Luận văn a study on merger and acquisition in vietnam the case of ho guom and chien thang garment companies

Introduction In the context of global rise in M&A activities and the necessity of M&A in the development of Vietnamese companies, the study would provide international knowledge of M&A

VIETNAM NATIONAL UNIVERSITY, HANOI

SCHOOL OF BUSINESS

Vu Thi Thu Minh

A STUDY ON MERGER AND ACQUISITION

IN VIETNAM - THE CASE OF HO GUOM AND CHIEN THANG GARMENT COMPANIES

MASTER OF BUSINESS ADMINISTRATION THESIS

Hanoi - 2007

2 Problem discussion in hình he ưản

3 Objectives and Aums

CHAPTER 1: LITERATURE REVIEW

1.1 Rationales of Merger and Acquisition

I.I.I Definition and classification of M&A

1.12 Bnsinsssvaluatien cover 1.13 Financing M&A ăn nhan hieu re 1.14 Motiyes behind M&A nhe hHhhhhnreeeree

1.2 Guidelines for suecessfl aoquisitions

1.4 Conecptualizalion and emerged frame of roforenee 23 14.1 Coneeptualizaion ceeecceeecer 28

3.3.1 Post-integration change of Vietnam garmcnt and (exilc industry 41

3.23 CHIGAMEX A poorly-managed and loss-making company 46 3.3 Execution of the acquisition of CHIGAMEX by HOGARSCO 50

3.4.2 Transferring competencies and roslizing economics of scope 58 3.43 Post-acquisilion perfornuanee oF CHIGAMEX 6Ù 3.5 A summary on main findings from the case study „61

vill

Introduction

In the context of global rise in M&A activities and the necessity of M&A in the development of Vietnamese companies, the study would provide international knowledge of M&A and analyze a practical acquisition case of HOGARSCO and CHIGAMEX in order to draw some successful lessons for other companics in Vietnam, therefore, the title of the thesis would be finalized as “A study on merger and acquisition im Vietnam — The case of Ho Guom and Chien Thang garment companies”

Companies such as HOGARSCO have been choosing a strategy of horizontal acquisition to consolidate their competitive advantage Vietnam National Textile and Garment Corporation (VINATEX) arranged the horizontal acquisition of Chien

Thang Garment JSC by Ho Guom Garment JSC in order to help CHIGAMEX

overcome the edge of bankruptey By pursuing horizontal acquisition, both

TIOGARSCO and CHIGAMEX can obtain economies of scale or secure export

market for their producis Afler acquisition, the Iwo companies will be able 10

improve their competitiveness and market visibility

3 Objectives and Aims

The abjectives of the thesis are as below

> Firstly, to provide a better understanding of M&A, its rahionales and international guidelines for M&A

® Secondly, ta review the recent upward trend in Mé&:A activities and the context

of Victnam garment and textile indnatry in 2007 to raise the demand of M&A

v Thirdly, to apply theory into case study of Ho Guom and Chien Thang garment companics to show advantages, disadvantages, successes, limitations

of the acquisition that help these two companies get inside picture of this

acquisition

> Fourthly, to draw out some conclusions and suggestions for M&A activities in

‘Vietnam.

LIST OF TABLES AND FIFURES

Table 2.1; Three different research purposes scsessmsiniseieinneinteenitnnnie

Table 2.2: Relevanl situations for different research strategies

Table 2.3: Six sources of evidence, sirenglhs and weaknesses

Table 2.4; Case study tactics for four design test

Table 3.1: Information on HOGARSCC”s factories c cà soneiiieoiee Table 3.2: HOGARSCO’s performance from 2002-2006 (VND billion) .0

Eigure 1.1: Emterged frame of referenee « «+

Figure 2.1: An overview of the methodology chapter

Figure 3.1: Sales percentage by main export markets of IOGARSCO

Figure 3.2: Sales percentage by categories of products

Figure 3.3: HOGARSCO"s performance from 2002-2006 (VND billion)

Figure 3.4: Major exporl markets of Chigamox

Figure 3.5: Pre-acquisition organizational structurc of CHIGAMEX Figure 3.6; Overview of holding rate among companies

Figure 3.7: Post-acquisition organizational structure of CHIGAMEX

Introduction

mergers can be reached by using both companies’ assets more effectively by the

combined firms than by the target and bidder separated (Child et al., 2001)

