m & a market in vietnam

8/6/2019 M & a Market in Vietnam

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2/56Electronic copy available at: http://ssrn.com/abstract=1608223

Journal of Economic and Policy Research

Vol : 5 Oct 2009 March 2010 No : 1

Contents

Research Papers

Mergers & Acquisitions Market in Vietnams

Transition EconomyVUONG, Quan-Hoang, TRAN, Tri Dung & NGUYEN, Thi Chau Ha......... 1

Chinas Evolving Industrial Policy Strategies and Instruments :

Lessons for Development (Part-I)

Daniel Poon ..........................................................................................55

Keeping Slovenian Public Finances on a Sustainable Path

Pierre Beynet & Willi Leibfritz ..........................................................100

De-centralized Rural Welfare Schemes : Information Dynamics

and Endogenous Institutional Change

A.Udayaaditya & Anjula Gurtoo .......................................................151


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Mergers & Acquisitions Market in VietnamsTransition Economy

1

Mergers & Acquisitions Market inVietnams Transition Economy

VUONG, Quan-Hoang*, TRAN, Tri Dung** & NGUYEN, Thi Chau Ha***

This paper is the first major and a thorough study on the Merger & Acquisition (M&A)activities in Vietnams emerging market economy, covering almost entirely the M&A historyafter the launch of Doi Moi. The surge in these activities since mid-2000s by no meansincidentally coincides with the jump in FDI and FPI inflows into the nation. M&Aindustry in Vietnam has its socio-cultural traits that could help explain economic happenings,with anomalies and transitional characteristics, far better than even the most complete setof empirical data. Proceeds from the sales of existing assets and firms have mainly flowed into

the highly speculative industries of securities, banking, non-bank financials, portfolio investmentsand real estates. The impact of M& A on Vietnams long-term prosperity is thus highlyquestionable. An observable high degree of volatility in the M&A processes would likely blowout the high ex ante expectations by many speculators, when ex post realizations finally arrive.The effect of the past M&A evolution in Vietnam has been indecisively positive or negative,with significant presence of rent-seeking and likelihood of causing destructive entrepreneurship.From a socio-economic and cultural view, the degree of positive impacts may result in domesticentrepreneurship which will perhaps be the single most important indicator.

* VUONG, Quan-Hoang, Centre Emile Bernheim,Universit Libre de Bruxelles, CP 145/01, 50

Ave. F.D. Roosevelt, B-1050, Belgium.

** TRAN, Tri Dung, Dan Houtte, Vuong &Partners, Economic Research, 6/80 Le Trong Tan,Hanoi, Vietnam.

*** NGUYEN, Thi Chau Ha, Dan Houtte, Vuong& Partners, Economic Research, 6/80 Le Trong

Tan, Hanoi, Vietnam.

1. Background

Since mid-1990s, Vietnam has beenemerging as a new market economy. Ithas been a member of the Associationof Southeast Asian Nations (ASEAN)since 1995, then the World TradeOrganization (WTO) since 2007. Thecountry is situated in Indochina Penin-sula with an area of 3,30,000 square

kilometres and has a population of over

86 million, according to a national cen-sus in 2009. After its victory in theAmerican war which had led the col-lapse of the South Vietnam regime in1975, the re-unified Vietnam, nowwith the name of the Socialist Repub-lic of Vietnam, followed the Sovietcentrally planned economic modeluntil an extensive reform programme

launched in 1986 by the ruling

The authors thank their colleagues at DHV&P,Phuong Thi Giang and Nguyen Khanh Ly, fortheir effort in preparing the M&A dataset forthis research. This research is funded in part bythe Strategy Research Project commissioned by theBIDV Securities Co., (BSC). The authors wouldlike to express their gratitude for the generoussupport by Mr.Do Huy Hoai, Director of BSC.


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Journal of Economic Policy and Research. Vol : 5, No : 1 2009 Institute of Public Enterprise

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Communist Party of Vietnam at its SixthNational Congress, usually referred toas Doi Moi, by both Vietnamese andinternational communities (Vuong,2004). The country has since embarkedon a process of gradually building newregulatory framework for a marketeconomy to operate smoothly, newinstitutions and installing foundationsfor functional markets and the so-called

market mechanism. More importantly,perhaps, the country has taken boldsteps in reinforcing its solid transfor-mation to a full-blown version of amarket economy.

1.1 Doi Moi Vietnams Extensive

Economic Programme

The traits of the Vietnamese centrally

planned economy before Doi Moi,notably in the struggling period 1976-86,was characterized by the economists asone with economic inefficiencies,bureaucratism, overwhelming institu-tional rigidity and without functionalmarket and market price system. Pri-vate property rights, especially produc-tive physical assets, were not formallyaccepted by laws and regulations. Thecountry had remained to be a memberof the Least Developed Countries(LDCs) even a decade after Doi Moi.Vietnams national economy was insevere financial strait, with backwarddistribution system and relying heavilyon Soviet-bloc financial assistance and

aids in kind. When the country was first

selected to open a door to the New Eco-nomic Program (NEP) and adopted amarket economic gradualism, its percapita Gross Domestic Product (GDP)stood at a low level of US$202 and thetotal GDP of Vietnam in dollar termswas only approximately US$11 billion(Pham & Vuong, 2009). The signal offence-breaking (or by-passing theexisting cumbersome and rigid economicmanagement regulations) and a need foran overhaul of the national economycould be traced back in the early worksby Dam and Le (1981), Ton-That(1984) and Kimura (1986).

Vietnams economic reforms broughtabout by Doi Moi (Vuong, 2004)started with a fairly radical epistemo-logical advance of recognizing legiti-mate rights of private properties, theprivate economic sector. Simulta-neously, the need of removing eco-nomic inefficiencies, rigidity and dys-functional market and distribution sys-tems became apparent and imperative.Market forces came in place and theeconomy gradually abolished the old-styled centrally planned economy,which had previously operated based onthe principles of bureaucratic orders,financial and physical subsidies fromthe state and the Soviet vertical pricingsystem. At this point, a shift to a marketeconomy has already been determinedby political leaders and advocated bymajor economic scholars and local

governmental policy-makers. In the years


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following Doi Moi, the issuance of Lawon Foreign Investment in 1987 and itsamendments in 1990, 1992, 1996,2000 and 2005, together with theamendment of the Constitution ofVietnam in 1992, created morefavourable conditions to attract ForeignDirect Investment (FDI) inflows intothe newborn market economy of Viet-nam (Riedel, 1997, Vuong, 2004(a),Pham & Vuong, 2009). The economicconditions have improved significantlydue largely to a substantial economicexpansion under the open-door policy(Nghiep & Quy, 1999).

Following Doi Moi, the Vietnameseeconomy has expanded substantially, asshown in Figure-1, where GDP is com-puted in US dollars from 1990 to 2009.The surge in real GDP led to conti-nuous increase in per capita GDP, whichinduces more capital formation within

the populace for future economicactivities such as entrepreneurship andfinancial investments. The economicimpact of the extensive reform in thenational economy have been profoundand indisputable. However, there havebeen emerging issues with low eco-nomic efficiency, high IncrementalCapital Output Ratio (ICOR), preva-lent rent-seeking, oversized state-ownedindustries, capital-hungry private enter-prises and structural problems of allo-cating financial and physical assetsto different sectors of the economy(Vuong, 1997(a), 1997(b), 2004(a);Riedel, 1997; Vuong & Nguyen, 2000;Pham et al., 2008; Pham & Vuong,2009; Vuong & Tran, 2009).

From the low level of approximately

US$200 in 1986, it took Vietnamsome 14 years to double its per capitaGDP, in the year 2000. However,

Figure-1 : Vietnams GDP (1990-2009)

Source : Compilation of data using GSOs GDP and US$ rate by Vuong 2003, 2004(b).


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by the end of 2007, the fast-movingeconomy of Vietnam had an opportu-nity to double the per capita GDP in2000, taking only half the time for the1986-level to double (Pham & Vuong,2009). It is expected that the figure islikely to attain US$1,200 in 2010.

1.2 FDI A Panorama

FDI is not the only source of growth

in the reforming economy of Vietnam.Nonetheless, it does serve as a majordriving force of the economy and hasgradually become a leading source ofexternal financing for the Vietnameseeconomy after Doi Moi, coming inunder the form of either greenfieldinvestment or M&As. Equally impor-tant, FDI enterprises have brought in ser-

vices and manufacturing technologies,

connections with international marketsand created much needed jobs for theeconomy.

FDI has, in general, been flowing con-tinuously into the Vietnamese economyover the past two decades. At the end ofOctober 2009, nearly 11,000 FDIprojects have been licensed (and still invalidity) to operate in Vietnam since

1987, with a total capital commitmentworth almost US$175 billion; nearlytwo times Vietnams GDP in 2008.(Details of FDI capital by industry, inboth commitment and statutory con-tribution are provided in Appendix-A.)

