Research rationale
Mergers and acquisitions (M&A) have been a significant aspect of corporate strategy since the late 19th century, gaining momentum after the 1893 financial crisis Today, M&A is recognized as a crucial tool for corporate growth and development, and the banking sector in Vietnam is currently experiencing a dynamic wave of M&A activity, reflecting its importance in the country's economy.
The 2008 global financial crisis significantly impacted Vietnam's economy, leading to serious repercussions for the banking sector, including sluggish credit growth, a sharp rise in the ratio of non-performing loans (NPLs), and widespread insolvency issues.
In late 2011, recognizing the challenges facing the banking sector, the Government and the State Bank of Vietnam (SBV) initiated a restructuring plan aimed at reforming the country's banking system by 2015 This reform included consolidating the sector and reducing the number of small, weak credit institutions through mergers and acquisitions (M&A) activities.
This research explores the global trends in mergers and acquisitions (M&A) within the banking sector, offering valuable insights and recommendations for Vietnam The thesis aims to provide a thorough understanding of M&A dynamics worldwide and to identify key lessons that can be applied to enhance Vietnam's banking landscape.
Aims of study
(1) Study some basic issues of mergers and acquisitions in general
(2) Point out the M&A trend in the world as well as in Vietnam
(3) Propose some lessons and recommendations for improving the M&A activities in banking sector.
Research questions
Why is the M&A considered as one of the most important tools in corporate development and banking sector?
What is the M&A trends in the world?
How has Vietnam M&A activities in banking sector developed so far? What are achievements? What are drawbacks?
How to solve drawbacks and improve the bank M&A activities in Vietnam?
Scope of the study
M&A activities in the United States, Europe, Asia (Thailand and Korea), and Vietnam.
Research methodology
Quantitative method is a research method focusing on the collection and analysis of numerical data and statistics b Data collection
In this paper, the secondary data are extracted from the reports of PWC, KPMG and the public annual reports of some commercial banks, such as HD Bank, SHB.
Significant of the study
The study of this project is important in both theoretical and practical aspects as follows:
In theory, the dissertation systematizes the theoretical issues relating to M&A
In practice, this study analyses bank M&A trend in some countries and in Vietnam Therefore, Vietnam banking sector can assess itself and develop strategies for improving M&A activities
Moreover, the thesis also suggests solutions to improve bank M&A activities in Vietnam.
Structure of the thesis
Apart from Introduction and Conclusion, the thesis consists of three chapters: Chapter I: Literature review
Chapter II: The trend of bank mergers and acquisitions
Chapter III: Lessons and solutions to the improvement of bank mergers and acquisitions in Vietnam.
Mergers and Acquisitions definition
Mergers and acquisitions (M&A) are often used interchangeably, as both involve separate firms combining to operate as a single entity However, there is a subtle distinction between the two concepts.
According to Andrew J Sherman and M A Hart (2003), while merger is
Mergers involve the integration of two or more companies, where the buying firm absorbs the assets and liabilities of the selling firm(s) In contrast, an acquisition refers to the purchase of specific assets, which may include a plant, division, or even an entire company.
A Roberts, W Wallace and P Moles (2003) argued that “the main difference between merger and acquisition lies in the way in which the combination of the two companies is brought about” A merger usually involves the process of negotiation between two firms prior to the combination taking place; however, the process is not required in an acquisition
According to Article 17 of Vietnam's Competition Law No 27/2004/QH11, a merger involves one or more enterprises transferring all their assets, rights, obligations, and legitimate interests to another enterprise, leading to the termination of the merged entity's existence Conversely, an acquisition occurs when an enterprise obtains all or part of another enterprise's assets, enabling it to control or dominate specific trades of the acquired entity.
In practice, true mergers are uncommon; instead, acquisitions are more frequent Typically, the acquiring company permits the target firm to present the transaction as a merger of equals The key difference between these scenarios is whether the acquisition is friendly or hostile, as well as how it is communicated to the public.
There are two main participants in M&A deals:
- Acquiring company: a firm that purchases another firm or assets
- Target company: a company that is merged or acquired by another one.