Although M&As almost seem to represent a part of everyday business life and the majority of multinational enterprises undertake more than one during their development, the risks associated are slill comparably high, Piven though there have beon examples of extremely succossfid mergers thore are findings that 50-80% uaderperform their industry pecs and fail to cam the expected financial returns [DePamphilis, D., 2005] Reasons for acquisition failure can range from

overoptimistic estimates of the target company’s value which result in extensive

overpaying; over slow integration of all operational levels in the post-acquisition phase; poor, clashing tusiness strategies impossible 10 merge [DePamphilis, D., 2005] Furthermore, the depree of relatedness of businesses, as well as the distance

in business or corporate culture is crucial factors to take into consideration [Child et

at., 2001; Gancet et al., 2002),

Vietnamese enterprises have been integrating into the global trend of rise in M&A

activities, especially when Vietnam is in the context of high economic growth rates, low interesl rates, strong and rapid equilisation and “hol” stock markets, Similarly, markel, cost, competitiveness, government and synergies arc often mentioned as drivers for morger and acquisitions in Vietnam The prescace of conglomerate and group of companies in Vietnam has indicated a condensed strength and has shown the willingness for integration into globally competitive economies

Introduction

business world, More precisely they represent options that aim at a very high

degree of integration, as apposed 1a cooperalive agreements and joint ventures

Generally speaking, acquisitions refer to a shift in the controlling ownership of a company that is taken over by another company This can occur both through share purchases or other forms of the target’s equity as well as asset purchases, The acquired firm can still exist as a legally-owned subsidiary of the acquiring

company, as is the case of CLIIGAMEX acquisition Mergers, by contrast, am at

“total integration of two or more partners into a new unified corporation” (Child, 2001] They are usually coined by a consensual environment, where beneficial ouloomes are ensured for both parlies

Acquisitions, however, can alsa take place in a hostile setting, where the target’s management is passed over and the shares are purchased agamst the wishes of the

target company [DePamphilis, 2005] Generally, acquisitions offer a certain degree

of choice concerning the magnitude of integration, which mergers do nol permit

Moreover, acquisitions are mostly known to be unequal partnerships [Child et al, 2001] Although the tems mergers and acquisitions are often used interchangeably,

they entail very different concepts

Horizontal acquisition takes place where the acquiring and acquired companies produce similar product in the same industry There is a long-standing debate in the economics and finance literature on the motives for horizontal acquisition, Firm management usually cites expected improvements in productive efficiencies or synergies like scale economies and elimination of overlapping facilities as the key reasons for undertaking horizontal acquisitions On the other hand, some economists express concer [hal by teducing the number of firms in an industry, horizontal acquisition increase markel power of customers and supplicrs of the acquiring firm’s industry, Thus, horizontal acquisitions may be undertaken primarily to exploit the increased market power and gain at the expense of

customers and/or suppliers.

Introduction

mergers can be reached by using both companies’ assets more effectively by the

combined firms than by the target and bidder separated (Child et al., 2001)

Although M&As almost seem to represent a part of everyday business life and the majority of multinational enterprises undertake more than one during their development, the risks associated are slill comparably high, Piven though there have beon examples of extremely succossfid mergers thore are findings that 50-80% uaderperform their industry pecs and fail to cam the expected financial returns [DePamphilis, D., 2005] Reasons for acquisition failure can range from

overoptimistic estimates of the target company’s value which result in extensive

overpaying; over slow integration of all operational levels in the post-acquisition phase; poor, clashing tusiness strategies impossible 10 merge [DePamphilis, D., 2005] Furthermore, the depree of relatedness of businesses, as well as the distance

in business or corporate culture is crucial factors to take into consideration [Child et

at., 2001; Gancet et al., 2002),

Vietnamese enterprises have been integrating into the global trend of rise in M&A

activities, especially when Vietnam is in the context of high economic growth rates, low interesl rates, strong and rapid equilisation and “hol” stock markets, Similarly, markel, cost, competitiveness, government and synergies arc often mentioned as drivers for morger and acquisitions in Vietnam The prescace of conglomerate and group of companies in Vietnam has indicated a condensed strength and has shown the willingness for integration into globally competitive economies

LIST OF TABLES AND FIFURES

Table 2.1; Three different research purposes scsessmsiniseieinneinteenitnnnie

Table 2.2: Relevanl situations for different research strategies

Table 2.3: Six sources of evidence, sirenglhs and weaknesses

Table 2.4; Case study tactics for four design test

Table 3.1: Information on HOGARSCC”s factories c cà soneiiieoiee Table 3.2: HOGARSCO’s performance from 2002-2006 (VND billion) .0

Eigure 1.1: Emterged frame of referenee « «+

Figure 2.1: An overview of the methodology chapter

Figure 3.1: Sales percentage by main export markets of IOGARSCO

Figure 3.2: Sales percentage by categories of products

Figure 3.3: HOGARSCO"s performance from 2002-2006 (VND billion)

Figure 3.4: Major exporl markets of Chigamox

Figure 3.5: Pre-acquisition organizational structurc of CHIGAMEX Figure 3.6; Overview of holding rate among companies