The above US$175 billion FDI stockhas come from 89 different countries

and territories, among which ten

Table-1 : The Stock of FDI in Vietnam, by type of Investment

(figures in millions of US dollars)

No. of Projects Registration Statutory

Capital

100% foreign-owned 8,391 1,08,634 34,411

Joint venture 2,000 54,564 15,733

Business co-operation contract 221 4,961 4,479

Joint-stock corporation 183 4,711 1,354

BOT, BT, BTO contract 9 1,747 467

Investment holding 1 98 83

Total 10,805 1,74,715 56,527

Source : GSO and Vietnam Economic Times, 2009, Registration and Statutory Capital.


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most important in terms of FDI regis-tration are shown in Figure-2. It is notdifficult to observe that regional econo-mies (ASEAN and Taiwan, HongKong) have by far been the mostimportant direct investors in Vietnam,followed by major world economicplayers, the United States (US) and Japan.A substantial portion of FDI also comesfrom the familiar tax-havens, Cayman

and British Virgin Islands (BVI).With respect to FDI economic flow,Figure-3 provides us with more insightsabout the relative contribution of realFDI disbursement into the economy.The solid line represents FDI-to-RealGDP statistic (FDI : GDP), where bothare measured in US dollars. The dash

line shows growth rate of GDP (RealGDP G/R). These data run from 1990to 2009, with 2009 data being reason-ably an accurate estimate.

Figure-3 helps us to realize that theannual flow of FDI capital to theeconomy is always substantial in realdollar terms since the beginning ofVietnams economic reform, which

never falls below 4 per cent. Over thepast two decades of reform, there existonly two sub-periods, 1991-93 and2003-07, when the relative FDI-to-GDPratio is lower than real GDP growth ofthe country. However, the flow of FDIcapital to Vietnam exhibits a substan-tial volatility in some periods.

Source : Vietnam Economic Times, 2009. (Data point : Country; Cumulated FDI registration; Relative

contribution in percentage)

Figure-2 : Major FDI Sources


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The causes of this volatility couldreflect changing economic conditionsof source countries, varying degrees ofsatisfaction of international investors inVietnams business environment, com-petition in attracting FDI by otherregional or international emergingeconomies, such as Greater China,ASEAN and so on.

Having discussed some backgroundinformation of the Vietnameseeconomy and FDI, we aim to articu-late the importance and profoundimpacts of FDI in the young marketeconomy, despite the volatility, inter-ruption and sudden re-direction of theflow at times. In the next sub-section,

the essay turns to some thoughts onan increasing trend of FDI flows intoVietnam, the main theme of thisresearch.

1.3 Why M&A?

We take the point of classifying FDIinto greenfield investments and M&Aput forward by Caldern et al., (2004)by which M&A has no longer been aneconomic investment phenomenon,but a mainstream economic activity. Inthe history of the worlds economy, overthe past 100 years, six M&A waves tookplace in the 1900s, 1920s, 1960s,1980s, 1990s and 2000s (Kim, 2009),which mostly occurred in the West,

Figure-3 : Relative FDI Capital to GDP vs. Real GDP Growth

Source : GDP, FDI at current price by GSO 2009, US$ rate by Vuong (2003, 2004).


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where the economies had for long beenin a more advanced technological andeconomic conditions.

East Asian economies have participatedin this M&A trend since mid-1980sfollowing the trend of financial libera-lization and investment de-regulation,happening in almost every corner of theworlds market economies, after FDIgreenfield investments in the regionaleconomy had become familiar andsome advanced economies of the EastAsian region had attained higher levelof development, led by Japan, SouthKorea, Taiwan and Hong Kong. TheAsian financial crisis also contributedto the surge of M&A activities in theregion, since this has shown some posi-

tive perspective of financing duringpost-crisis projects and this is whatdebt-ridden economies need to do thefixing (Mody & Negishi, 2000).

Since Vietnam embarked on the FDIgame later than most regional econo-mies, M&A only appeared recently,only at the beginning of 1990s and

without clear trend in the first ten years.However, with a deepening of thefinancial sector and much more openeconomy to international investors,both greenfield and M&A activitiesincreased significantly. From a handfulof deals in the early 2000s, M&Aactivities recorded more than 100 suc-

cessful transactions in 2007. The trend

in Vietnamper seis consistent with thesuggestion by Lall (2002) which con-jectures that M&A would be an increa-singly important form of FDI and soonbecome the single most importantcomponent.

In international economic literature,studies on M&A activity has been well-documented and voluminous, at boththe global and regional scale of whichkeen attention has also been paidtoward M&As in the developing andtransition economies, including Easternand Central Europe, Asia and Latin America (for instance, Katz et al.,1997; Lall, 2002; Bertrand & Zuniga,2006; Pop, 2006; Chand, 2009, justto name a few). While these literature

works have brought light to ourunderstandings of M&A in variouseconomies, regions and industries of theworld, it is unfortunate that there hasbeen little discussion and virtually nosignificant research work devoted toM&A industry in Vietnam. Despitethe strong relation between and thegreat importance of both M&A and

greenfield FDI, we could hardly finddetailed studies discussing the connec-tion between M&As and FDI in theeconomy. This is probably because Viet-nam market is just in its infancy andthe chronic lack of reliable informationand economic data deterred scholarsfrom researching relevant academic

questions and producing sound work.


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In Wang and Wong (2004), we realizethat both FDI and M&A requireappropriate policy-making process,adequacy of human capital and fullrecognition of related issues. These canbecome a direct motivation for thisresearch because M&A, as will be dis-cussed later in this article, has alreadybecome a trend, increasing one, withsimilar effects, negative or positive, to

the overall economy and the businesssectors performance, in particular.

From the sellers point of view, achronic disease in the economy is short-age of capital, both debt and equity.Even with the existence of Vietnamstock market in recent years, the situa-tion has not changed significantly, due

to low liquidity of the market and thestructural issue of the Vietnameseeconomy remains in favour of bankcredit and other types of finance thannew-issued equity. The capital shortageespecially for private sector firms hasbeen apparent and well-documented inmany studies such as Vuong (1997(a),1997(b), Vuong and Nguyen (2000)and Pham and Vuong (2009), although

a number of alternative financingoptions had been searched for, forinstance, financial leasing, unsecuredproject lending, corporate bond andmicrofinance (Vuong, 2004(a)). Natu-rally, one would have a question of therole of M&A in this emerging marketeconomy.

Figure-4 : Vietnams M&A Value by Seller (1991-98)

Source : United Nations Conference on Trade and Development Report (UNCTAD), 1999.


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This study is pioneering to fill out suchgap, through which Vietnams M&Adata problem would be addressed at thebeginning of the process. This workaims to provide for a general under-standing of the context, analysis of theeconomic situation and to articulateinsights and implications on thecountrys featuring M&A. In the nextSection, a substantial survey of the

existing literature on M&A and in part,FDI, is performed to equip us with thenecessary understanding provided bycontemporaneous scholars, before mov-ing on with the analysis of the Viet-namese M&A context.

2. Related Literature of M&A

We have mentioned that the literatureof M&A in the world is well-docu-mented and very large. In what follows,some selected works are going to bereviewed so that we could gain a betterunderstanding of how scholars havelooked into the M&A industries andtheir related issues and what resultscould benefit this research undertaking.

2.1 International Studies on M&A

We start this review with a good accountof details of M&A history which couldbe traced back to the 1890s, docu-mented by Kim (2009). The first waveoccurred in the US and Europe in thelate 19 century and usually formed sometype of monopoly through horizontal

integration within industries. This earlyevolution ended in 1903-05 whenstock markets crashed.

A second wave began as a response tothe enforcement of anti-trust legislationwhich was the result of the public con-cern over large conglomerates andsuper powerhouse in the US economy.This time, firms pursued expansionsthrough vertical integration, generating

the second wave of M&A, starting inthe late 1910s and ending in 1929 whenthe stock market crashed.

The third wave started in 1965 andended in 1973. Due to the economicdepression and the second world war,no significant activities occurred in thisperiod. The fourth wave was set off by

the so-called environmental transition,such as changes in anti-trust policy,de-regulation of financial sector, newfinancial innovations and markets andrapid advances in technology andapplied sciences. Many hostile take-overs and on-going private transactionstook place in this period, which startedin 1978 and finished in 1989.

The fifth wave started in 1993 alongwith a new economic boom phase andhalted when the bubble burst in 2000.This wave witnessed a largest ever totalglobal value of M&A transactionsworth US$15 trillion, more than fivetimes the combined total of the 1978-89period. Also, during this time, the Asian

M&A market started emerging.


