Merger and Acquisition between Eximbank and Sacombank

Merger and Acquisition between Eximbank and Sacombank

Hoa Sen University Restructuring and Firm valuation i RESTRUCTURING AND FIRM VALUATION PROJECT: MERGER & ACQUISITION BETWEEN EXIMBANK & SACOMBANK Lecturer: Mr. Ngo Huu Hung Group: Tran Thuy Anh 093404 Tran Dung 091821 Luong Thi Yen My 093420 Le Hoang My Thanh 091877 Nguyen Nhat Thien Truc 091900 - March 2013 - Hoa Sen University Restructuring and Firm valuation ii ACKNOWLEDGMENT Thanks to Hoa Sen University, which gave us the opportunity to contact to the reality by performing this project; Especially thanks to Mr. Ngô Hữu Hùng – Lecturer of Project: Restructuring and Firm evaluation for the devotion and the usefulness in the effort of helping us to develop and accomplish this project; Thanks to all the member of our group for the contribution of the idea of this project; especially thanks to Ms. Trần Thuý Anh in giving advice of choosing company, and thanks to all the corporation of the member of group; Thanks to all the help, before and during the time of doing this project, that were given to make our project completed, so it could be done successfully. Hoa Sen University Restructuring and Firm valuation iii ABSTRACT Theory will be always far from the reality without practice, so in the desire of being successful everyone must study simultaneously with practicing. Subject “Project” in University is one of many ways of giving student an opportunity to approach the real stuff that they will contact with in the near future. That is the reason for this project – Restructuring & Firm evaluation. In this project, we was searching, and studying the information related to the performance of Sacombank and Eximbank – the two large banks in Viet Nam that have stock listed on the market to make use of their figures to valuate their M&A transaction, and also reviewing the knowledge that had been received from lecturer to serve the demand of doing it. Hoa Sen University Restructuring and Firm valuation iv CONTENT ACKNOWLEDGMENT ERROR! BOOKMARK NOT DEFINED. ABSTRACT III CONTENT IV TABLE & CHART CONTENT VI INTRODUCTION 1 1.OVERVIEW OF MERGER AND ACQUISITION (M&A) 2 1.1 DEFINITION 2 1.2 CLASSIFICATION 3 2. ISSUE IN MERGER & ACQUISITION 3 2.1. BUSINESS VALUATION 3 2.2. BUSINESS VALUATION IN MERGERS AND ACQUISITIONS 4 2.3. STEPS IN VALUATION 5 2.4. VALUATION METHODS 6 2.4.1. Accounting/Financial Ratios 6 2.4.2. Discounted Cash Flow (DCF) 7 2.5 LEGAL ISSUE 8 3. MERGER AND ACQUISITION IN THE WORLD. 10 3.1 OVERVIEW OF M&A IN THE WORLD 10 3.2 SOME TYPICAL M&A TRANSACTION IN RECENT YEARS 16 4. MERGER AND ACQUISITION IN VIET NAM 18 4.1 THE OUTBREAK OF M&A 18 4.2 M&A IN VIETNAM: LOCAL BUYERS MORE THAN FOREIGN BUYERS 20 4.3 THE RISKS AND DIFFICULTIES OF M&A IN VIETNAM 21 4.3.1 Risks in M&A 21 4.3.2 Negative impacts on the development of the economy 21 4.3.3 Negative impacts on the operation of the business 22 4.4 DIFFICULTIES OF M&A IN VIETNAM 22 Hoa Sen University Restructuring and Firm valuation v 5. SPECIFIC CASE: M&A BETWEEN EXIMBANK AND SACOMBANK 23 5.1 OVERVIEW OF VIETNAM BANKING SECTOR IN 2012 23 5.2 VIETNAM EXPORT AND IMPORT COMMERCIAL JOINT STOCK BANK (EXIMBANK) 27 5.2.1 Eximbank – position in banking sector 28 5.2.2 Eximbank – SWOT analysis 28 5.3 SAI GON THUONG TIN COMMERCIAL BANK (SACOMBANK) 29 5.3.1 Establishment and development 29 5.3.2 Core values 30 5.3.3 Sacombank SWOT analysis 31 5.4.1 Circumstand of Sacombank in recent years 32 5.4.2 Context and causes of M&A and the performance 37 5.5 RESULT FROM M&A – STB-EIB AFTER THE TRANSACTION 42 5.5.1 Strategic cooperation 42 5.5.2 Changes in the new firm STB-EIB 43 6. CONCLUSION 45 SOURCE 47 Hoa Sen University Restructuring and Firm valuation vi TABLE & CHART CONTENT Chart Content Chart 1: M&A in Viet Nam 18 Chart 2: Sacombank – shareholders structure before M&A 39 Chart 3: Shareholder structure after M&A 41 Chart 4: STB - EIB in the third quarter 2012 43 Chart 5: STB - EIB's Equity 44 Chart 6: STB - EIB Change in capitalization 45 Table Content Table 1: M&A ranking - Worldwide 11 Table 2: M&A ranking - Europe 11 Table 3: M&A ranking - Asia-Pacific 12 Table 4: M&A ranking - South East Asia 12 Table 5: M&A ranking - North America 13 Table 6: M&A ranking - South America 13 Table 7: M&A ranking – Australia 14 Table 8: M&A ranking - Germany 15 Table 9: M&A ranking – Switzerland 15 Table 10: Top 10 M&A deals in 2011 (Source: Capital IQ) 19 Table 11: The M&A deals in quarter I/2012 19 Table 12: EIB Shareholders and Ownership 27 Table 13: Scombank - Shareholders and Ownership 31 Table 14: STB's Financial Statement 32 Hoa Sen University Restructuring and Firm valuation 1 INTRODUCTION The year of 2011 was such a difficult one to the economy in Vietnam as there were hardly the convenient channels to invest in, so that investors seem to be much more careful and cautious in choosing one to put their money in. 2011 was also a year of restructuring the economy and preparing to the stability development in the next few years, so that companies, firms, corporations would prefer to merge with or to acquire each other for reducing the risk of cost and investment, and make use of the