Figure 3.7: Post-acquisition organizational structure of CHIGAMEX

Introduction

In the context of global rise in M&A activities and the necessity of M&A in the development of Vietnamese companies, the study would provide international knowledge of M&A and analyze a practical acquisition case of HOGARSCO and CHIGAMEX in order to draw some successful lessons for other companics in Vietnam, therefore, the title of the thesis would be finalized as “A study on merger and acquisition im Vietnam — The case of Ho Guom and Chien Thang garment companies”

Companies such as HOGARSCO have been choosing a strategy of horizontal acquisition to consolidate their competitive advantage Vietnam National Textile and Garment Corporation (VINATEX) arranged the horizontal acquisition of Chien

Thang Garment JSC by Ho Guom Garment JSC in order to help CHIGAMEX

overcome the edge of bankruptey By pursuing horizontal acquisition, both

TIOGARSCO and CHIGAMEX can obtain economies of scale or secure export

market for their producis Afler acquisition, the Iwo companies will be able 10

improve their competitiveness and market visibility

3 Objectives and Aims

The abjectives of the thesis are as below

> Firstly, to provide a better understanding of M&A, its rahionales and international guidelines for M&A

® Secondly, ta review the recent upward trend in Mé&:A activities and the context

of Victnam garment and textile indnatry in 2007 to raise the demand of M&A

v Thirdly, to apply theory into case study of Ho Guom and Chien Thang garment companics to show advantages, disadvantages, successes, limitations

of the acquisition that help these two companies get inside picture of this

acquisition

> Fourthly, to draw out some conclusions and suggestions for M&A activities in

‘Vietnam.

Introduction

mergers can be reached by using both companies’ assets more effectively by the

combined firms than by the target and bidder separated (Child et al., 2001)

Although M&As almost seem to represent a part of everyday business life and the majority of multinational enterprises undertake more than one during their development, the risks associated are slill comparably high, Piven though there have beon examples of extremely succossfid mergers thore are findings that 50-80% uaderperform their industry pecs and fail to cam the expected financial returns [DePamphilis, D., 2005] Reasons for acquisition failure can range from

overoptimistic estimates of the target company’s value which result in extensive

overpaying; over slow integration of all operational levels in the post-acquisition phase; poor, clashing tusiness strategies impossible 10 merge [DePamphilis, D., 2005] Furthermore, the depree of relatedness of businesses, as well as the distance

in business or corporate culture is crucial factors to take into consideration [Child et

at., 2001; Gancet et al., 2002),

Vietnamese enterprises have been integrating into the global trend of rise in M&A

activities, especially when Vietnam is in the context of high economic growth rates, low interesl rates, strong and rapid equilisation and “hol” stock markets, Similarly, markel, cost, competitiveness, government and synergies arc often mentioned as drivers for morger and acquisitions in Vietnam The prescace of conglomerate and group of companies in Vietnam has indicated a condensed strength and has shown the willingness for integration into globally competitive economies

LIST OF ABBREVIATIONS

M&A Merger and Acquisition

HOGARSCO — Ho Guom Gannent Joint Stock Company

CHIGAMEX — Chion Thang Garment Joint Stock Company

VINATEX Vietnam National Textile and Garment Corporation

Introduction

INTRODUCTION

This first part is intended to give an introduction to the area of research First a

brief background discussion regarding merger and acquisition (M&A) will be provided, followed by the problem discussion, leading to the objectives and aims,

then research questions, scope of work, significance, and the limitations of the study

will be presented and finally the oudline of the thesis,

1 Background

In today’s business world, mergers and acquisitions play an important and undisputable role in crealing a sustainable competitive advanlage Although there have always been historical merger and acquisition waves often in the periods of high economic growth rates, dectine in interest rates and rise in stock markets, M&A pained its importance in recent years,

For the last 30 years, M&A activilics have increased constantly in both number and average size [DePamphilis, 2003] In a very competitive and global cnvironment various reasons can account for companies undeitaking these deals, often involving extremely high financial payments Market-, cost-, competitive- or government drivers [Child et al., 2001] can all influence a company’s decision to opt for M&A

as the primary mean to quickly increase revenues [Galpin and Hemdon, 1999] More specifically, operating synergies are often mentioned as drivers for merging,

Ry combining complementary skills and resources both partners’ economics af scale and scope can benefit, by spreading fixed costs for instance Moreover, financial synergies, diversification aims, tax advantages, pursue of market power as well as empire building can represent reasons to engage in such costly ventures [DePamphilis, 2005] Generally, the justification for acquisitions lies in the

potential value they are anticipated to create in the future (Child et al, 2001]

