAST-CHANGING ANALYSIS BUSINESS ENVIRONMENT IN RETAIL

AND MANUFACTURING INDUSTRY THE CASE STUDY APPLIES BETWEEN MASAN AND VINGROUP IN

VIETNAM MARKET Advised by MBA Tran Khanh

Group 3:

2 Ho Thi Thuy Duong 719D0270

3 Bui Le Hong Nghia 719D0099

5 Phan Tran Thien Nhi 719D0123

28th , May 2022

First and foremost, our team would like to express our heartfelt gratitude and respect to

Mr Tran Khanh for accompanying us during the second semester

Your valuable contributions will motivate our team to finish this report It isunavoidable that there will be flaws in the process of implementing the article's contentdue to a lack of knowledge Our team is eager to hear your thoughts and suggestions sothat we can learn from our mistakes and complete this report as efficiently as possible.Thank you from the bottom of our hearts!

MEMBERSHIP AND ASSESSMENT TABLE

1 Trương Minh

Thi

( Leader)

719D0173 Synthesize, assign and edit

Chapter 1: 1.1 - General overviewChapter 1: 1.2 - Issue of caseChapter 3: 3.3.2 – Theory applicationCahpter 4: Solution

Chapter 5: ConclutionPresenters

55%

TABLE OF CONTENTS

REASON FOR WRITING 5

I INTRODUCTION 7

1.1 General overview 7

1.2 Issue 14

1.3 Objectives 15

II LITERATURE REVIEW 17

2.1 BATNA (Best Alternative to Negotiated Agreement) 17

2.2 ZOPA 18

2.3 Integrative negotiation 19

III NEGOTIATION ANALYSIS: 21

3.1 Company background 21

3.2 Revenue and profit after purchasing VinComerce - VinEco 26

3.3 Past corporation 29

3.4 Evaluation of the status after M&A (Mergers and acquisitions) 30

3.5 Challenge 33

3.6 Theory of application 34

IV SOLUTION: 36

4.1 Past solution review: 36

4.2 Future Suggestions 40

V CONCLUSION 43

REFERENCES: 44

LIST OF FIGURES

Figure 1: M&a activities southeast asia countries 2017-2019 (Billion USD) 8

Figure 2: Top 10 markets by score growth 2020-2021 9

Figure 3: M&A activities by country 2019-2020 10

Figure 4: Proportion of mergers and acquisitions in Vietnam 11

Figure 5: M&A value of home and foreign investors from 2018 to 2020 (%) 11

Figure 6: VietNam - M&A and IOP transactions 12

Figure 7: M&A market in Vietnam from 2019 to 2021 13

Figure 8: Forecast of M&A value in VietNam in 2021 14

Figure 9: ZOPA Method 18

Figure 10: Structure of Masan Group 21

Figure 11: Masan's Revenue from 2018 to 2021 ( Billion VND) 22

Figure 12: Brands of Vingroup 23

Figure 13: Vingroup’s shareholder structure 24

Figure 14: Business results of Vingoup 2015-2019 ( Billions) 25

Figure 15: Number of Vinmart and Vinmart + stores 26

Figure 16: Masan's business results 2020 27

Figure 17: Revenue of Masan’s business segments after 6 months in 2020-2021 28

Figure 18: Ownership structure diagram 30

Figure 19: Some huge retail chains in 2019 31

Figure 20 : Expected sales of Meat Deli 32

Figure 21: The grow rate of MEATDeli monthly since June 2019 33

Figure 22 : Financial indicators of Masan and MWG in 2019 37

Figure 23: Negative factores affecting M&A activities in VietNam 38

Figure 24: Positive factores affecting M&A activities in VietNam 39

Figure 25 : Vincommerce profit 2015-2021 40

Figure 26: Retail sales of Vietnam - April 2020 41

REASON FOR WRITING

In recent years, the M&A sector in Vietnam has been in a period of the renaissance

as local companies step up efforts to expand their business operations with M&A as one

of their main strategies Vingroup, Masan Group, Hoa Phat Group, Vietnam DairyProducts Joint Stock Company, and Novaland Group are the 5 units with the largestM&A activities in the market, both in terms of value and number of transactions in thepast two years

