Bibica power balance coming to an end?

The stand-off of Bibica's two largest shareholders may be resolved by acquisition

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PAN Food’s ambition

In June, Bibica announced that it has received PAN Food’s offer to purchase 7.27 per cent of its outstanding shares in the market, an equivalent of 1,121,670 shares, at the price of VND112,800 ($5) apiece. It means that PAN Food will have to spend about VND127 billion ($5.6 million) on the deal. If the transaction succeeds, PAN Foods’ stake in Bibica will rise to 51 per cent, turning Bibica into a subsidiary.

However, currently, Lotte has two representatives in Bibica’s board of directors, while PAN Food has only one, Nguyen Khac Hai.

Even if PAN Food can successfully hold 51 per cent stake in Bibica, it cannot add another representative to the board of directors immediately, as they will have to wait until a Lotte representative or an independent member end their term. Otherwise, in accordance with the Law on Enterprises, PAN Food should hold 65 per cent of Bibica’s stakes to call a shareholders’ meeting and call for the election of a new member.

Previously, Truong Phu Chien, vice chairman cum general director of Bibica, registered to sell his 0.72 per cent stake in the company on May 19, 2017. Bibica’s leader, who has devoted 30 years of his life to Bibica, said that he wanted to transfer his entire shareholding due to personal financial reasons.

However, investors do not completely give credence to this reason, as Chien used to say that stake sale was the best way to eliminate conflicts between the two biggest shareholders.

At the same time as Chien, Vo Ngoc Thanh, another shareholder, also registered to sell a part of his stake in Bibica. From May 23 to June 11, 2017, 2.66 per cent of Bibica’s stakes have been offered for sale.

From 2013, there have been conflicts between Bibica’s two biggest shareholders, PAN Food and Lotte, which was exacerbated by their similarly large holdings that prevented either of them from making the final decisions in the company.

Purchasing this 7.27 per cent would give PAN Food an advantage over the other majority shareholder. Also, Chien’s wish for Bibica to have one biggest shareholder will come true.

A shareholder in Bibica since 2007 by acquiring a 38 per cent stake, now Lotte holds 44.03 per cent as the biggest shareholder. Lotte is one of the most famous confectionery manufacturers, offering vital support to Bibica’s research and development department. Moreover, thanks to Lotte, Bibica’s products are now exported to five countries, all part of Lotte’s system of 16 foreign markets.

Meanwhile, Saigon Securities Inc. (ticker SSI on HOSE) has been holding a 9 per cent stake in Bibica since the middle of 2009. As Nguyen Duy Hung fills the position of chairman at SSI and The PAN Group, this acquisition raised PAN Food’s stake in Bibica to 43.73 per cent. PAN Food offers Bibica both financial support (on account of SSI) and support in the agriculture and food sectors.

Bibica scheduled electing additional member to its board of directors at its May 26, 2017 annual shareholders’ meeting, but the plan fell through and the board remained unchanged. Nevertheless, the two board members’ decision to sell is expected to alter the balance between the two biggest shareholders.

Hung is expected to play a major role in this. In the past, when asked whether he wanted to increase ownership in Bibica and gain control, Hung said that even if he wanted to, not enough shares are available on the market.

“When mentioning me or SSI, people may think that my investment in Bibica is a financial investment instead of a strategic one. If Kinh Do Vietnam Joint Stock Company (now Mondelez Kinh Do Joint Stock Company) had not sold 80 per cent of its stake in the confectionery sector to Mondelez International (an American multinational confectionery, food, and beverage company), we would not have invested in Bibica. We finally decided to invest in this company because in the next five years, we do not want to see our ancestors’ altars covered by foreign confectionery,” Hung told VIR at a recent meeting in Ho Chi Minh City.

Ambition of becoming a leading confectionery company

Chien agreed with Hung about Bibica’s development target, saying that the 2.66 per cent stake will be transferred to a new owner based on Bibica’ benefits, such as its brand and product development, instead of personal benefits.

This is an important thing as Bibica is deploying its key products.

One of its main products is chocolate pie. Upon mention of this type of confectionery, Vietnamese people may think of ChocoPie, a product of Orion Group, which generated $174.5 million of revenue in 2016 in Vietnam, or Lotte Pie. However, in April 2017, Bibica introduced Mini Pie Orienko, which was adjusted to better suit the Vietnamese taste, so that this product can compete with other foreign brands.

Talking with VIR, Phan Van Thien, deputy general director of Bibica, said that this will be one of Bibica’s main products. The company targets to win 20 per cent of market share away from its competitors with this product.

Previously, Bibica already introduced this product, geared towards the high-income segment, but failed. Thus, Orienko is now repositioned as a product for the middle-income segment at the price of VND30,000 ($1.32) per 264 gram box.

“We employ high-technology for product preservation without using preservatives. The product’s quality is as good as foreign pies, while its price is 30-40 per cent lower. I believe that in the short term we will gain market share, and in the long term our products will replace foreign brands,” Thien said.

With the capacity of 20 tonnes per day, this chocolate pie product is expected to induce VND200 billion ($8.8 million) of revenue, which will account for 13-14 per cent of Bibica’s total revenue in 2017. Currently, Bibica holds 30 per cent of the candy sector and 25 per cent of the pie/cake/cookies sectors.

At present, Bibica is taking advantage of agricultural products, such as coffee and coconut, or manufacturing products with functions similar to supplementary food, such as candies for sore throat. Bibica develops its products based on the advantages of domestic agricultural products. Other candy brands for the high-income segment will be produced in June 2017 to reach the target of 50 per cent annual growth rate.

Chien said that Bibica will develop its products in the domestic market and considers this its main market. Bibica’s products were exported to 15 countries, but they contributed only 7 per cent to the company’s total consolidated revenue. It is forecasted that the confectionery market in Vietnam will have a growth rate of 8.5-9 per cent per year, with more competition coming, as duties and tariffs in the ASEAN will be eliminated gradually.

Regarding technology, most companies in the industry across the ASEAN stand on the same technological level (except for Korea and Japan). This requires every manufacturer to focus on quality to win market share.

Bibica targets to become a leading confectionery company in Vietnam by 2021, with a revenue of VND2.618 trillion ($115.2 million), an equivalent of 20 per cent annual growth rate. This is a challenge to Bibica’s board of directors and supervisors.

Bibica has announced expanding its manufacturing at Eastern Bibica Co., Ltd. and Northern Bibica Co., Ltd. In particular, in 2017, Bibica expects to spend about VND217 billion ($9.5 million) on investment (in 2016 the amount was $800,800). Targets include Bibica Bien Hoa factory (about $2.8 million), the biscuit production line in the Eastern factory ($5.6 million), upgrading the bread production line in the Hanoi factory ($316,800), upgrading the cookie production line ($264,000), and upgrading the fire protection system of Bibica Bien Hoa factory ($132,000).

Additionally, Bibica is developing an online store with the aim of developing its distribution channels in Ho Chi Minh City and Hanoi, so that the two cities will contribute 30 per cent of Bibica’s total sales. At present, Bibica has more than 2000 products in over 500 big and small supermarkets, with 120 exclusive distributors and retail outlets in Vietnam.

To reach these targets, it is vital for Bibica that its big shareholders get on with each other and put a stop to conflicts.