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The most recent M&A boom periodbegan in mid-2003, when the increas-ing M&A activities occurred in majoreconomic regions of the US, the EUand East Asia following the economicand financial recovery. China, India andthe Middle East also entered this stageas new major players. Hostile takeovers were strong in Japan and China. InKim (2009), the fact that many com-

panies tried to acquire other companiesthrough M&A without much valueincrease indicates that M&As are pur-sued with a long-term growth purposerather than for chasing short-term pro-fits. As far as cross-border M&A is con-cerned, industrial environment and stra-tegic pursuit, including alliance, repre-sent two major driving factors. Further-

more, berg and Holtstrm (2006)add that besides the reasons to mergeor acquire as strategies of the mergingor acquiring parties, M&As are contex-tually driven with the existence ofparallel M&A transaction, for instance,between the customer and the supplierfirms in the economy.

A substantial amount of the worldsM&A value belongs to the powerfulbanking houses and the work of Focarelliet al., (2002) is credited for valuableinsights into the banks motivation forthis trend. Banking institutions havelong had motivations behind theirM&A activities being strategic pursuit

of diverse banking services. Notably,

before the merger endeavour, the activebuyer bank derived a high share ofincome from services. It might havewanted to offer its innovative productsto the customers of the target bankwhich was currently not providing themto existing clients. Banking M&A dealsmay also be able to help banking firmsto improve immediate quality of assetportfolio and, in many cases, to increase

capital adequacy as risk cushion, whenfacing new reserve requirement. Andimportantly, the authors conclude thatno significant evidence of an improve-ment in profit is found after a mergerand this is different from the ex anteexpectation set out by many executivesor at least in their communication to theshareholders. The results are consistent

with those found when performingtests using the US empirical data.

Within the financial economics litera-ture, a substantial amount of studies isdevoted to empirical investigation onpost-M&A performance, in general andmarket values and abnormal cumula-tive returns of buyer and target firms.

An early contribution is Block (1968)which through performing a parametrictest aims to verify the hypothesis ofsignificant differences in stock behavioursof merging and non-merging firms.The result is that in general, the mergereffect on the stock of the acquiringcompanies is somewhat neutral.

However, the effect on acquired firms


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in terms of stock behaviour is substan-tial and responsive. We could notice anunderstanding that a potential acquiredfirms stock many-a-time represents agood investment, while the transactionmay make the acquiring firm lessattractive. Another research effort in thisaspect of M&A is Shick (1972) whichfocuses on measuring the returnsbrought about following a merger

transaction, using the prevailing valua-tion model and empirical data selectedfrom the US chemical industry. Shickestablishes that merger return formulacould be built successfully based oncommon stock valuation model. Usingthis, the empirical evidence suggeststhat a merger could result in positivereturns and the success or failure of a

merger could be judged almost instantlyafter the transaction concludes. How-ever, in the recent edited volume onregional M&A perspectives, Chand(2009) re-visits the value creation issue,discussing a number of numerousscenarios under which M&As can createvalue for the acquiring or merging com-

panies. It does not assert that all suchattempts would indeed create value inthe end due to the possible complica-tion arising in the transaction process.

In between the two M&A waves of the1960s and the 1980s, Ijiri and Simon(1971) made an attempt in gaugingeffects of M&A activities on business

concentration. Their empirical results

from their own model for investiga-ting whether Pareto and Gibrats Lawshold for the research of 1960s US datasetand hypothetical relationship (equi-librium equations) lead to an impor-tant finding that the concentrationmeasure following M&A activitiesremains, to a large extent unaffected.The result rejects the then widelyaccepted position that mergers would

lead to increased concentration and,thus, reduce competition. From theother view, Werhane (1988) discussesethical issues following M&A. Twomajor issues that prove to be of pri-mary concern are : (i) the rights ofemployees would likely be affected; and(ii) the responsibilities of shareholdersduring the M&A undertaking. This

view is also re-affirmed in the recentwork of Chand (2009) which articu-lates that growth of firms can beachieved through organic growth (in-vestment/re-investment in a new plant)or M&As (mergers, acquisitions stra-tegic alliances) under forms of horizon-tal, vertical and conglomerate (i.e.,

firms in unrelated industries). Duringand after a M&A transaction, theundertakings have influences on manystakeholders, not just on share value.Thus, other stakeholders in the firmtend to have different priorities.

In a general understanding that amajor portion of M&A transactions

and values are undertaken by powerful


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Trans-national Corporations (TNCs),Lall (2002) studies their implicationson cross-border M&A in the develop-ing countries. The work articulates asimilar point as what was discussed ear-lier that international M&As now be-come the most important forms ofFDI, far outstripping investment in thenew facilities (greenfield) in terms ofvalue, citing United Nations Confe-rence or Trade and Development(UNCTAD) and World InvestmentReports statistics and estimates thataround 80 per cent of FDI in deve-loped countries have been in the formof cross-border M&A. In less developedeconomies, M&A already reached arecord level of 40 per cent of the totalFDI inflows in 1998.

This work supports the existence of sig-nificant differences between TNCentry by greenfield FDI and M&A, interms of the impacts on host econo-mies, most of which manifest them-selves in the short-term. Lall (2002)empirically rejects the general presump-tion of superiority of greenfield invest-ment over M&A, while Raff et al.,

(2006) suggests a strong interdepen-dence between different forms of M&A.

Also in the line of research on cross-border M&A and performance ofTNC, theoretical foundations of cross-border M&As are reviewed in Shimizuet al., (2004) in the current context thatempirical results regarding determi-

nants of M&A are mixed. Technical

aspects of M&A process such as duediligence exercises and legal verificationcontinue to be financially and time-consuming and still need further litera-ture for our better understanding. Theliterature could help practitioners learnfrom past lessons and derive importantinsights from this complex field ofbusiness, especially with cross-borderM&As. As the importance of and

opportunities from cross-border M&Asare likely to increase further in the glo-bal economy, learning from acquisitionexperience could be a critical source ofcompetitive advantage. Countriesdiffer in their institutional contexts and,thus, in the types of corporate gover-nance mechanism utilized. Therefore,governance problems related to M&As

require more research efforts.

From an operational view, Rossi andVolpin (2003) study determinants ofM&A activities using empirical data,1992-2002, from 49 target countries,including a bit of Vietnamese data (notsubstantial) which exhibit the volume,the incidence of hostile takeovers, the

pattern of cross-border deals, the pre-mium and the method of payment.The work suggests that right protec-tion on M&A and cross-border take-overs could be efficient catalysts forimproving corporate governance,a much desired goal in any re-structur-ing process. Khimizu et al., (2004) also

present a similar position on corporate


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governance issues which should enablea more favourable and productive eco-nomic transformation.

In a wave of cross-border M&A withinthe developed economies of Organiza-tion for Economic Co-operation andDevelopment (OECD), Bertrand andZuniga (2005) extend their effort to in-vestigate M&A transactions in conjunc-tion with issues in Research and Deve-lopment (R&D) investments in OECDmember economies in 1990s. A mainaddressing of the study is on the ques-tion of whether there exists significantdifference in likely impacts on indus-trial innovations between national andcross-border M&A operations.

The authors use GMM to estimate adynamic linear model for R&D invest-ment and control for market-relatedand technological determinants ofR&D production. Their results showthat the latest M&A wave in OECDhas not resulted in a significant effecton domestic R&D activities at the in-dustrial level. M&A only seems to haveplayed a role in some specific groupsof industries. In addition, results sug-gest that domestic and cross borderM&A differed in their impact on R&Dinvestment. It appears that domesticM&A activities generated positiveimpacts on R&D activities in low-techindustries. Interestingly, they presentthe insight that indicates mainly target

firms seemed to benefit from M&A

operations in their sample, but notbuyer firms at home countries. Thiswork is basically a counter-argument tothe general public opinion that consi-ders foreign takeovers fearful.

With respect to M&A operation intransition economies, Pop (2006) pre-sents some results obtained from ananalysis of the Romanian case, whereapproximately 500 privatized firmswere targets of takeovers. The studyfocuses the effect of takeovers on thetargets performance, mostly listed firmson Romanian RASDAQ, over the1998-2002 period. Empirical results oftheir multivariate regression analysisreject any evidence of significant abnor-mal returns of the target, based on listed

stock prices.In a more national industry-specificstudy using basic computations andsurvey data, Beena (2007) researchesthe performance of post-M&A phar-maceutical firms licensed to operate inthe Indian emerging markets. The studyuses a sample of 32 merging firms of

which 20 belong to the domestic sec-tor and 38 merged firms of which 20are domestic. The report shows thatmany merging firms are engaged inmultiple mergers.

Domestic merging with domesticaccounted for 64 per cent of the totalnumber of mergers, foreign with foreign

constituted 26 per cent. Large-sized


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firms accounted for 60 per cent of thetotal mergers, medium-sized 38 percent. More than 85 per cent of themergers in Indian pharmaceutical pro-ducers were horizontal type. In this sur-vey, Beena reports that cross-borderM&A deals account for about 28 percent and foreign-invested firms show aclear trend of acquisitions and strategicalliances, compared to domestic ones.