The positive transformation in domestic M&A activities will still be maintained forthese businesses because in addition to having enough cash in reserve to find qualitytargets, but also being strategic in continuing to invest and continue to look for marketexpansion opportunities and improve profit margins

As Vietnam's economy continues to grow thanks to supportive regulations andpolicies of the Government and trade agreements Domestic companies will continue toplay an important role in future M&A activities, creating many corporations with a scalecomparable to large corporations in the region Therefore, in order to have a deeperunderstanding of M&A transactions between buyers and sellers, the team analyzed thetopic: “ The fast-changing analysis business environment in retail and manufacturingindustry - The case study applies between Masan and Vingroup in Vietnam market"

Statistics over the past 20 years demonstrate that Vietnam has more than 4,000M&A deals with a value of nearly 50 billion USD, ranking third in Southeast Asia interms of M&A value Vietnam is considered a dynamic country in M&A activities when

it attracts foreign capital flows and foreign investors to participate in the market.However, in the new context, the goal of the enterprise when determining a successfulM&A deal changes according to the requirements and vision of the enterprise is aproblem that needs to be solved (Ministry of industry and trade - VN)

Market trends:

M&A activities in Vietnam have increased sharply during the 10 years from 2007 to

2017 and peaked in 2017 with a scale of 10 billion USD, of which contributed 50% of thevalue of the Sabeco deal M&A value tends to decrease in 2018 and 2019 (Vietnam M&AForum - MAF)

M&A activities of Southeast Asian countries from 2017 to 2019 are different In

2018, Vietnam ranked 2nd in terms of M&A value in Southeast Asia, but in 2019 it hasdropped to 3rd place, after Singapore and Thailand

Figure 1: M&a activities southeast asia countries 2017-2019 (Billion USD)

Source:MAF,HSF

Over the past 25 years, Vietnam has transformed from a low-income country intoone of the fastest-growing economies in the world, with GDP per capita increasing nearlytenfold from 1996 to 2021, which is supported by the strong socioeconomic status of ayoung population and a rapidly growing middle class Along with economic growth,mergers and acquisitions (M&A) activities in Vietnam have also skyrocketed thanks tothe progress of equitization and market liberalization

What makes Vietnam attractive in the eyes of investors, is its young and dynamicpopulation, with an increasing average income in society Out of your 100 million people,nearly 45 million are now middle class Young people, well-educated, and enjoying agood education will be a strong point of Vietnam in the eyes of investors (MAF- VN2021) These favorable demographic factors will help provide potential human resourcesfor the development of current and future technology businesses

The Covid-19 pandemic has had a huge impact on the economy M&A activities inVietnam as well as globally decreased sharply due to cautious reactions from investors

At the same time, conditions of global isolation hinder understanding, assessment, anddecision-making This led to many deals having to be halted because buyers andconsultants incapability to carry out detailed appraisals, meetings, negotiations, etc Theturmoil caused by Covid-19 in global markets has severely affected the M&A market,according to a report by market research firm Euromonitor In the first half of 2020, the

number of global M&A deals decreased by 25% year on year due to the Covid-19pandemic

In Vietnam alone, the total value of M&A in 2019 reached $7.2 billion, equaling94.7% of the value in 2018 Due to the impact of Covid-19 as well as a number of otherfactors, the M&A value in 2020 is expected continue to decline, estimated at 3.5 billionUSD, equal to 48.6% compared to 2019 Besides, Vietnam's M&A value is expected tostart recovering in mid-2021 to about 4.5 - 5 billion USD and reach 7 billion USD beforethe pandemic by 2022 (CMAC)