Consequently, the combined value of both merged companies should be higher than the sum of the individual companies Theoretically, this value creation through

Introduction

In the context of global rise in M&A activities and the necessity of M&A in the development of Vietnamese companies, the study would provide international knowledge of M&A and analyze a practical acquisition case of HOGARSCO and CHIGAMEX in order to draw some successful lessons for other companics in Vietnam, therefore, the title of the thesis would be finalized as “A study on merger and acquisition im Vietnam — The case of Ho Guom and Chien Thang garment companies”

Companies such as HOGARSCO have been choosing a strategy of horizontal acquisition to consolidate their competitive advantage Vietnam National Textile and Garment Corporation (VINATEX) arranged the horizontal acquisition of Chien

Thang Garment JSC by Ho Guom Garment JSC in order to help CHIGAMEX

overcome the edge of bankruptey By pursuing horizontal acquisition, both

TIOGARSCO and CHIGAMEX can obtain economies of scale or secure export

market for their producis Afler acquisition, the Iwo companies will be able 10

improve their competitiveness and market visibility

3 Objectives and Aims

The abjectives of the thesis are as below

> Firstly, to provide a better understanding of M&A, its rahionales and international guidelines for M&A

® Secondly, ta review the recent upward trend in Mé&:A activities and the context

of Victnam garment and textile indnatry in 2007 to raise the demand of M&A

v Thirdly, to apply theory into case study of Ho Guom and Chien Thang garment companics to show advantages, disadvantages, successes, limitations

of the acquisition that help these two companies get inside picture of this

acquisition

> Fourthly, to draw out some conclusions and suggestions for M&A activities in

‘Vietnam.

Introduction

In the context of global rise in M&A activities and the necessity of M&A in the development of Vietnamese companies, the study would provide international knowledge of M&A and analyze a practical acquisition case of HOGARSCO and CHIGAMEX in order to draw some successful lessons for other companics in Vietnam, therefore, the title of the thesis would be finalized as “A study on merger and acquisition im Vietnam — The case of Ho Guom and Chien Thang garment companies”

Companies such as HOGARSCO have been choosing a strategy of horizontal acquisition to consolidate their competitive advantage Vietnam National Textile and Garment Corporation (VINATEX) arranged the horizontal acquisition of Chien

Thang Garment JSC by Ho Guom Garment JSC in order to help CHIGAMEX

overcome the edge of bankruptey By pursuing horizontal acquisition, both

TIOGARSCO and CHIGAMEX can obtain economies of scale or secure export

market for their producis Afler acquisition, the Iwo companies will be able 10

improve their competitiveness and market visibility

3 Objectives and Aims

The abjectives of the thesis are as below

> Firstly, to provide a better understanding of M&A, its rahionales and international guidelines for M&A

® Secondly, ta review the recent upward trend in Mé&:A activities and the context

of Victnam garment and textile indnatry in 2007 to raise the demand of M&A

v Thirdly, to apply theory into case study of Ho Guom and Chien Thang garment companics to show advantages, disadvantages, successes, limitations

of the acquisition that help these two companies get inside picture of this

acquisition

> Fourthly, to draw out some conclusions and suggestions for M&A activities in

‘Vietnam.

LIST OF TABLES AND FIFURES

Table 2.1; Three different research purposes scsessmsiniseieinneinteenitnnnie

Table 2.2: Relevanl situations for different research strategies

Table 2.3: Six sources of evidence, sirenglhs and weaknesses

Table 2.4; Case study tactics for four design test

Table 3.1: Information on HOGARSCC”s factories c cà soneiiieoiee Table 3.2: HOGARSCO’s performance from 2002-2006 (VND billion) .0

Eigure 1.1: Emterged frame of referenee « «+

Figure 2.1: An overview of the methodology chapter

Figure 3.1: Sales percentage by main export markets of IOGARSCO

Figure 3.2: Sales percentage by categories of products

Figure 3.3: HOGARSCO"s performance from 2002-2006 (VND billion)

Figure 3.4: Major exporl markets of Chigamox

Figure 3.5: Pre-acquisition organizational structurc of CHIGAMEX Figure 3.6; Overview of holding rate among companies

Figure 3.7: Post-acquisition organizational structure of CHIGAMEX

Introduction

mergers can be reached by using both companies’ assets more effectively by the

combined firms than by the target and bidder separated (Child et al., 2001)