The result of this survey indicates thatthe merging firms, less than 10 per centof all firms in this industry, their over-all performance has been far better thanthe rest of the Indian pharmaceuticalindustries. The post-merger perfor-mance of the undertaking firms has alsoshown a general improvement com-

pared to their own pre-merger periodlevel.

2.2 The Regional and Vietnamese

Literature in Relation to FDI

and M&A

The M&A markets in Asia have becomeincreasingly important as their share in

the worldwide transactions increasedfrom 8.5 per cent in 1995 to 17.7 percent in 2008. The total value of theM&A transactions also increased from13.3 per cent to 20 per cent during theperiod (Kummer, 2009). The figureper seis adequate to understand the roleof M&A in the financial economics

literature of the regional economy.

M&A activities are useful for re-struc-turing business firms, at least in the eraof fast-changing economic conditionsand post-crisis consolidation. The roleof cross-border M&As in the Asianeconomic re-structuring, presented byMody and Gegishi (2000) is relevantto our understanding. In East Asia,Korea and Thailand have been attrac-ting large volumes of M&A activity

since 1997. The recent M&A activitiesstem from two distinctive motivations :(i) resolving past problems; and(ii) grasping prospective opportunities.Within the developing countries, Latin America has been the largest targetregion of cross-border M&As, most ofwhich have been through privatizationprogrammes. East Asia is the fastest

growing target region, growing at anannual average rate of 106 per cent. Inthe world, M&As have been donelargely by selling private firms.

The post-crisis economies, especiallythe emerging ones at times, render theirfinancial assets under-valued, togetherwith critical exchange rate depreciation

in favour of acquiring the firms homecurrencies. Therefore, it is not uncom-mon that M&A activities surged in thepost-crisis recovery phase in the emer-ging markets. Crisis economies also needto improve their policy frameworks inorder to encourage foreign capital byliberalizing their economy, for at least

a medium-term recovery process which


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In the first stage, banking industry wasfragmented but heavily protected andregulated. In the 1980s, banking sys-tem, comprising of many small banks,was poorly diversified geographicallywith inefficient management. In thesecond phase, the banking industry wasde-regulated and interest rate ceilingsand lending rates were left for the banksdetermination; central bank just pro-

vided guidelines. In phase three, banksexpanded their scope of activities. In theperiod 1999-2000, Malaysia accountedfor 41 per cent of the total deals and38 per cent of the M&A transactionvalue of target firms in ASEAN.

In a research of the Philippines marketfor large-scaled bank M&A, Castillo

(2009) claims that the M&A activitiesare subject to substantial regulations,despite de-regulation in financial ser-vices industry from the late 1980s. Itprovides context and history of thePhilippines banking systems from the1950s to present and discuss regula-tions which are introduced to facilitateor prompt M&A in the banking sec-

tor. The current trend in M&A is pos-tulated to have emerged from the mid-1990s consolidation in the financialsector, causing a wave and then fol-lowed by post-1997 monetary crisisconsolidations. It concludes that banksconsider M&A a method to improvetheir financial positions and competi-

tiveness, although little empirical

evidence has employed to reach that.Banks also use M&A as a way to fendoff competition by remaining power-ful financial services players in metro-politan hubs. In addition, we could notrule out a high possibility that the pur-poseful consolidations could trigger awave of M&A that could result in anoligopoly structure creating problemsfor the Philippines economy and

society. Thus, socio-economic impactsof M&A could be double-faced.

Yasumaru (2009) discusses the rationalefor the Japanese Small and MediumEnterprises (SMEs) to adopt M&Ain a recent period of its economicevolution. Typically, there are fourmajor options to further develop or

maintain existing businesses of SMEs :(i)go public : this is not an easy optiondue mainly to strict regulatory criteriaof internal control and observance oflaws which usually incur the highestcosts of expenditure and time; (ii)pass-ing control within the company : thischoice faces a dilemma that foundersoffspring normally want to pursue their

own interests while they may not havethe right charisma to take on the job;(iii) liquidation of firm : A choice thatis not considered optimal in terms ofretaining the firms long-term corevalues and sustainable employment,conventionally lifetime commitment in Japan; and, (iv) merger : The society

considers this a better option because


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flows also stimulate cross-border M&Atransactions, inward and outward.However, in the current trend of theChinese economy, more Chinese firmsgo overseas to primarily enhance afirms critical competence rather thanto exploit existing assets, while this maynot hold for Vietnamese firms. Authorsarticulate that interactions betweenfirms and government can have sub-

stantial influence on government poli-cies which is in line with the sugges-tion by Vuong and Tran (2009(b)) forthe contemporaneous socio-culturalcontext in Vietnam.

A final result of this research that maybe highly relevant for Vietnameseenterprises is that domestic firms might

not find M&A pursuits, inward or out-ward, very productive and financiallyrewarding, if the sole purpose is to seekmarket expansion.

Equipped with the above-discussedresults and suggestions from variousresearch works and authors in this lineof financial economic literature, we now

spearhead our effort to find suitableconnections and research results articu-lated particularly for the Vietnameseemerging market economy.

The first noteworthy point is thatalthough the authors of this article havemade substantial effort in searching foracademic assessment and results which

are directly related to the M&A activities,

the outcome has been very limited.Therefore, a substitution that enlargesthe scope of our review appears to bemore productive and useful. In fact,much of our review, purposefully aim-ing at insights and implications for theVietnamese context of M&A activitiesis performed with the literature ofFDI.

An additional note to our previousopening discussion on FDI in Vietnamis that Vietnam shares much of theChinese experience in regulating theeconomy with a normative temptationthat the government should do more toset the rules governing FDI and M&A.This is consistent with a considerationof the rules with a very powerful state

also functioning in the marketplace(Vuong & Tran, 2009(b)). It appearsthat this argument is further bolsteredwhen these young market economiesare faced with economic crisis, finan-cial market meltdown or are adverselyaffected by international market forcesand globally changing conditions (see

also, Vuong & Tran, 2009(a)).Leproux and Brooks (2004) discuss thenecessity of the continuous flows ofFDI to the Vietnamese transitioneconomy. The point is also supportedby Vuong (2003, 2004(a), 2007) andPham and Vuong (2009). The capacityfor the Vietnamese economy to absorb

new FDI in the future depends much


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on how the country addresses theeconomic, political and institutionalweaknesses.

Most economists agree that inward FDIhas important impacts on the Vietna-mese economy, especially in : (i) provi-ding important financial resources;(ii) financing the rapid growth that Viet-nam has experienced over 20 years; and(iii) providing market access for risingexports. Although the impact on emp-loyment has not been as expected, stillthe FDI sector plays an important rolein introducing new ideas and processesin elevating skills and knowhow andproposing models that have beencopied by domestic investors whose eco-nomic background was formed in a

centrally planned economy. In addi-tion, in Pham and Vuong (2009), theissue of general level of economic effi-ciency in the Vietnamese economy hasbeen chronic with high ICOR and thestates investments overshadowingother sectors of the economy. This maycause both unfair competition in themarketplace and discouragement forthe re-structuring of the state-run firmsand the economy, a major and directmotivation for FDI flows in the formof M&A.

Another important attribute that theeconomy expects from both greenfieldFDI and M&A activities is a general

condition for improving human capital

and its accumulation process as high-lighted in the result of Wang and Wong(2004). We also realize that at somepoint, there exists the question Isgreenfield FDI better than M&A? Lall(2002) and other works find the ques-tion groundless and again Wang andWong (2004) provide a suitable answerfor such consideration in Vietnam thatis the answer lies in an adequate prepa-

ration and resource for human capitalaccumulation, not the M&Aper se. TeVelde (2001) emphasizes a critical needfor implementing an effective compe-tition policy and this proves to be ofprimary concern in the case of Vietnam where the socio-cultural contextfavours some interest groups whichcould undermine the effort of build-

ing its market economy in transition(Vuong & Tran, 2009(b)).

Although there are different forms ofFDI in Vietnams economy, Raffet al.,(2006) find a strong interdependenceamong different modes, i.e., greenfieldinvestment, acquisition of or mergerwith domestic companies, joint venture

or any other kind of co-operation. Ithas been suggestive that greenfieldinvestment decision has something todeal with export opportunities. Ifgreenfield investment is more profi-table than exporting, this reduces theprice the multinational has to offer toacquire a local firm with the conse-

quence that a TNC may prefer M&A


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to greenfield investment. This result isconsistent with real-world practices andconsiderations during M&As in Viet-nam and not only limited to TNCs butit generally holds for mergers amongVietnamese firms and even in case Viet-namese firms acquire part of TNCs.