According to Euromonitor, Vietnam is predicted to be fifth in the ranking with anexpansion rate of 23.67% between 2020 and 2021, after countries such as Singapore,Ireland, the Philippines and Qatar The M&A market continues to be led by foreigninvestors, with a focus on four countries: Japan, Korea, Thailand and Singapore

Figure 2: Top 10 markets by score growth 2020-2021

Source: Euromonitor

The M&A market continues to be led by foreign investors, with a focus on fourcountries: Japan, Korea, Thailand and Singapore

Figure 3: M&A activities by country 2019-2020

Source: MAF - Vietnam M&A Forum

During the period of 2019 - 2020, the market recorded many more M&A deals such

as Mitsubishi Corporation (Japan) and Nomura Real Estate acquired 80% in phase II ofVingroup's Grand Park project; Aozora Bank buys 15% shares of Orient CommercialJoint Stock Bank; Lotte Chemical (Korea) acquired VinaPolytech Company; SCG Group(Thailand) acquired Bien Hoa Packaging Company; etc The proportion of M&A inVietnam by industry group is highly appreciated, respectively: Real estate, banking, retailand technology (Vietnam M&A Forum - MAF)

Figure 4: Proportion of mergers and acquisitions in Vietnam from 2019 to 2020 by

industry

Source: MAF

According to Vietnam M&A Forum (MAF), the proportion of M&A value ofdomestic investors tends to increase, with the initiative of private corporations In 2018,the proportion of deals valued by Vietnamese enterprises as buyers stood at 11.5%, butthe value of foreign investors still accounted for 88.5% In the period of 2019 - 2020, thevalue of M&A played by Vietnamese enterprises as the buyer accounts for one-third ofthe total value of M&A conducted (Vietnam M&A Forum - MAF)

Figure 5: M&A value of home and foreign investors from 2018 to 2020 (%).

Source: MAF

The situation of M&A activities in Vietnam (Business environment):

Vietnam's M&A market has grown strongly with thousands of successful deals,reaching a total value of more than 50 billion USD Singapore, Vietnam, Indonesia, andMalaysia are the top 4 markets in terms of number of deals and private investment value

in Southeast Asia Vietnam's economy will enjoy favorable conditions from participating

in many free trade agreements that have been and will come into effect

Vietnam recorded 58 M&A deals in 2019 worth $2.6 billion, of which 17 weredomestic and 41 were foreign investors In 2020, it is expected to reach 55 with a totaltransaction of 1.7 billion USD, and the number of cross-border deals continues todominate the M&A market in Vietnam with 36 or 65% of total deals By 2021, mergersand acquisitions transactions may increase to $2.8 billion and $3.4 billion in 2022, ofwhich the number of deals will increase to 98 and 119 in the period 2021-2022 (OxfordEconomics)

Figure 6: VietNam - M&A and IOP transactions.

Source: Oxford Economics, Reuters

In 2021, despite the negative impact of the COVID-19 pandemic, foreigninvestment in Vietnam, including investment flows through M&A, still has growth.According to data from KPMG Vietnam (a professional service provider in Vietnam), inthe first 10 months of 2021, the M&A market has attracted more than $8.8 billion, up17.9% compared to 2020 and 13.7% compared to the year before the epidemic, 2019 As

of the end of November 2021, the total newly registered, adjusted investment capital,capital contribution and share purchase by foreign investors reached 26.46 billion USD,

up 0.1% over the same period in 2020; in which, investment through capital contributionand share purchase reached nearly 4.4 billion USD

Figure 7: M&A market in Vietnam from 2019 to 2021

Source: KPMG

Along with the development of the economy, the M&A market in Vietnam showshigh stability, even strong growth in 2021 Mergers and Acquisitions Research Institute -CMAC Institute forecasts that the price of M&A value in 2021 in Vietnam will be at 4.5 -

5 billion USD, the market size will recover equivalent to the average level in the period