Although M&As almost seem to represent a part of everyday business life and the majority of multinational enterprises undertake more than one during their development, the risks associated are slill comparably high, Piven though there have beon examples of extremely succossfid mergers thore are findings that 50-80% uaderperform their industry pecs and fail to cam the expected financial returns [DePamphilis, D., 2005] Reasons for acquisition failure can range from

overoptimistic estimates of the target company’s value which result in extensive

overpaying; over slow integration of all operational levels in the post-acquisition phase; poor, clashing tusiness strategies impossible 10 merge [DePamphilis, D., 2005] Furthermore, the depree of relatedness of businesses, as well as the distance

in business or corporate culture is crucial factors to take into consideration [Child et

at., 2001; Gancet et al., 2002),

Vietnamese enterprises have been integrating into the global trend of rise in M&A

activities, especially when Vietnam is in the context of high economic growth rates, low interesl rates, strong and rapid equilisation and “hol” stock markets, Similarly, markel, cost, competitiveness, government and synergies arc often mentioned as drivers for morger and acquisitions in Vietnam The prescace of conglomerate and group of companies in Vietnam has indicated a condensed strength and has shown the willingness for integration into globally competitive economies

Introduction

In the context of global rise in M&A activities and the necessity of M&A in the development of Vietnamese companies, the study would provide international knowledge of M&A and analyze a practical acquisition case of HOGARSCO and CHIGAMEX in order to draw some successful lessons for other companics in Vietnam, therefore, the title of the thesis would be finalized as “A study on merger and acquisition im Vietnam — The case of Ho Guom and Chien Thang garment companies”

Companies such as HOGARSCO have been choosing a strategy of horizontal acquisition to consolidate their competitive advantage Vietnam National Textile and Garment Corporation (VINATEX) arranged the horizontal acquisition of Chien

Thang Garment JSC by Ho Guom Garment JSC in order to help CHIGAMEX

overcome the edge of bankruptey By pursuing horizontal acquisition, both

TIOGARSCO and CHIGAMEX can obtain economies of scale or secure export

market for their producis Afler acquisition, the Iwo companies will be able 10

improve their competitiveness and market visibility

3 Objectives and Aims

The abjectives of the thesis are as below

> Firstly, to provide a better understanding of M&A, its rahionales and international guidelines for M&A

® Secondly, ta review the recent upward trend in Mé&:A activities and the context

of Victnam garment and textile indnatry in 2007 to raise the demand of M&A

v Thirdly, to apply theory into case study of Ho Guom and Chien Thang garment companics to show advantages, disadvantages, successes, limitations

of the acquisition that help these two companies get inside picture of this

acquisition

> Fourthly, to draw out some conclusions and suggestions for M&A activities in

‘Vietnam.

LIST OF TABLES AND FIFURES

Table 2.1; Three different research purposes scsessmsiniseieinneinteenitnnnie

Table 2.2: Relevanl situations for different research strategies

Table 2.3: Six sources of evidence, sirenglhs and weaknesses

Table 2.4; Case study tactics for four design test

Table 3.1: Information on HOGARSCC”s factories c cà soneiiieoiee Table 3.2: HOGARSCO’s performance from 2002-2006 (VND billion) .0

Eigure 1.1: Emterged frame of referenee « «+

Figure 2.1: An overview of the methodology chapter

Figure 3.1: Sales percentage by main export markets of IOGARSCO

Figure 3.2: Sales percentage by categories of products

Figure 3.3: HOGARSCO"s performance from 2002-2006 (VND billion)

Figure 3.4: Major exporl markets of Chigamox

Figure 3.5: Pre-acquisition organizational structurc of CHIGAMEX Figure 3.6; Overview of holding rate among companies

Figure 3.7: Post-acquisition organizational structure of CHIGAMEX

Introduction

INTRODUCTION

This first part is intended to give an introduction to the area of research First a

brief background discussion regarding merger and acquisition (M&A) will be provided, followed by the problem discussion, leading to the objectives and aims,

then research questions, scope of work, significance, and the limitations of the study

will be presented and finally the oudline of the thesis,

1 Background

In today’s business world, mergers and acquisitions play an important and undisputable role in crealing a sustainable competitive advanlage Although there have always been historical merger and acquisition waves often in the periods of high economic growth rates, dectine in interest rates and rise in stock markets, M&A pained its importance in recent years,

For the last 30 years, M&A activilics have increased constantly in both number and average size [DePamphilis, 2003] In a very competitive and global cnvironment various reasons can account for companies undeitaking these deals, often involving extremely high financial payments Market-, cost-, competitive- or government drivers [Child et al., 2001] can all influence a company’s decision to opt for M&A

as the primary mean to quickly increase revenues [Galpin and Hemdon, 1999] More specifically, operating synergies are often mentioned as drivers for merging,

Ry combining complementary skills and resources both partners’ economics af scale and scope can benefit, by spreading fixed costs for instance Moreover, financial synergies, diversification aims, tax advantages, pursue of market power as well as empire building can represent reasons to engage in such costly ventures [DePamphilis, 2005] Generally, the justification for acquisitions lies in the

potential value they are anticipated to create in the future (Child et al, 2001]

