CJ Group buying offensive to bring revenue to $90 billion

The perfect match from Vietnam

In recent years, Gemadept has emerged as an attractive option for investors in the field of logistics, including JP Morgan, Nikko, NTAsset, Composite, Consilium, TAELPartners, Seafarer, Dunross, CIM, Indochina Capital, SSI, MBS, VFM, Sarus Capital, and Bao Viet Fund.

Gemadept is not CJ Group's only target in the field of logistics. Photo: Duc Thanh

Projects that have been deployed at strategic locations in key industrial zones, especially those in core business areas such as port operations or logistics, are the highlight of Gemadept, making it appealing to the above investor community.

Gemadept is withdrawing its capital from companies operating outside the industry, seeking strategic partners to further promote the company’s businesses in port operations and logistics. Gemadept has transferred 50.9 per cent of its shares in Gemadept Shipping and Gemadept Logistics to CJ Logistics, which is a large enough amount for CJ.

The deal value was not disclosed by the parties, but at the Annual General Shareholders’ Meeting in late May 2017, Do Van Minh, general director of Gemadept, said that the two companies were valued at $250 million. Thus, the sale of nearly 51 per cent of the shares helped Gemadept to raise about $125 million in revenue. The company will use the proceeds to pay a special dividend of 85 per cent for shareholders.

Previously, another member of CJ Group, CJ O Shopping Co., Ltd., also acquired the remaining 15 per cent of shares in CJ Vietnam Limited (Gemadept Tower). Ho Chi Minh City Securities Company (HSC) estimated that the value of this transfer might reach at least VND165 billion ($7.27 million).

In 2014, Gemadept sold 85 per cent of its shares in Gemadept Tower to CJ Group for $45 million. A few years ago, before the deal was officially announced, Gemadept’s office building had been transformed into CJ’s headquarters in Vietnam, which could also be considered an affirmation.

The scale of logistics services in Vietnam currently hovers around $20-22 billion per year, accounting for 20.9 per cent of the country’s GDP.

However, Gemadept is not the only target of CJ in the field of logistics in Vietnam or in Asia. At the end of 2012, CJ partnered up with C.T Group to build and operate a logistics system including warehouses and storage facilities in Binh Duong, Danang, and Bac Ninh.

In particular, C.T is responsible for setting up the warehousing infrastructure, while its Korean partner will be in charge of investments in technology and expertise. Considering Song Than Logistics Center (Binh Duong) alone, CJ’s investment was estimated at $20 million, while that of C.T could amount to $12 million.

Recently, CJ has been continuously acquiring logistics companies in Asia. Last year, CJ spent $10 million buying 31.4 per cent of the shares in Malaysia Century Logistics and 50 per cent of Shenzen Speedex Commercial Service (China). In 2015, CJ bought China’s Rokin Logistics for $400 million to keep the battlefield in China and eking out the momentum to promote business growth in Southeast Asia.

CJ’s goal is to become one of the top five logistics companies in the world by 2020. The corporation is working to purchase a majority stake in two forwarding companies in Europe and the US to create a giant network covering the entirety of Asia. Other acquisitions are the purchase of 50 per cent of shares in India’s largest logistics company Darcl, the acquisition of a 51 per cent stake in Ibrakom Group, a project in the Middle East and Central Asia.

“We are diversifying our M&A channels and strategic alliances to become one of the five major logistics service providers in the world,” said Park Gun Tae, CEO of CJ Logistics.

With the advantage of participating in numerous international trade agreements, Vietnam is attracting a large number of foreign investors, especially big manufacturing groups such as Samsung, Microsoft or LG who are relocating their production lines to the country. This has led to an increase in exports, thereby leading to a surge in the demand for ocean freight shipping.

CJ has been eyeing this delicious piece of cake for so long and the decision to conduct M&A deals with domestic partners seems to be the most reasonable choice. Due to restrictions on foreign investors’ ownership ratio in previous years, many foreign companies choose joint ventures or strategic partnerships to do business in Vietnam.

By acquiring well-established and profitable domestic logistics companies like Gemadept, CJ will be able to quickly take advantage of its available network, customer base, and local operating experience. This carries smaller costs to enter the market than building everything from scratch.

Focus on the goal of $5 billion in revenue

The acquisition of Gemadept marked a new step in CJ’s plan to expand its businesses in Vietnam, formally tapping into the logistics industry. CJ’s strategy is to make Vietnam one of the three biggest foreign markets of the group after Korea and Japan. The goal of CJ Vietnam and CJ Indochina (Laos and Cambodia) is to reach $5 billion in revenue by 2020.

CJ entered the Vietnamese market in 1998, starting with the production of animal feed. In 2007, CJ debuted in the food industry with the launch of the Tous Les Jours pastry chain, which now has more than 30 stores across the country. In 2011, CJ spent more than $73 million to acquire an 80 per cent stake in Megastar, the largest cinema chain in Vietnam at the time.

In recent years, CJ has expressed its ambition to become a major name in the Vietnamese consumer food industry as it focuses more investments in local food processing partners. After failing to build a strategic partnership with Vissan, CJ acquired the kimchee brand Mr. Kim, as well as bought a 47.33 per cent stake in Cau Tre Food Joint Stock Company last November. The group then raised its stakes in the company to 71.6 per cent in May this year.

In the first quarter of this year, CJ invested $13.44 million to buy a 65 per cent stake in Minh Dat Co., a leading brand in the meatball market.

CJ has reinforced its relationships with numerous local partners. One of these is Saigon Trading Company (Satra), the largest state-owned company in Ho Chi Minh City. Satra is currently the owner of a number of well-known food brands and has a nationwide distribution network which is being utilised by CJ to distribute its products.

This year, CJ has invested $61.8 million in a food processing complex, including a research centre in Hiep Phuoc Industrial Park in Ho Chi Minh City. The project is being implemented through a partnership with a subsidiary of Satra and is expected to be put in operation by July 2018. CJ is also negotiating with some livestock companies to develop an animal feed supply chain.

Chang Bok Sang, Chairman and CEO of CJ Group Vietnam, says that the group has an investment fund for M&A deals and it is interested in Vietnamese state-owned enterprises that are going to be equitised. The company has achieved an annual growth rate of about 30 per cent and wants to diversify its businesses by stepping into many other potential areas in Vietnam. By 2016, the company has invested $500 million in Vietnam’s agricultural, entertainment, pharmaceutical, and retail sectors and plans to increase its portfolio to $1 billion by the end of this year.

Last year, CJ Vietnam raised over $740 million in sales and $36 million in pre-tax profit, mainly from the fields of animal feed, agriculture, and entertainment. Regarding the food industry alone, CJ considers Vietnam a strategic market for Southeast Asia as the group has set a target of gaining $700 million from the industry by 2020.

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