2014 - 2017

Figure 8: Forecast of M&A value in VietNam in 2021

Source: CMAC Investment and Business Research Institute

In the future, M&A will create many Vietnamese corporations with a scalecomparable to large corporations in the region M&A has become an important part ofVietnam's economic picture As was shown, M&A transactions also serve to alter theseller's financial capabilities, and moreover offer up new prospects for the partiesinvolved There are deals that generate immediate profits, but there are also deals thathelp set the stage for the future At that time, M&A was seen as an important tool to helpbusinesses “complete” the missing pieces In Masan's case, that is the goal of becoming

an “online-offline integrated retail consumer” corporation

1.2 Issue

The cooperation between Vingroup and Masan is a large-scale M&A transaction and

it is ranked among the highlights of our country in the period from 2019 to now Theattraction of this deal comes from the novelty of Vingroup's business - Vingroup hasdecided to swap all shares in VCM Company - which owns retail chains VinMart,VinMart+ and VinEco into stock options

Vingroup at that time was under pressure of cash flow and wanted to free upeconomic resources to focus all economic resources on two fields: industry andtechnology Although it is the retailer with the largest number of points of sale in the

Vietnamese market, The break-even point for Vingroup's business operation has yet to bereached According to Vingroup's 2019 financial report, the retail segment is the second-highest revenue-generating business segment of the group with VND 23,571 billion, justbehind real estate transfer However, this is the second largest loss-making business inthis group with a 9-month loss of 3,461 billion VND, after the manufacturing segment.Vincommerce is considered by Masan as an important piece to realize its ambition tobecome an empire in the field of consumer goods - retail Owning a large system likeVinmart will help Masan optimize distribution channels, reduce the ratio of intermediarycosts, and bring great benefits in the long term

However, entering the retail market will be a big challenge for Masan in the shortterm It is rare for any consumer goods producer to "consider" the retail sector as well.Manufacturing and retail trade have always been two completely different fields ofactivity According to the annual statistics of the two companies, the pre-tax profit ofMasan Consumer reached more than 3,800 billion VND, but the VinCommerce systemlost 5,100 billion VND Masan's revenue from consumer goods and food is similar to thatfrom the retail sector, which has recently gotten a boost The reception of the system of2,600 supermarkets and stores immediately increased Masan's labor size to over 20,000people That is, the size of Masan has almost doubled, and the number of employees hasalmost tripled after this merger In other words, this adoption remains a challenge

From the above analysis, the author has come up with common problems of theparties involved The buyer (Masan) will bear the risk of integration and synergy from themerger The buyer will have to work out how to produce future cash flow to cover thesurplus (premium) that might also have to pay to gain control of the seller (Vingroup).Sell-side shareholders benefit from the (high) valuation of the deal

1.3 Objectives

Within the research scope of the report, the authors want to give an overview of thedeal between Masan and VinGroup through the successful merger of VinCommerce andVinEco Aim to better understand the steps of conducting a complete negotiation and

create more opportunities to hone skills and negotiation techniques not only for largeenterprises but also applicable to situations in everyday life In addition, new negotiationmethods will transform Vingroup into a world-class corporation in the future As a thirdparty, the authors will make reasonable assessments for the deal and at the same timepropose new negotiation methods to overcome difficulties at the time of the old deal Inorder to optimize operational strengths and win-win, to comprehensively focus on corestrengths, including:

 Having an overall understanding of the retail sector in the Vietnamese market

 Analysis of Consumer Goods - Retail industry, reasons for negotiation Vingroupand Masan