cooperation. Merger and Acquisition are not innovative in the world, it has happened since very long time and still remain now, it has implemented in every areas, in banking sectors as ABN Amro and Barclays PLC of England, Mitsubishi Tokyo Financial Group and UFJ Holding, or in Technical System as Antel of U.S and TPG Capital and Goldman Sachs, or Car manufacturing as Chrysler and Fiat, Volkswagen and Porsche in Europe… The outcome can be successful, or failure, but even then, it still creates a lesson. The importance of the Banking system to a Country is that it would impulse or slows down the whole economy by its movement. Merger or Acquisition of two or more banks will generate positive and even negative impacts to the society, but no matter what it will bring, each M&A has its own reasons, but its results and consequences can be predicted. In this project, we present that of the M&A transaction between Sacombank and Eximbank, included the reasons, performance, and expected results. Hoa Sen University Restructuring and Firm valuation 2 1.Overview of Merger and Acquisition (M&A) 1.1 Definition M&A (Merger and Acquisition) activity is to gain control of a business, a department business through the ownership of part or the entire enterprise. Thus, the basic principle of M & A is to create new value for shareholders that the old status is not achieved. In other words, M & A related to issue of ownership and property rights to change or create new value to shareholders. M & A activity is not only changing the ownership of a business for the shares or assets, but also changing activities management and administration of the business. However, the level of changing depends on the provisions of the laws, regulations and enterprise agreements between the parties. The main difference between a merger and an acquisition lies in the way in which the combination of the two companies is brought about. In a merger, there is usually a process of negotiation involved between the two companies prior to the combination-taking place. But in an acquisition, the negotiation process does not necessarily take place. Some cases which M&A happened - The basic principle: to acquire and merge, the new company must create new value for the shareholders. - About value: the company after conducting M & A must be greater than the present value of both as a stand-alone company. - About Competitiveness: Strong companies buy other companies to create a new company with high competitiveness, decrease cost, enlarge market shares - Agreement: To conduct M&A effectively, most of shareholders must agree to do. Hoa Sen University Restructuring and Firm valuation 3 1.2 Classification  Horizontal merger: That happened between two companies, which directly compete each other and share the same products and markets. Results from this merger will give the opportunity to expand market, combine brand, and reduce fixed costs.  Vertical Mergers: Take place in the supply chain of enterprises, for example between a company and its customer or supplier. Vertical Mergers are divided into two groups:  Forward: when a company acquired its client‘s company.  Backward: when a company buys back its suppliers.  Market - Expansion Mergers: taking place between two companies that sell the same products in different locations  Product – Expansion Mergers: taking place between two companies that sell different products in the same market.  Group Mergers: taking place between two companies that is in different fields but want to diversify their business. 2. Issue in Merger & Acquisition 2.1. Business valuation This is a process and a set of procedures used to estimate the economic value of an owner’s interest in a business. Valuation is used in financial market to determine the price that participants are willing to pay or receive to consummate a sale of a business. In addition to estimating the selling price of a business, the same valuation tools are often used by business appraisers to resolve disputes related to estate and gift taxation, divorce litigation, allocate business purchase price among business assets, establish a formula for estimating the value of partners' ownership interest for buy-sell agreements, and many other business and legal purposes. Hoa Sen University Restructuring and Firm valuation 4 Elements of business valuation  Economic conditions A business valuation report begins with a description of national, regional and local economic conditions existing as of the valuation date, as well as the conditions of the industry in which the subject business operates. State governments and industry associations often publish useful statistics describing regional and industry conditions.  