Consequently, the combined value of both merged companies should be higher than the sum of the individual companies Theoretically, this value creation through

Introduction

business world, More precisely they represent options that aim at a very high

degree of integration, as apposed 1a cooperalive agreements and joint ventures

Generally speaking, acquisitions refer to a shift in the controlling ownership of a company that is taken over by another company This can occur both through share purchases or other forms of the target’s equity as well as asset purchases, The acquired firm can still exist as a legally-owned subsidiary of the acquiring

company, as is the case of CLIIGAMEX acquisition Mergers, by contrast, am at

“total integration of two or more partners into a new unified corporation” (Child, 2001] They are usually coined by a consensual environment, where beneficial ouloomes are ensured for both parlies

Acquisitions, however, can alsa take place in a hostile setting, where the target’s management is passed over and the shares are purchased agamst the wishes of the

target company [DePamphilis, 2005] Generally, acquisitions offer a certain degree

of choice concerning the magnitude of integration, which mergers do nol permit

Moreover, acquisitions are mostly known to be unequal partnerships [Child et al, 2001] Although the tems mergers and acquisitions are often used interchangeably,

they entail very different concepts

Horizontal acquisition takes place where the acquiring and acquired companies produce similar product in the same industry There is a long-standing debate in the economics and finance literature on the motives for horizontal acquisition, Firm management usually cites expected improvements in productive efficiencies or synergies like scale economies and elimination of overlapping facilities as the key reasons for undertaking horizontal acquisitions On the other hand, some economists express concer [hal by teducing the number of firms in an industry, horizontal acquisition increase markel power of customers and supplicrs of the acquiring firm’s industry, Thus, horizontal acquisitions may be undertaken primarily to exploit the increased market power and gain at the expense of

customers and/or suppliers.

LIST OF ABBREVIATIONS

M&A Merger and Acquisition

HOGARSCO — Ho Guom Gannent Joint Stock Company

CHIGAMEX — Chion Thang Garment Joint Stock Company

VINATEX Vietnam National Textile and Garment Corporation

LIST OF TABLES AND FIFURES

Table 2.1; Three different research purposes scsessmsiniseieinneinteenitnnnie

Table 2.2: Relevanl situations for different research strategies

Table 2.3: Six sources of evidence, sirenglhs and weaknesses

Table 2.4; Case study tactics for four design test

Table 3.1: Information on HOGARSCC”s factories c cà soneiiieoiee Table 3.2: HOGARSCO’s performance from 2002-2006 (VND billion) .0

Eigure 1.1: Emterged frame of referenee « «+

Figure 2.1: An overview of the methodology chapter

Figure 3.1: Sales percentage by main export markets of IOGARSCO

Figure 3.2: Sales percentage by categories of products

Figure 3.3: HOGARSCO"s performance from 2002-2006 (VND billion)

Figure 3.4: Major exporl markets of Chigamox

Figure 3.5: Pre-acquisition organizational structurc of CHIGAMEX Figure 3.6; Overview of holding rate among companies

Figure 3.7: Post-acquisition organizational structure of CHIGAMEX

LIST OF ABBREVIATIONS

M&A Merger and Acquisition

HOGARSCO — Ho Guom Gannent Joint Stock Company

CHIGAMEX — Chion Thang Garment Joint Stock Company

VINATEX Vietnam National Textile and Garment Corporation

Introduction

In the context of global rise in M&A activities and the necessity of M&A in the development of Vietnamese companies, the study would provide international knowledge of M&A and analyze a practical acquisition case of HOGARSCO and CHIGAMEX in order to draw some successful lessons for other companics in Vietnam, therefore, the title of the thesis would be finalized as “A study on merger and acquisition im Vietnam — The case of Ho Guom and Chien Thang garment companies”

Companies such as HOGARSCO have been choosing a strategy of horizontal acquisition to consolidate their competitive advantage Vietnam National Textile and Garment Corporation (VINATEX) arranged the horizontal acquisition of Chien

Thang Garment JSC by Ho Guom Garment JSC in order to help CHIGAMEX

overcome the edge of bankruptey By pursuing horizontal acquisition, both

TIOGARSCO and CHIGAMEX can obtain economies of scale or secure export

market for their producis Afler acquisition, the Iwo companies will be able 10

improve their competitiveness and market visibility

3 Objectives and Aims

The abjectives of the thesis are as below

> Firstly, to provide a better understanding of M&A, its rahionales and international guidelines for M&A

® Secondly, ta review the recent upward trend in Mé&:A activities and the context

of Victnam garment and textile indnatry in 2007 to raise the demand of M&A

v Thirdly, to apply theory into case study of Ho Guom and Chien Thang garment companics to show advantages, disadvantages, successes, limitations

of the acquisition that help these two companies get inside picture of this

acquisition

> Fourthly, to draw out some conclusions and suggestions for M&A activities in

‘Vietnam.