We also see the relevance of both FDIand M&A with Caldern et al., (2004)which looks closely into the fact thatacquisition of existing assets by M&Ahas grown rapidly since the 1990s.Their results provide us with animportant implication on the likelyeffect of M&A to the politically correctspeaking, equitization process in Viet-nam (where state-owned firms becomemulti-ownership through sales of shares

to the management, staff, strategic busi-ness partners and the public). Using thedata from 72 countries from 1987 to2001, Calderon et al., suggest that inall samples, higher M&A is typicallyfollowed by higher greenfield invest-ment, while the reserve is true only forthe countries. In general, FDI inflowsusually induce domestic investments,

at some time lag. However, there hasbeen no firm evidence that domesticinvestments would likely cause to FDIflow. FDI inflows do not necessarilyestablish the cause of subsequent eco-nomic growth in the recipient econo-mies but these investments ratherrespond positively to the economies with

significantly improved growth rates.

In the light of this, we see the consistencyshown by high growth sub-periodsin Vietnam inducing fast-growinginward FDI and a surge in M&A in2006-2007.

We also note that six years after itsinception in July 2000, Vietnam stockmarket started growing quickly in2006, providing a new source of liqui-dity for business firms in Vietnam,including FDI enterprises in variousindustries. Now FDI, M&A and port-folio investments have become moreinterdependent in reality. This point isbrought up also by Tolmunen andTorstila (2005) saying that firms thathave a near plan for listing usuallyinduce more M&A intents and realiza-

tions. The reality in Vietnams emerg-ing capital market in 2006-2009 hasthus far been consistent with this argu-ment.

The above review enables us to formu-late our relevant questions on severalpolicy and technical aspects of theM&A activities in Vietnam which lead

to our next Section of organizing datafor further analysis.

3. Data and Methodology

As we mentioned during the reviewingof literature, there exists virtually nosubstantial work directly studyingM&A in Vietnam, although many

authors did extend their effort to the


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academic studies on FDI in Vietnam.Thus, this research uses a unique andperhaps most complete, dataset orga-nized and compiled by the authors withthe assistance from research associatesat DHV&P. We would briefly describethe dataset below and, then, present ourmethods of analysis next.

3.1 Empirical Data on the Viet-

namese M&A Market

In this research, we construct a datasetusing various sources of information,namely : (i) press release by firms;(ii) public media analyses where somedetails of M&A transaction are unveiledat times; (iii) direct interviews withreliable sources mainly senior managersat securities firms or buyer/seller firms

in M&A transactions; and (iv) occa-sionally, separate reports by the finan-cial sector.

The dataset comprises of 252 entriesfor four categories of M&A : (A) foreignfirms acquiring foreign firms;(B) foreign firms acquiring Vietnamesefirms; (C) Vietnamese firms acquiring

foreign firms; and (D) Vietnamesefirms acquiring Vietnamese firms. Assuch, the dataset is not limited to onlycross-border or transactions amongdomestic firms. Almost all data entriesthat could be identified have beenincluded in this set. In the course ofcollecting data with our serious conside-

ration of the data integrity, careful check

and a sound judgement on which toinclude or exclude, we have come to areasonable assessment that this datasample of M&A transactions in Viet-nam can de facto represent approxi-mately 40 per cent of the total marketand it is only a sample that we couldgather with an adequate degree of con-fidence to put it in analysis.

Our dataset spans over the period from1990 to 2009 which corresponds toFigure-3 for FDI and GDP data. Thisperiod contains two active sub-periodsof 1993-95 and 2006-08. Although wecould not verify the accuracy of M&Adata provided by the UNCTAD 1999report, but the reality is that there werean increasing number of transactions

occurring in the 1993-95, due toconsolidations of some investmentfunds and a wave of investments inspeculating the lifting of US tradeembargo against Vietnam that was laterannounced by President Clinton inFebruary 1994.

Each data entry contains useful infor-

mation of date, type of M&A (asdescribed above), target and acquiringfirms, industry, status of transaction,value in dollar term and equity stakeof the transaction in percentage. Dueto the absence of a system for trackingM&A transactions, data point mayhave full or only part of the attributes

that we wish to collect. In this dataset,


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the data quality issues constantly lie intwo main data fields of transaction valueand/or the equity stake that is intendedfor in the transaction. Sometimes, thevalues are not unveiled or cannot betracked. In other times, the informa-tion that is accessible turns out notaccurate. To address these issues, we optto leave the values empty in the dataTable, so they are not treated in later

analysis.Some caveats with data quality :During the process of data collectingand preliminary assessment, we fre-quently encountered the issue of qua-lity with public media. In many reports,portfolio investments mixed up withM&A activities. In some other cases,

reporters may have inferred values oftransactions using nominal price or self-estimated subjective values. Both couldhave led to confusing aggregate valuesreported by different sources. Thus, itis suggested that aggregates in theM&A market in Vietnam should beused with caution and reservation if weare to draw significant conclusions. This

research is, therefore, not relying on theaggregates, but using our dataset withnecessary attention to possible bias dueto incompleteness of data.

3.2 Our Method of Analysis

At this point, we need to state clearlythat although this dataset is to our best

understanding and knowledge, the

most up-to-date and complete, the lackof a relevant paradigm for the treatmentof the data makes it almost impossibleto identify a suitable econometricframework and specification. In theabsence of a general hypothesis, it is ourbelief that a better method of analysisis to go for insights from basic treat-ment of data, subject to varying levelsof completeness and judgemental

values. Therefore, this study mainlyemploys basic statistical analysis com-bined with qualitative judgementstowards hard-to-be-quantified issuessuch as regulatory framework, environ-mental variables, socio-cultural aspectsand subjective public assessments whichcould lead to different behaviours in

and form ex anteexpectations for eachM&A deal.

The main quantitative analysis focuseson assigning data entries into variousrelevant classifications, trying to capturemeaningful insights from the dataset.The criteria for defining the relevanceof data treatments are the analytical

depth we wish to obtain to articulatemost useful understanding, be it a veri-fication of an already postulated posi-tion or a new finding. Statistical dis-crepancies and contradictory results,speculations, if appearing during theanalysis, will also be reported forbetter understanding and judgement of

the practical situation.


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Part of the analysis will be in the formof critical reasoning which is usuallyuseful and applicable when data are notvery useful or the use of data may causecontradicting insights. A discussionwith regard to policy and regulationissues will also be included.

Toward the end, the results of analysiswill be discussed in comparison withother works, whenever possible, as thiscould help exhibit both similarities anddifferences between M&A market inVietnam and in the world out there.

4. Analysis and Results

Having stated our principles of analy-sis above, this Section is now movingon to present facts and findings, which

are obtained from our statistical con-siderations and suitable qualitativeassessments.

4.1 Some Statistical Analysis

The dataset contains 252 records ofM&A transactions, announced, pur-sued and realized by both acquiring andtarget firms operating in Vietnam from1995 to 2009. The estimated totalvalue intended for through these M&Atransactions is US$4,003 million,using the verifiable and reliable statistics.However, this aggregate is below thereal total value since individual valuesof nearly 32 per cent of the transactionsthat were successfully completed have

not been accessible1

. Also, there are a

number of transactions in type C thatare taking place outside Vietnam.Therefore, we could estimate, with rea-sonable accuracy that the M&A mar-ket in Vietnam has a total transactedvalue of approximately US$10 billionin this period (1990-2009).

4.1.1 Market Share

Firstly, we derive Table-4 from the com-

plete data sample to investigate the datamore closely. It is noteworthy that themarket belongs to foreign acquiring/merging firms. These firms representedby A and C, account for 79.4 per centof the M&A attempts, be it success,failure or pending (200/252 cases).Thus the trend for the 1990-2009period is clearly seen as foreign firms

proactively acquiring/merging withexisting entities operating in Vietnam.

Now we are able to look at the successrate of M&A deals in the 1990-2009period which were announced andtraceable by different sources of infor-mation with a summary being providedby Table-2. The success rate is very high,

above 80 per cent, compared to 6 percent announced failure and nearly14 per cent of transactions pendingwith unclear results. This fact needs anexplanation, the job that we will performin the upcoming discussion sub-sections.

Among different directions of M&Asin the Vietnamese markets, categorized

in Table-2 by A, B, C and D,


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Table-3 shows us some useful insights

obtained from the overall data sample.Firstly, the varying degree success ratecan be seen clearly. When foreign firmacquires a domestic equity stake B, theconfidence of concluding the deal ismuch higher, almost 91 per cent, com-pared to the second best rate of 83 percent for M&A among Vietnamesefirms and nearly 75 per cent for theopposite direction, that is when a Viet-namese firm acquires a foreign one C.

Our sample shows that failure rate ishigher when the target firm is a domes-tic operation, with both A and Dbeing 7.3 per cent. When the target firmis a foreign entity, failure rate reducessignificantly. For the transactions with

unclear results classified as pending,

only transactions among foreign firmsexhibit a substantially higher rate, nearly20 per cent for C, while the pendingrate for the other three directions runsin a narrow range of 9-12 per cent.