Financial Analysis The financial statement analysis generally involves:  Common size analysis,  Ratio analysis (liquidity, turnover, profitability, etc.),  Trend analysis  Industry comparative analysis. This permits the valuation analyst to compare the subject company to other businesses in the same or similar industry, and to discover trends affecting the company and/or the industry over time. By comparing a company’s financial statements in different time periods, the valuation expert can view the growth or decline in revenues or expenses, changes in capital structure, or other financial trends. How the subject company compares to the industry will help with the risk assessment and ultimately help determine the discount rate and the selection of market multiples 2.2. Business valuation in mergers and acquisitions The increasing wave in business amalgamations started in the year 2008. Most of the recent mergers and acquisitions are in such areas like: - The oil and gas, - Textile, - Insurance, - Banking - Conglomerates sectors of the economy. [...]... Company over the past 101 years After the merger, the new entity is named Eaton Corporation, and is 16 Hoa Sen University Restructuring and Firm valuation headquartered in Ireland Through the merger of systems, electrical equipment and with help of distribution systems and global influence of Cooper, a world leading company of power management is created, and the history of the worldwide power industry... of Sacombank s shares (trading symbol STB) on the Stock Exchange of HCMC is evidence of Sacombank s prospects for development, and safe and sustainable growth Charter capital: 10.739.676.640.000 Listing shares: 1,073,967,664 Outstanding shares: 973,967,664 5.3.2 Core values  Pioneering: Sacombank will lead or initiate new growth areas when faced with challenges  Novel, Dynamic and Innovative: Sacombank. .. in the world The definition of Merger and Acquisition is now popular in the world’s economy; from the thousands of years of development of the humanity, M&A have proven its position in restructuring and balancing the economy Lacking of potential markets for thousand, maybe million companies to develop, M&A is now seen of the way to the successful due to the cooperation and strong development due to... quarter two 2011  The value of outward acquisitions (acquisitions abroad by UK companies) increased in the second quarter of 2012 compared with the first quarter of 2012, whilst the value of inward acquisitions (acquisitions in the UK by foreign companies) decreased  The net difference between inward and outward cross border 10 Hoa Sen University Restructuring and Firm valuation transactions in quarter... of this Law – “Procedures for merger of companies shall be stipulated as follows: 8 Hoa Sen University Restructuring and Firm valuation Sub-clause (a) Merging companies shall prepare a merger contract and charter of the merged company The merger contract must have the following main particulars: the name and address of the head office of the merged company; the name(s) and addresses of the head office(s)... made public their restructure plans At the beginning of 2013, Eximbank and Sacombank have signed a five-year cooperation plan in which they will support each other in lending, interbank activities, payments and in other areas The two banks plan to merge in the next three or five years and will seek approval for the merger from shareholders and government policies  Moral hazard has not been evaluated... policy 5.3 Sai Gon Thuong Tin commercial bank (Sacombank) 5.3.1 Establishment and development In 21 December 1991, Sacombank was one of the first commercial joint stock banks to be incorporated in Ho Chi Minh City through the merger of Go Vap Bank for Economic Development and three credit cooperatives: Tan Binh, Thanh Cong and Lu Gia Cooperatives In 2001, Sacombank received investment capital from foreign... the merging companies; the procedures and conditions for the merger; the plan for employment of employees; the procedures, time-limit and conditions for conversion of assets; for conversion of shares of share capital, shares and bonds of the merging companies to shares of capital, shares and bonds of the merged company; and the time-limit for implementing the merger; Sub-clause (b) Members, company... debt And, it is done through debt ratios and times interest earned,  Efficiency ratio measures how productively a company is using its assets by comparing sales (revenue) to assets value  Liquidity ratio assesses how easily a company can lay its hand on cash by examining the current ratio (assets) 6 Hoa Sen University Restructuring and Firm valuation 2.4.2 Discounted Cash Flow (DCF) In a merger or acquisition, ... company owners or shareholders of related companies shall approve the merger contract and the charter of the merged company and register the business of the merged company in accordance with this Law In this case, the business registration document shall include the merger contract The merger contract shall be sent to all creditors and notified to employees within fifteen (15) days from the date of its . 1.OVERVIEW OF MERGER AND ACQUISITION (M&A) 2 1.1 DEFINITION 2 1.2 CLASSIFICATION 3 2. ISSUE IN MERGER & ACQUISITION 3 2.1. BUSINESS VALUATION 3 2.2. BUSINESS VALUATION IN MERGERS AND ACQUISITIONS. Hoa Sen University Restructuring and Firm valuation i RESTRUCTURING AND FIRM VALUATION PROJECT: MERGER & ACQUISITION BETWEEN EXIMBANK & SACOMBANK Lecturer: Mr. Ngo. results. Hoa Sen University Restructuring and Firm valuation 2 1.Overview of Merger and Acquisition (M&A) 1.1 Definition M&A (Merger and Acquisition) activity is to gain control