 Deeper analysis of the key points in the deal between the two sides

 Provide comments and feedback on the development of two businesses

 Evaluate the level of satisfaction as well as the effectiveness of this deal

II LITERATURE REVIEW

2.1 BATNA (Best Alternative to Negotiated Agreement)

Fisher, Ury (1991) built the BATNA concept which, is the best alternative if the dealfails to produce results In negotiation, BATNA is considered not only as a backup planbut also as a lever to increase bargaining power (DTAlamanda; POSaraswati; FSAPrabowo, Muhammad Azhari, 2017) Strong BATNA in the negotiation improves theoutcome of the negotiators better than the original bargaining area (Kim & Fragale 2005).BATNA is a key factor determining the strength of each party in the negotiation(Bazerman & Neale, 1992) Negotiators with better BATNA will have more bargainingpower and get better negotiating results than the other side (Gerard Beenena & John E.Barbuto Jr.a, 2014) Although a negotiator's alternatives should in theory be easy toevaluate, the effort to understand which alternatives represent one's BATNA often goesuninvested

To be valuable, options must be realistic and actionable However, without theinvestment of time, options are regularly included in options that will never meet one ofthese criteria When hard negotiators meet soft negotiators, hardline negotiators oftentake their place, but at the expense of possibly damaging the long-term relationshipbetween the parties

For example: The negotiation between LG Company and Vingroup LG Electronicsplans to sell its smartphone factories in Brazil and Vietnam to focus on other businessareas and recoup the deficits of these factories in recent years Vingroup is said to be theright contractor for this transfer because Vingroup is currently developing and expandingits technology segment.However, the result of the negotiation was a failure because theprice offered by Vingroup was quite low LG Company decided to stop negotiating andnot cooperate with Vingroup but choose other potential buyers

The BATNA concept can be seen in this situation, LG Electronics wants to resell itssmartphone factories at a price that can make up for the deficit that the factory has

offered, but Vingroup Group proposes a lower price than expected LG Company, so LGhas offered a better alternative than choosing to find a buyer with a higher price offer, inline with the price set by LG Company.

2.2 ZOPA

ZOPA is an area that is built from pre-set cut-off points between the parties,

including an area of agreement that can satisfy both parties (Fisher R, Ury WL, 1991)

Figure 9: ZOPA Method

Source: Financebiz

In a negotiation, whether it includes many possible transactions or just one option,ZOPA - the area in which both parties can reach a mutually beneficial agreement is anecessary condition to achieve agreement Without ZOPA, any agreement would beunacceptable to at least one party (Rochelle-Leigh (Shelley) Rosenberg, 2011)

In order to have a workable area of agreement, the negotiating parties need tounderstand the needs, values and interests of each other, then the parties need to worktowards a common goal and find an area a combination containing the ideas of twoparties will then come up with a compromise and the parties reach an agreement innegotiation In some negotiations, negotiators may find themselves in a situation where

there is no clear ZOPA due to the overlapping of cut-off points of the two negotiatingparties (Raiffa, 1982; Thompson, Wang, & Gunia, 2010)

This leads to several potential outcomes for negotiations such as either partyaccepting no-deal negotiation (O'Connor & Arnold, 2001; Thompson, 1998) Or anotheroutcome is that one of the two negotiators abandons their point of resistance and accepts

a deal worse than their point of resistance Cohen, Leonardelli, & Thompson, 2014;Tuncel, Mislin, Kesebir, & Pinkley, 2016)

For example: Company A is intending to sell 52% of its shares at the lowest averageprice of VND 46,000/share with the intention of calling for investment in the company'supcoming project, Company B willing to buy at the price of 50,000 VND/share with theaim of expanding the business area of his company

In this situation, the ZOPA seen here is in the 2,000 dong range During thenegotiation, any agreed price within this 2000 dong area can satisfy the needs ofcompany A and company B

2.3 Integrative negotiation

Some types of negotiation have never been used in all negotiation procedures,although depending on the development and strategy in the negotiation process, manytypes of negotiation are needed in one negotiation, so integrated negotiation emerges(Llamazares and Nieto et al , 2017)

The integrated negotiation approach produces better results and a more sustainablewinwin (Pruitt et al., 1983; Sebenius, 1992; Lewicki and Saunders, 1999) An integratednegotiation process is made up of thoughts and opinions as a contributor rather than as acompetitor.(Pruitt et al., 1983) Achieving the best outcome is the goal of integrativenegotiation To be able to solve the problem and come up with a solution to thenegotiation that both parties can accept, it is necessary to identify the interests andstrategies of the two sides to find common values (Koning and van Dijk, 2013)