Introduction

INTRODUCTION

This first part is intended to give an introduction to the area of research First a

brief background discussion regarding merger and acquisition (M&A) will be provided, followed by the problem discussion, leading to the objectives and aims,

then research questions, scope of work, significance, and the limitations of the study

will be presented and finally the oudline of the thesis,

1 Background

In today’s business world, mergers and acquisitions play an important and undisputable role in crealing a sustainable competitive advanlage Although there have always been historical merger and acquisition waves often in the periods of high economic growth rates, dectine in interest rates and rise in stock markets, M&A pained its importance in recent years,

For the last 30 years, M&A activilics have increased constantly in both number and average size [DePamphilis, 2003] In a very competitive and global cnvironment various reasons can account for companies undeitaking these deals, often involving extremely high financial payments Market-, cost-, competitive- or government drivers [Child et al., 2001] can all influence a company’s decision to opt for M&A

as the primary mean to quickly increase revenues [Galpin and Hemdon, 1999] More specifically, operating synergies are often mentioned as drivers for merging,

Ry combining complementary skills and resources both partners’ economics af scale and scope can benefit, by spreading fixed costs for instance Moreover, financial synergies, diversification aims, tax advantages, pursue of market power as well as empire building can represent reasons to engage in such costly ventures [DePamphilis, 2005] Generally, the justification for acquisitions lies in the

potential value they are anticipated to create in the future (Child et al, 2001]

Consequently, the combined value of both merged companies should be higher than the sum of the individual companies Theoretically, this value creation through

LIST OF TABLES AND FIFURES

Table 2.1; Three different research purposes scsessmsiniseieinneinteenitnnnie

Table 2.2: Relevanl situations for different research strategies

Table 2.3: Six sources of evidence, sirenglhs and weaknesses

Table 2.4; Case study tactics for four design test

Table 3.1: Information on HOGARSCC”s factories c cà soneiiieoiee Table 3.2: HOGARSCO’s performance from 2002-2006 (VND billion) .0

Eigure 1.1: Emterged frame of referenee « «+

Figure 2.1: An overview of the methodology chapter

Figure 3.1: Sales percentage by main export markets of IOGARSCO

Figure 3.2: Sales percentage by categories of products

Figure 3.3: HOGARSCO"s performance from 2002-2006 (VND billion)

Figure 3.4: Major exporl markets of Chigamox

Figure 3.5: Pre-acquisition organizational structurc of CHIGAMEX Figure 3.6; Overview of holding rate among companies

Figure 3.7: Post-acquisition organizational structure of CHIGAMEX

Introduction

INTRODUCTION

This first part is intended to give an introduction to the area of research First a

brief background discussion regarding merger and acquisition (M&A) will be provided, followed by the problem discussion, leading to the objectives and aims,

then research questions, scope of work, significance, and the limitations of the study

will be presented and finally the oudline of the thesis,

1 Background

In today’s business world, mergers and acquisitions play an important and undisputable role in crealing a sustainable competitive advanlage Although there have always been historical merger and acquisition waves often in the periods of high economic growth rates, dectine in interest rates and rise in stock markets, M&A pained its importance in recent years,

For the last 30 years, M&A activilics have increased constantly in both number and average size [DePamphilis, 2003] In a very competitive and global cnvironment various reasons can account for companies undeitaking these deals, often involving extremely high financial payments Market-, cost-, competitive- or government drivers [Child et al., 2001] can all influence a company’s decision to opt for M&A

as the primary mean to quickly increase revenues [Galpin and Hemdon, 1999] More specifically, operating synergies are often mentioned as drivers for merging,

Ry combining complementary skills and resources both partners’ economics af scale and scope can benefit, by spreading fixed costs for instance Moreover, financial synergies, diversification aims, tax advantages, pursue of market power as well as empire building can represent reasons to engage in such costly ventures [DePamphilis, 2005] Generally, the justification for acquisitions lies in the

potential value they are anticipated to create in the future (Child et al, 2001]

Consequently, the combined value of both merged companies should be higher than the sum of the individual companies Theoretically, this value creation through

Introduction

mergers can be reached by using both companies’ assets more effectively by the

combined firms than by the target and bidder separated (Child et al., 2001)

