Post-M&A period a challenge for all

Good co-operation between both partners is crucial after an M&A deal is finalized, Photo: Le Toan

Getting down to work

Two weeks ago, Thai Beverage finally took a dominant role in the board of Vietnam’s leading brewer Sabeco. The Thai investor, which forked out almost $5 billion for 53.59 per cent of Sabeco’s outstanding shares last December, vowed to restructure its Vietnamese investee following the merger.

In a series of sweeping actions, ThaiBev replaced Sabeco’s CEO, scrapped the company’s foreign ownership limit, abandoned Sabeco’s inspectorate committee, and set up an internal auditing team. Major goals include improving Sabeco’s business efficiency, cutting costs, and overhauling its matrix of 36 subsidiaries and affiliates. There are also plans to collaborate with ThaiBev and export Sabeco’s products. Sabeco chairman Koh Pong Tiong stressed that the Thai investor would keep the heritage Saigon Beer brand.

“The key management appointments [of ThaiBev] to Sabeco will further strengthen the management team there,” said Andy Lim and Alfie Yeo, senior analysts at DBS Vickers Securities. The analysts viewed this move as positive, adding that ThaiBev can help Sabeco improve its profit margin and operational efficiency.

At other companies, foreign investors are also working closely with their Vietnamese partners, even before the ink on their billion-dollar deals is dry. One example is Japan’s Taisho Pharmaceutical Ltd., which has been a strategic partner at Vietnam’s DHG Pharmaceutical JSC since 2017. The Japanese partner now owns 32 per cent of DHG, which recently erased its foreign ownership cap.

According to Doan Dinh Duy Khuong, CEO of DHG, Taisho has provided the Vietnamese company with international expertise, which ranges from business strategy to manufacturing, research and development, the supply chain, and building a new certified assembly line. Thanks to Taisho, DHG estimated that it has saved VND165 billion ($7.3 million) in manufacturing costs and VND24.5 billion ($1.1 million) in advisory fees.

Taisho has so far sent 12 experts to help DHG with the assembly line and has promised to continue its assistance with the EU-standard line for strategic products in the near future. Taisho said it would nominate members to the board to boost corporate governance and business efficiency at DHG, as well of sending staff members from the Vietnamese company to Japan for training. In return, Taisho plans to transfer part of its assembly line to DHG turning the Vietnamese company into a manufacturing hub for its ASEAN activities.

In its extraordinary meeting last month, fellow Vietnamese pharmaceutical maker Traphaco JSC also laid out collaboration plans with its new strategic Korean partner Daewoong Pharmaceutical Co., Ltd. The Korean investor, which has a 40 per cent stake in Traphaco, has invited senior leaders from the Vietnamese company to its South Korea-based facilities.

David Park, head of the Business Strategy Department at Daewoong, said that it is committed to its partnership with Traphaco. In particular, Daewoong intends to transfer state-of-the-art technologies and manufacturing bases to Traphaco, and in return would like Traphaco to help distribute South Korean products in Vietnam.

Both sides must win

It is apparent from the aforementioned cases that following a merger and acquisition (M&A) deal, both partners must work together for a win-win strategy. This usually means exposure to the Vietnamese market for the foreign investor and, on the other hand, stronger corporate governance, modern technology, and exports for the Vietnamese party.

“In theory, M&A deals must provide added value for both sides, as they work towards a common goal. However, in reality, this can be very difficult to achieve, especially for cross-border M&A, often due to mismatches in business strategy and cultural differences,” said Phan Van Truong, senior lecturer at Panthéon-Sorbonne University in France. Truong has decades of experience working with French, German, and British companies in their post-deal integration.

For example, Truong pointed out that some Vietnamese executives may not like being critiqued by board members, as they are used to having the most power at the company. Moreover, Vietnamese employees may not be familiar with foreigners’ emphasis on contracts and other legal documents, as cross-border M&A transactions remain a new trend in Vietnam.

The most infamous case of post-M&A conflicts in Vietnam is the aftermath of the deal between South Korea’s Lotte Group and Vietnamese confectionery company Bibica. The two sides have been partners for 10 years, but very little added value has been created for either side, as Lotte and Bibica have serious disagreements on future goals. For example, Bibica refused to either distribute Lotte’s products in Vietnam or rebrand itself as Lotte Bibica. Lotte also demanded a monopoly on exports, which was swiftly turned down by the Vietnamese side.

The Lotte-Bibica conflict has shown no signs of abating, even after Bibica welcomed another strategic partner from Vietnam, PAN Group. During Bibica’s 2018 annual shareholders’ meeting, Lotte vehemently disapproved of Bibica’s plan for a new factory in the southern province of Long An.

Gaku Echizenya, CEO of Navigos Group, recently wrote in VIR that prior to a deal, both sides have to carefully choose a partner with similar goals and culture. Later on, in the integration stage, a positive and open mindset is crucial.

“Companies should organise internal communications throughout M&A deals–before, during, and after. Along with this, the companies’ leaders need to co-operate in managing the transfer period. They then need to regularly share their targets,” Echizenya wrote.

Experts also advised M&A partners to emphasise internal communication and carry out internal education programmes for staff members. For example, following its takeover of Vietnam’s Domesco JSC, US firm Abbott held a meeting with all staff members at Domesco, reassuring them that their jobs are secure even after the change in leadership.