SCG explores M&A ventures

SCG’s president and CEO Kan Trakulhoon said that mergers and acquisitions (M&As) including those in Vietnam continued to be a cornerstone of SCG’s business expansion strategy in Southeast Asia.

“We now have $1.3 billion in cash available, so we’ll continue M&A activities in Vietnam and the whole region. Vietnam has already seen supply outstripping demand in the cement market, and we probably won’t invest in a cement company here at present, but we won’t rule it out in the future. At present, our M&A targets would be for the other areas,” Trakulhoon said.

Since last year, SCG, whose key operations are in the cement-building material, paper and chemicals, has spent big investment acquiring Vietnamese firms.

Specifically, SCG in December 2012 spent $240 million acquiring an 85 per cent stake in Vietnam’s Prime Group Joint Stock Company, a major domestic manufacturer of ceramic tiles. Prime currently has the production capacity of 75 million square metres of tiles per year and holds a 20 per cent share of the domestic market.

“The acquisition of Prime Group will not only help us strongly amplify our presence in Vietnam’s building materials market, but also enable us to become the world’s largest ceramic tiles producer with the highest production capacity of 225 million ceramic square metres, enhance our capabilities and offerings within ASEAN, and to support our vision of becoming a regional leading corporation,” Trakulhoon said.

Earlier SCG also purchased a 20 per cent stake in Vietnam’s Binh Minh Plastic Joint Stock Company and a 23 per cent stake in Vietnam’s Tien Phong Plastic Joint Stock Company. Early this year, the merger between SCG and Alcamax Packaging, a leading producer and distributor of corrugated paper containers in Vietnam, was successfully concluded.

SCG Cement-Building Materials, one of three SCG’s core businesses, officially also started operations of Buu Long Industry and Investment Joint Stock Company (Buu Long I&I JSC) last year. SCG Cement-Building Materials acquired 99 per cent equity of the company in 2011’s fourth quarter. The $5.5 million deal covered the acquisition and plant renovation costs. SCG said it was concerned to maintain sustainably its acquired companies and wasn’t interested in asset stripping.

“We’re committed to being a good corporate citizen,” Trakulhoon said.

SCG is striving to become an ASEAN sustainable business leader once the ASEAN Economic Community takes place in 2015. It has pursued this target since 2006 via a string of successful M&As, focusing on its core businesses.

“We set an investment budget of $7 billion war-chest for the 2012-2016 period. Our net debt is no lower than two times our equity and our ceiling is three times our debt-equity ratio. So, the M&A budget isn’t a concern,” Trakulhoon said.

He emphasised the success and growth of SCG’s M&As “underlined SCG’s sense of renewed direction and purpose in the ASEAN markets. Business expansion plans through M&As can be seen as the new approach to future investment.”

For SCG, this strategy offers expertise derived from an incubation period so that its approaches can be adapted to suit local conditions. M&A expansions have notable consequences – a diversity of people from different backgrounds as well as cultures are brought under the SCG umbrella and integrated into the same working culture.

“The resulting differences can also act as a business advantage. A more diverse workforce can lead to creative ideas that are beneficial to the organisation, and allow for further expansion and cooperation within the region,” Trakulhoon said.