4.1.2 Market Timing

Figure-5 shows a recent trend observedfrom our data sample with the solidline representing a number of M&Aattempts and the dash line, successfultransactions.

Both the numbers of total of transac-tions and successful deals have beenincreasing substantially since 1994.M&A activities mushroomed in 2006,2007 and 2008, with its momentum

Table-2 : Summary Statistics on Transaction Status by Type

No. of Cases A B C DSuccess 202 89 10 69 34

Failure 15 8 0 4 3

Pending results 35 11 1 18 5

Total 252 109 11 91 41

Table-3 : Transaction Status in Direction of M&A

A B C D

Success 81.7% 90.9% 75.8% 82.9%

Failure 7.3% 0.0% 4.4% 7.3%

Pending 10.1% 9.1% 19.8% 12.2%

Total 100.0% 100.0% 100.0% 100.0%


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being carried on until 2009. Thepattern of both successful and unsuc-cessful attempts, however, exhibits a highdegree of volatility through largechanges in the number itself and thetiming when attempts are made in theevolution of M&A activities. The cor-relation co-efficient for the two linesin Figure-5 is +99.6 per cent, confirm-ing that the pair of data to be almostperfectly positively correlated.

We are now ready to decompose thedash line of Figure-5into constituentcomponents as presented in Figure-6where the numbers of successful M&Atransactions are classified into direc-tions of realization. It is noticeable that

before the substantial drop in all direc-tions in 2009, the M&A market inVietnam had appeared to be steady asshe goes, since 2004.

The steepest curve also belongs to themost active category of transaction, thatis foreign firms acquiring the local firms.And the correlation co-efficient of annual

data series for type A transaction andthe total number of successful attemptsis +93.0 per cent, just a marginally lowerthan the correlation statistic reported inFigure-5. Although there did appeartiming for many more transactions ofthe other M&A types to have takenplace, they exhibit almost non-trendedfluctuations.

Figure-5 : Attempts vs. Successes (1995-2009)


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Table-4 reports a changing level of cor-relation for different pairs of databetween total number of successful

transactions and that of each category.The most stable, although not thehighest, is type A, while the rest clearlydrop in the most active period of M&Ain Vietnam, i.e., from 2004 to 2009.

We should also mention anotherdimension of time right herethedimension of success rate. This rate

alone changes over the evolution of themarket and does not correspond to thedegree of activeness of the market asseen in Figure-7. This argument is sup-ported by our computed statistics forcorrelation between the success rate andchange in percentage of successful dealsover the years included in the sample.This turns out small in magnitude,+10.02 and statistically insignificant.

Figure-6 : Successful Transactions by Type

Table-4 : Sub-period Correlation Co-efficients

2004-09 2000-09 1995-09

A 91.02 92.42 92.96

B 14.84 35.29 48.87

C 56.17 82.06 86.45

D 87.51 94.57 95.78


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4.1.3 A Distributional Analysis

To understand the monetary values ofM&A transaction in the Vietnamesemarket, Figure-8 provides us with someinsights. It is drawn from a sub-sampleof 160 data entries (out of ourcomplete 252-point sample) which hasa non-zero transaction value. Attachedto each data point are two values. Oneis the range of transaction value weconsider suitable for this distributionalanalysis, the other, the frequency dataentry that appears in the range.(For more detailed information, seeAppendix-C). Let us denote F(X|.) thefrequency that an event appears in our

data sample, then FN(X| X


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For this value range, all transactions arerecorded for the active period from

2004 to 2009 of which nearly 87 percent took place in the three boom years,2006-2008. In addition, for the extremevalue of US$100 million to Vietnamesestandards, the frequency is low, withF

N(X| X>100) = 5 per cent, all occur-

ring in the boom years 2006-2008. Butdue to their large value, total monetaryvalues of seven completed transactionsreach US$1,255 million, showingF

V(X| X>100) = 31.4 per cent of total

value computed from the sample.

Although other value ranges also wit-ness the boom period with higher fre-quency from 2004, no other witnessesthe same pattern.

In dollar terms, the situation is in reverse.This 160-point sample represents a

total value of US$4,003 million, butthe distribution of dollar value fordifferent size range is skewed to larger-size deals. As mentioned, eight transac-tions with top dollar value, each largerthan US$100 million, account for31.4 per cent of total market value.However, the empirical data show that

53 per cent of the number of M&Atransactions (85 out of 160), represent-ing all transactions with individualcommercial value of US$10 millioneach, make a total receipt of onlyUS$252 million or a contribution intotal market value of F

V(X| X


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For a general view of the empirical dis-tribution of values by threshold levelof transaction size, Figure-9 providesfor both cumulative value by thresh-old value in column, using left-handscale (in US$ million) and cumulativefrequency distribution represented bythe line, using right-hand scale (in per-centage).

The noteworthy point about Figure-9

is the level of value jump at the valuethreshold of $50 million and subse-quent levels is very large. Therefore,the cumulative distribution line is

comprised of two separate lines show-ing distinctive upward slope, with thelatter piece on a much steeper rise.

4.1.4 Further Industry Insights

Studying further the data sample, someother technical aspects could alsobecome useful for our understandingof the Vietnamese M&A market. Dealsof larger value mostly fall into the

industries of financial services, real pro-perty development, energy and telecom.Consider a sub-sample of upper-stratumdeals which consists of 23 attempts,

Figure-9 : Empirical Cumulative Distribution in

Dollar Value and Percentage


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each leading to monetary exchange ofUS$50 million and above. 12/23 dealsare M&A in banking industry, happen-ing in the years 2007 and 2008. Withbanking as an example, it is observedthat the majority of transactions takeplace in a limited number of industrieswhich we should be able to look intomore deeply now with the dataset athand.

In the boom period from 2005-2008,the industries where most M&A dealswere conducted in Vietnam are :

Banking services

Non-Bank financial services (in-cluding securities brokerage andinsurance)

Portfolio investments

Business real estates and hotelbusiness

Construction and materials

Steel

Mining and mineral processing

Home appliances

Foods and foodstuff

In the course of economic developmentand building market institutions inVietnam, the importance of a commer-cially viable financial sector has alwaysbeen an emphasis for both policy-makers

and the business community. A greatdeal of funds and effort has been spenton this sector and our data also unveilsthat trend. Among the nine industrieslisted above, the first three belong tofinancial products and services whichrepresent both the primary publicemphasis concern, in general and a criti-cal portion of the M&A market, in par-ticular. Vietnams two-pronged strategy

for an efficient transition towards a full-fledged economy has explicitly reliedon : (i) re-forming the state-run enter-prises sector; and (ii) re-vamping itsnascent financial economy, currentlydominated by a large number of com-mercial banks (56), including five state-run banking super-powerhouses. There

are same stories in Malaysia (Ramlee &Said, 2009) and the Philippines(Castillo, 2009).

The economy of Vietnam alreadyexperienced a period of collapse in thelate 1980s when a nation-wide chainof credit co-operatives abruptly becametechnically or completely bankrupt,

wiping out the lifetime savings ofmillions of people and causing anextremely high degree of financialuncertainty in the economy. Althoughmore than 20 years have passed, thememory is still alive to a large portionof the populace and the credibility ofthe domestic banking sector has notbeen restored fully.


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The recent wave of M&A in Vietnamwas expected to bring in more diver-sity in financial products and institu-

tions, which is true. Competition isexpected to serve as a driving force forthe financial system to be growing upsound and viable. The social expecta-tion towards the result of the economicreform path has also been part ofraisondtrefor a continuous surge of bank-ing and financial M&A activities.

From our dataset, 54 acquisitionattempts have been made in differentdirections, but mostly foreign acquiringfirms buying established local ones orventures. Names of many world famousTNCs appear in such deals, such asBNP Parisbas, Deutsche bank, HSBC,Manulife, Morgan Stanley, Prudential,

QBE, Standards & Chartered, Socit

Gnrale, to name a few only. The suc-cess rate in these financial M&A trans-actions, both bank and non-bank, is

high, around 91 per cent. (For moredetails, see Appendix-E.)

Another emerging industry for M&Ais real estate. This is in line with therecent FDI statistics which unveils thefact that over the booming period,a majority of funds has been channelled

to the business and residential estatesventures. This trend also induces thedevelopment of a number of relatedindustries such as civil engineering, con-struction materials and real estate mana-gement services. This group of relatedindustries has made 32 M&A transac-tions in the 2006-2008 or nearly13 per cent of all M&A cases.