Negotiators never place a high value on how much they will receive as an individualparty Instead, they focus their efforts on improving overall outcomes throughcollaboration between parties Integrated negotiation tactics are only effective when fairprocedures are followed and fair outcomes are achieved This often means thatindividuals approach the negotiating table with a mindset of partners and collaboratorsrather than competitors (Getsmarter, Blog, 2020).

For example: Company A and company B are both in the negotiation phase toacquire two projects C and D that are attractive and influential in the business market.After the negotiation, company B will hold 70% of the shares, company A holds 30%.However, company A will have more time and effort to develop the rest of the company

As for company B, it continues to dominate the business market with projects C and D.Besides, company A earns a large profit after the transfer, while company B reaps profitsfrom the transfer continue to do business with projects C and D

III NEGOTIATION ANALYSIS:

3.1 Company background

3.1.1 Masan group

Established in 2013, Masan Consumer Holdings is a member company of MasanGroup established in 2013, operating in the field of consumer goods including foods andbeverages with many famous and prestigious brands on the market such as Chinsu, NamNgu, Vinacafe, Cholimex, etc

Masan currently has more than 20 years of experience in the field of business andspecializes in manufacturing consumer goods in the Vietnamese market With the goal ofleading in the consumer goods business, Masan has continuously developed andexpanded its business model over the years

Structure of Masan Corporation:

Figure 10: Structure of Masan Group

Source: Masan group

Field of activity: Currently, Masan operates in the following fields:

 Retail segment: The CrownX (WinCommerce, WinEco) and Meatdeli

 Food and Beverage: Masan Consumer Holdings

 Consumer foods: Saigon Nutri food, 3 Viet Food, Cholimex, and more

 Financial activities: EVO card with eKYC (electronic customer identification),Techcombank

 High-Tech Materials: Masan High-Tech Material

Revenue in recent years:

Figure 11: Masan's Revenue from 2018 to 2021 ( Billion VND)

Source: Masan report 2022

- Therefore, Masan invests not only in the best operating systems but also in thedevelopment of new products Besides, Masan is also constantly building a brand

by developing or acquiring strong brands that are trusted by consumers, boostingproductivity to meet consumers' needs with factories with high-quality products.world-class scale In particular, Masan pays great attention to training and highquality human resources to meet the needs of businesses as well as customers

- According to Masan's 2022 report, the company's annual profit has increasedsignificantly It can be seen that, from 2018, Masan's consolidated net revenue isabout VND 38,200 billion, with profit after tax of about VND 5,690 billion In

2020, the company fulfilled its financial target, more than doubling or expanding107.0% compared to 37,365 billion VND in 2019

- In 2021, Masan achieved consolidated net revenue of VND 88,630 billion, up156% compared to VND 77,219 billion in 2020.

- Masan group is continuing to expand and develop the future market, with theambition to become a market leader in consumer goods - retail in Vietnam andtowards international scale

3.1.2 Vingroup Corporation:

Vingroup is a private corporation investing in developing an ecosystem with 7 coreareas of "real estate, retail, services - entertainment, healthcare, education, agriculture andheavy industry" Established in 1993 in Ukraine Vingroup is one of Asia's largest multi-industry private economic groups with a market capitalization of nearly 16 billion USD.Vingroup is headed by Chairman of the Board of Directors Pham Nhat Vuong, who isboth the founder and one of the members of the Board of Directors of the two companiesVincom and Vinpearl before the merger

Figure 12: Brands of Vingroup

Soucre: Author

Therefore, Masan invests not only in the best operating systems but also in thedevelopment of new products Besides, Masan is also constantly building a brand bydeveloping or acquiring strong brands that are trusted by consumers, boosting