Although M&As almost seem to represent a part of everyday business life and the majority of multinational enterprises undertake more than one during their development, the risks associated are slill comparably high, Piven though there have beon examples of extremely succossfid mergers thore are findings that 50-80% uaderperform their industry pecs and fail to cam the expected financial returns [DePamphilis, D., 2005] Reasons for acquisition failure can range from

overoptimistic estimates of the target company’s value which result in extensive

overpaying; over slow integration of all operational levels in the post-acquisition phase; poor, clashing tusiness strategies impossible 10 merge [DePamphilis, D., 2005] Furthermore, the depree of relatedness of businesses, as well as the distance

in business or corporate culture is crucial factors to take into consideration [Child et

at., 2001; Gancet et al., 2002),

Vietnamese enterprises have been integrating into the global trend of rise in M&A

activities, especially when Vietnam is in the context of high economic growth rates, low interesl rates, strong and rapid equilisation and “hol” stock markets, Similarly, markel, cost, competitiveness, government and synergies arc often mentioned as drivers for morger and acquisitions in Vietnam The prescace of conglomerate and group of companies in Vietnam has indicated a condensed strength and has shown the willingness for integration into globally competitive economies

LIST OF TABLES AND FIFURES

Table 2.1; Three different research purposes scsessmsiniseieinneinteenitnnnie

Table 2.2: Relevanl situations for different research strategies

Table 2.3: Six sources of evidence, sirenglhs and weaknesses

Table 2.4; Case study tactics for four design test

Table 3.1: Information on HOGARSCC”s factories c cà soneiiieoiee Table 3.2: HOGARSCO’s performance from 2002-2006 (VND billion) .0

Eigure 1.1: Emterged frame of referenee « «+

Figure 2.1: An overview of the methodology chapter

Figure 3.1: Sales percentage by main export markets of IOGARSCO

Figure 3.2: Sales percentage by categories of products

Figure 3.3: HOGARSCO"s performance from 2002-2006 (VND billion)

Figure 3.4: Major exporl markets of Chigamox

Figure 3.5: Pre-acquisition organizational structurc of CHIGAMEX Figure 3.6; Overview of holding rate among companies

Figure 3.7: Post-acquisition organizational structure of CHIGAMEX

Introduction

business world, More precisely they represent options that aim at a very high

degree of integration, as apposed 1a cooperalive agreements and joint ventures

Generally speaking, acquisitions refer to a shift in the controlling ownership of a company that is taken over by another company This can occur both through share purchases or other forms of the target’s equity as well as asset purchases, The acquired firm can still exist as a legally-owned subsidiary of the acquiring

company, as is the case of CLIIGAMEX acquisition Mergers, by contrast, am at

“total integration of two or more partners into a new unified corporation” (Child, 2001] They are usually coined by a consensual environment, where beneficial ouloomes are ensured for both parlies

Acquisitions, however, can alsa take place in a hostile setting, where the target’s management is passed over and the shares are purchased agamst the wishes of the

target company [DePamphilis, 2005] Generally, acquisitions offer a certain degree

of choice concerning the magnitude of integration, which mergers do nol permit

Moreover, acquisitions are mostly known to be unequal partnerships [Child et al, 2001] Although the tems mergers and acquisitions are often used interchangeably,

they entail very different concepts

Horizontal acquisition takes place where the acquiring and acquired companies produce similar product in the same industry There is a long-standing debate in the economics and finance literature on the motives for horizontal acquisition, Firm management usually cites expected improvements in productive efficiencies or synergies like scale economies and elimination of overlapping facilities as the key reasons for undertaking horizontal acquisitions On the other hand, some economists express concer [hal by teducing the number of firms in an industry, horizontal acquisition increase markel power of customers and supplicrs of the acquiring firm’s industry, Thus, horizontal acquisitions may be undertaken primarily to exploit the increased market power and gain at the expense of

customers and/or suppliers.

LIST OF TABLES AND FIFURES

Table 2.1; Three different research purposes scsessmsiniseieinneinteenitnnnie

Table 2.2: Relevanl situations for different research strategies

Table 2.3: Six sources of evidence, sirenglhs and weaknesses

Table 2.4; Case study tactics for four design test

Table 3.1: Information on HOGARSCC”s factories c cà soneiiieoiee Table 3.2: HOGARSCO’s performance from 2002-2006 (VND billion) .0

Eigure 1.1: Emterged frame of referenee « «+

Figure 2.1: An overview of the methodology chapter

Figure 3.1: Sales percentage by main export markets of IOGARSCO

Figure 3.2: Sales percentage by categories of products

Figure 3.3: HOGARSCO"s performance from 2002-2006 (VND billion)

Figure 3.4: Major exporl markets of Chigamox

Figure 3.5: Pre-acquisition organizational structurc of CHIGAMEX Figure 3.6; Overview of holding rate among companies

Figure 3.7: Post-acquisition organizational structure of CHIGAMEX