Table-5 : Consolidation of Financially Unviable Commercial Banks

Year Acquiring firm Target Equity State2003 OCB Bank Tay Do Bank 100%

2003 Dong A Bank Tu Giac Long Xuyen Bank 100%

2003 Southern Bank Dai Nam Bank 100%

2003 Southern Bank Chau Phu Bank 100%

2007 Vietcom Bank Gia Dinh Bank 30%

2007 Saigon Invest Western Bank N/A

2009 Maritime Bank My Xuyen Bank 5%

2009 Saigon Tourist Kien Long Bank N/A

2009 Tin Nghia Group Dai A Bank 49%


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This whole sub-section has beendevoted to making use of our datasetof M&As in the Vietnamese economy.Nonetheless, it is not that this essaymainly emphasizes a number-crunch-ing task. The main reason for thislengthy discussion on insights derived

from the data is only that in the absenceof a systemic database for various eco-nomic activities in Vietnam, a good useof this datasetper semay be able to pro-vide us with more insights and lead tofurther implications. These will, inturn, help us better discuss some criti-cally important aspects of M&A indus-

try as an emergent part of the Vietna-mese economy, in general and for a bet-ter transformation of it into a morevigorous market economy.

4.2 A Socio-Cultural Epistemology

Our view of M&A activities in Viet-nam is that they should be consideredan economic process, not a situation or

a reflection of some equilibrium-analy-sis framework. The role of M&Ashould be understood in the existenceof major transformations of the economy,in the light of growing globalization,re-integration of the Vietnamese of theeconomy, vibrant transformation of

economic functions assumed by localentrepreneurs, public investors and thestate. Therefore, this part of the essaydiscussing a socio-cultural epistemo-logy towards M&A in the new andfast-changing, economic setting of Viet-nam should naturally be a sine qua non.

4.2.1 Opportunities, Risks, Profits

and ExitsAs reviewed in Kim (2009) the empiri-cal data over 130 years usually recordM&A waves following right after apreceding period of financial crisis andstock market collapse, no matterwhether these crises and collapse areeither the cause or effect of persisting

economic recession.

Table-6 : Summary of Banking and Financial M&A

Time Deals ValueSecurities 2007-09 11 148.2

Insurance 2001-09 9 544.2

Banking 2005-09 24 783.71

NBFI 2007-08 4 460.0

Portfolio 2004-08 6 123.9

Overall Success Rate 90.9% 54 2,060.0


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In the case of Vietnams emerging mar-ket economy, as discussed in 4.1.2, theperiod 2006-08 witnesses an abruptsurge of M&A transactions amidincreasing activeness of investors andspeculators in an increasingly growingdomestic capital market. At that time,investments in the speculative marketsbecame hot and noisy, attractingattention of perhaps the majority of the

populace that has some concern inbuilding up personal wealth2. Thesecombined with M&A wave in Viet-nam have been naturally a socio-culturalprocess and not limited to a pure eco-nomic phenomenon or a transient eco-nomic situation.

One may refer to two major reasons

for the above-said fact. First, the finan-cial markets in Vietnam have beenbeing in its infancy. Even terminologythat is used among investors and thepublic is both new and, at times, mis-leading. New economic and financialterms started being queried andsearched for by the society when theincreasing degree of capital market

activities became apparent, showingobserved anomalies (Farber et al., 2006).Although early M&A operation wasrecorded in the Vietnamese economyin the early 1990s, still M&A belongsto the bunch of new economic andfinancial terminologies imported intothe Vietnamese economic vocabulary

which appeared more frequently in the

public media at the real boom time ofVietnam stock market at the end of2006 (Pham & Vuong, 2009).

Second, in understanding the under-lying economic motivations for M&Aattempts by the Vietnamese businesspartners, as both seller and buyer, oneshould not shirk their socio-culturaltraits, especially those relevant to the

transformation of entrepreneurship tomature full-blown corporation, wherethe separation of ownership and con-trol turns out critical. Behind the scene,one has to accept the reality that seek-ing profits, a major economic motiva-tion for M&A attempts like themajority of other economic activities,carries with the act much of the herdmentality and rampant rent-seeking, inthe form of taking informational, powerand connection advantages (Vuong &Tran, 2009(b)).

As mentioned earlier in this essay, ourdataset, although believed to be themost complete so far, is still sparse and

unsuitable for doing mainstreameconometric analysis on M&A market.Furthermore, in our view, a discussionon socio-economic and cultural traitsof such processes would likely result infar better understanding of the marketevolution in the transitional economy;we will use casestudy discussion herefor further analysis.


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Now, take the example of the Vietnamstock market before early March 2007to see it more clearly. Ungroundedex anteexpectations set by an increasingnumber of new-arriving speculators hadpressurized the Ho Chi Minh Citybourses price composite VN-Index.Eventually, this index was pushed up toits pinnacle of 1,171 points in March 12,2007, showing a spectacular market

value gain of +175.9 per cent over oneyear (VN-Index at 424.5 on March 13,2006) and a geometric annual capitalgain of 198.5 per cent for the2005-2007 period (VN-Index at 237on March 11, 2005). Acting on lackof information, under pressure ofunspecified source of rumours and withvery high ex anteexpectations, the Vietna-mese speculators, including corporate,quickly spent money on any stock theycould buy (not an easy job due to vani-shing liquidity in high speculation). Theforeign factor is meaningful in thiscontext. An injection of approximatelyUS$6 billion FPI funds into theVietnameses nascent capital markets,

in 2006-07 alone, had not been neu-tralized appropriately, first causing adecent type of inflation, for capitalassets. The existence of herd behaviourcombined with a price-fueled increas-ing funds flow triggered a real assetbubble, making an upward spiral inprice formation process of the Viet-namese capital markets.

This overexcitement represents super-abnormal profit opportunities causingmany domestic firms, both entrepre-neurial and well-established, to findways of exploiting them. M&A trans-action, together with a fake brandingby using the term strategic alliancewith a foreign firms name, turned outtruly fashionable in this context (andstill fashionable today) since that pur-

poseful act could stir up further thespeculative mentality and sky-rocketnave speculators expectations. In a caseof Thien Viet Securities, even anunsuccessful fake M&A transactionwith Goldman Sachs did not preventthe market from investing stock of thisnewborn firm, with a thin equity baseand without professional track record.

Its market price was spurred up to itspeak of US$4.38 from US$0.63, fourweeks after the first rumour travellingout of their office, representing amonthly profitability of 600 per cent.When the fake M&A was disclosed inpart in the mass media, this stock valueevaporated in a price free fall down to

US$0.6 over two weeks.In another case, the short-lived marriagebetween Vietnams leading technologyfirm FPT and the US-based TexasPacific Group (TPG) is evidence thateven well-established firms with mosthighly-regarded entrepreneur-corporateleaders are not exempt from this super-

abnormal profit seeking. In October 2006,


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TPG and Intel Capital became strate-gic partners holding US$36.5million equity in FPT in exchange of1.2 million shares of common stock(market price at US$10.625 then), asannounced in a joint communiqu.This strategic partner turned out a veryshort-term price arbitrageur, strikinglynot even with an adequate lock-up term,when they sold them off. Needless to

say, the world tech-giant name of Intelhelped excite the speculators in favourof FPT stock, believing in a genuineM&A success story, which could bringthe already-mighty leading IT firm FPTto a new level, perhaps world-class.When FPT share made its debut on thestock market on December 13, 2006,its share was valued at US$25, repre-

senting a huge annualized return of811.8 per cent. In a seemingly unstop-pable price increase, its share attained anew record, still Vienams stock pricerecord thus far, of US$41.56 onFebruary 27, 2007. A lucky arbitrageurcould enjoy a 265 per cent annualizedprofit, counting from its listing date

only. However, aftermath of thedivorce was also huge. Stockholderssaw FPT common stock being valuedat US$2.22, losing 92 per cent of valueexactly two years after the peak time inFebruary 2007.

In the wave of M&A booms in 2006-08,especially into banking, financial and

securities industries, it is observable that

these are business fields with own fea-tures of profits, risks and exit methods.Capital adequacy, international expe-rience and persuasive performance recordsaltogether do not suffice writing a suc-cess story. In-market human capital,relationship and connection, social capi-tal are also needed to get it up and run-ning, as typical socio-cultural traits inVietnam and also several other East

Asian contexts (Vuong & Tran,2009(b)). Furthermore, the mimick-ing act performed by the investing pub-lic, including corporate entities,towards stocks following M&Atransactions, certainly is not the creativeimitation strategy as termed byDrucker, (1986, p. 220).

Some additional statistics should sup-port the above argument. In late 2009,the National Assembly unveiled anddiscussed data on state-run firms per-formance during the M&A boom time,which could help reach some furtherimplications. According to their discus-sion, 47 most powerful state-ownedconglomerates and large corporations

raced in 2006-08 to have invested inbanking and financial sector; in realityall five sub-categories are presented inTable-8. They invested a large portionof the state budget, de jure, to seek toestablish corporate fortune, de facto.Total new capital expenditures madeby these large firms constantly reached

new heights of US$400 million


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(VN$ 6,400 billion), US$993 million(VN$ 16,200 billion), and US$1,275million (VN$21.164 billion), in 2006,2007 and 2008, respectively3. Big shotsin the race are well-known oligopolisticfirms such as Electricity of Vietnam(EVN), PetroVietnam (PVN), Viet-nam Rubber Co., Vinashin (shipbuild-ing), to name just a few. These State-owned Enterprises (SOEs) entered

various M&A games in both roles ofacquirer (when taking over existingfirms) and target (when selling stocks).EVN is the special case, which drawsmuch attention and criticism by econo-mists, National Assembly deputies andthe public, because while betting overUS$125 million on highly uncertainnew games, while as in its major role

assigned by the government it causedbig trouble for both society and itselfby shirking the responsibility of build-ing 13 more power plants, invoking theexcuse of a US$22.5 billion short oflong-term capital. Yet, the performanceof these conglomerates in new venturesturned out very dismal, with a majo-

rity of them resulting in big losses.Their ex postcommercial payoffs werea complete contrast to very high ex anteexpectation set forth when channellingbillions of US dollars into these ven-tures at the beginning of the game. Thefirst lesson of extreme volatility in theM&A industry was taught harshly, butat the expense of tax-payers, causing a

great deal of resentment. The seeminglyprofit-reaping opportunities wereturned into realized risks, with littlealternative to exit.

The surge of M&A activities has beenshown quite volatile and dependent onvarious externalities to the Vietnameseeconomy itself. Opportunities as seenby acquiring firms could be marketexpansion, comparative advantages oflower labour costs, less costly access tonatural and social resources. On theother hand, acquired ones may perceiveopportunities differently, such as inmodern manufacturing and manage-ment technologies, diversified assetportfolio, capital gain using partnersreputation or not uncommonly

simply much larger proceeds from salesof existing assets, tangible or intangible.This complex reality of the so-calledopportunities should posit varyinglevels of concern for profits, risks asso-ciated with different M&A processesin various industries, together with apossibility of realizing potentials as setout byex anteexpectations of participa-

ting partners in M&A games. In muchof the M&A essence in the boom timewe have just seen, the heart for success-ful realizations, which we could singleout : PMI, has almost been absent fromthe picture. And this fact contributesto the increased risks of post-mergerfailure as well as to increasing view of

M&A as a tool for rent-seekers.


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In reality, our view is that opportuni-ties M&A processes may exhibit shouldbe viewed more than simply situationalprofits and as aligned with uncertain levelof risks and returns. These opportuni-ties should lie in the process of trans-forming firms into ones that could graspexception opportunities in change :

A change in industry structure offersexceptional opportunities, highlyvisible and quite predictable to out-siders. But the insiders perceive thesesame changes primarily as threats. Theoutsiders who innovate can thusbecome a major factor in an impor-tant industry or area quite fast and ata relatively low risk.

(Drucker, 1986, pp. 81)

But in reality, Vietnams emergingeconomy has been different. A largenumber of M&A attempts were com-mitted by domestic firms to makeimmediate exit with substantial upfrontfinancial payoffs, including paid-in capi-tal surplus and to get out of economicuncertainties amid the awakening

storms of highly uncertain economicglobalization.

4.2.2 The State, Society and Impli-

cations for Economic Policy

As we have seen before, the problem inM&A pursuit taken on by state-runconglomerates has had deep roots in the

agency problem, where the right of

controlling state assets is in the hand ofnon-owner senior managers. But muchof this part of discussion is devoted toentrepreneurship as a pillar of thenational economy of Vietnam, towardsthe answer for a question How and inwhat conditions, M&A could be use-ful for the development of local entre-preneurship?

As put forward in Vuong (2007), thethriving economy of Vietnam over thepast two decades has depended muchon the nationwide entrepreneurshipprocesses. Entrepreneurship, as complexprocesses, has been critically importantfor both prosperity and sustainabilityof the economy in the long-run. Butthe Vietnamese entrepreneurial charac-

teristics also exhibit own issues whichcould even potentially lead to morewidespread destructive entrepreneur-ship in its future path. Now we couldpredict that M&A may represent a shiftin economic function of many localentrepreneurs, including corporateentrepreneurs as managers. By participa-ting in an M&A transaction, they

proactively seek to add a new role ofcapitalist to their originally assumedentrepreneurial one, while their origi-nal role assumes no capital at thebeginning of the course of actions.

A pure entrepreneur owns no capital.Institutions that facilitate the separa-tion of ownership and control give rise

to capitalists who are not entrepreneurs


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and to entrepreneurs who are notcapitalists. [] It is the capitalists wholose their money in the event of busi-ness failure. Entrepreneurs only bearthe risk to the extent that they mayalso act as their own capitalists, as theyoften do when they invest their own personal funds at the seed financingstage of commercial ventures. []Consequently, one should not expect

entrepreneurs to exhibit special risk-taking propensities. [] Profit isa reward for superior perception oralertness; it is not a reward for risktaking or uncertainty bearing.

Harper, 2003, pp. 9, 10

There are decent discussions in themasterpiece of the Austrian school byMises (1966) and the seminal essay byKirzner (1973) which are very usefulto our understanding and perceptionswith respect to the original role ofentrepreneur in the market economy.

Now, the relevant question one shouldimmediately pose to such importantand vibrant transformation, taking inpart in the form of M&A divestitureof previously local entrepreneurs wholly-owned corporate workingassets is : What if the original role of anentrepreneur, genuine or quasi, is a purerent-seeking? The answer lies much inour epistemological development in theunderstanding of the whole national

economy, not as in the current situation,

but as a whole path of economicevolution, consisting of revolutions, stableor turbulent times, reforms and also anew-emergent globalizing process.

One answer could possibly be : Theyshould realize most of the rents (sig-nificantly above average returns) nowrather than later, in an economic pos-tulation that says :

The most important point is that ana-lytically, the purely entrepreneurial roledoes not overlap that of the capitalist,even though, in a world in whichalmost all production processes are moreor less time-consuming, entrepreneu-rial profit opportunities typicallyrequire capital.

Kirzner, 1973, pp. 49

This Austrian view is very useful to ourunderstanding of M&A in the particu-lar context of the Vietnamese transitioneconomy due to the critical role ofentrepreneurs and contribution by anation-wide wave of entrepreneurial

start-ups in the current period ofthorough economic reforms (Vuong,2007, pp.15-19; Vuong & Tran, 2009(b)).

To a large extent, M&A would thenbecome an economic process in whichacquiring firms (foreign TNCs, outsideentrepreneurs or domestic firms/entre-preneurs) seek to control resources,

depending on the type of resources,


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its prices and the possibility of profitsderived from such ownerships. How-ever, in its essence, M&A is differentfrom pure portfolio investment in thesense that partners expect to undergo aperiod of Post-merger Integration(PMI) and profits should come frombusiness operation after some period oftime in production and service provi-sion, as put in the following :

The capitalist role, needed to makeentrepreneurial profits possible in thiscase of time-consuming production, isfilled by resources owners who find theinterest payment sufficiently attractiveso they are willing to sell resourcesunder an agreement which promisesthem revenue only at some later

date.Kirzner, 1973, pp. 48

A case of acquisition of Da Lan Tooth-paste has been well-known amongVietnamese. At the beginning of theM&A process, the society consideredthe case a fairy tale, by which the entre-preneurMr. Trinh Thanh Nhonsold off his firm, with substantial mar-ket share in the FMCG industry, onits pinnacle occupying 95 per cent mar-ket in the North and 70 per cent inCentral Vietnam, to an AmericanTNC, P&G, for the then colossalamount of money, US$3 million in1995. After nearly 15 years, the former

owner-entrepreneur of the once-famous

Da Lan Toothpaste viewed the fairytale as a big mistake and with deepregret.

By involving many different stake-holders in a transaction, such as targetfirms stakeholders, the government,stockholders and bondholders and soon, an M&A process could also be con-sidered a catalyzing process for furthertransformation, such as the equitizationand re-structuring of the dominantfinancial sector. It is in part becauseM&A itself, together with FDI pro-cess, has apparently been symbolic of afaster globalization in the Vietnameseeconomy. Good or bad? The answerclearly cannot be too simplistic, but inprinciple could be focused on nature

of the answer for who achieves what.It is, thus, not incidental that the surgeof M&A started taking place in 2005.It was by nature a speculation ofVietnams inevitable deeper integrationinto the world economy and the con- jecture of Vietnam becoming full-member to WTO in early 2007(Vuong, 2007, pp. 25, 26).

In terms of physical assets, we couldconsider the use of land, especially high-valued land for retailing, residential andcommercial real estates in cosmo-politan cities. Recent statistics show thatSOEs, mainly state conglomerates, havebeen entitled to control 3,000 millionsquare meters (sq.m). They

de factoown


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m & a market in vietnam

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