Mergers and acquisitions classifications
9 Distinguished by the relationship between the two companies
A horizontal merger occurs when two competing companies in the same industry unite, allowing them to enhance their market share, revenue, and profits by reducing competition This type of merger also promotes cost efficiency by eliminating redundant operations and wasteful activities A notable example of a horizontal merger is the merger between JPMorgan and Bank One in the finance sector.
A vertical merger occurs between buyers and sellers operating at different stages of the same industry, such as a car manufacturer acquiring a tire company This type of merger ensures a secure supply of essential goods and minimizes the risk of supply disruptions Additionally, it aims to limit competitors' access to resources, ultimately leading to increased revenue and a larger market share.
A conglomerate merger involves the combination of companies with unrelated business sectors, where a parent company acquires a controlling interest in various smaller firms In this structure, the management of the subsidiaries reports to the senior executives of the parent corporation This type of merger enables the parent company to lower operational costs by optimizing resource use and to diversify its risk by not relying solely on one market.
9 Distinguished by the economic territory
A domestic merger happens between two or more companies operating in the same countries
Cross-border mergers involve organizations from different countries and typically face lower success rates compared to domestic mergers This is largely due to varying legal frameworks and cultural differences that can complicate the integration process.
A friendly acquisition is a situation in which the firm’s management concurs with the acquisition by another corporation The deal may come from the benefits of both acquiring and target companies
In a hostile acquisition, the target company opposes the takeover attempt, which can occur via a proxy fight or a tender offer To defend against these unwanted takeovers, the management of the target company may implement strategies like the poison pill or pac-man defense, which can negatively affect the acquiring buyers.
In both friendly and hostile acquisitions, the decision to sell target shares ultimately rests with the shareholders If a majority of the target shareholders consent to the deal, ownership will be successfully transferred to the acquiring company.
Methods of bank merger and acquisition implementation
The acquiring firm makes an offer to purchase some or all of shareholders’ shares in the target company The offer price is usually higher than the market price
In mergers and acquisitions (M&A), direct negotiations occur between the acquiring company and the shareholders of the target firm, which can lead to a loss of control for the target firm's board of directors Typically, following these deals, the existing management team is replaced.
The acquiring company takes advantage of group of shareholders who are dissatisfied with the company’s current board members
The acquirer initially seeks to accumulate a significant number of shares in the target company, aiming to gain influence over existing shareholders Subsequently, they will work to convince dissatisfied shareholders to remove the current management, facilitating a smoother takeover process.
Negotiation with the Board of Directors and Executive Board
When companies recognize the potential advantages of mergers and acquisitions (M&A), their boards of directors are often inclined to initiate negotiations Additionally, a struggling company may seek a merger with a more robust partner to enhance its performance Furthermore, some firms pursue mergers to create larger corporations that possess a competitive edge, enabling them to navigate challenging economic conditions effectively.
Collection of stocks on the securities market
The acquiring company strategically collects stocks on the securities market while purchasing shares from existing shareholders of the target firm This approach allows the acquiring firm to gain control over the target company at a lower cost To prevent significant stock market fluctuations caused by rising stock prices, the acquiring firm must discreetly manage its takeover intentions over an extended period.
In this approach, the acquiring company engages in negotiations with the target firm to establish a fair price, which may vary from the valuation provided by a professional consulting firm.
One challenge of this method is the difficulty in accurately valuing intangible assets, including trademarks, human resources, customer bases, and corporate culture.
Reasons behind mergers and acquisitions
There are numerous motivations for a company to decide to merge or acquire another company, some of which are listed below
In mergers and acquisitions (M&A), synergy refers to the enhanced value and performance achieved when two companies unite, surpassing the individual worth of each entity This synergy typically manifests as increased revenue and reduced costs, as the merged firms capitalize on their combined strengths to generate higher income while streamlining operations to eliminate redundancies, leading to substantial cost savings.
Market penetration plays a crucial role for companies aiming to expand geographically, introduce new product lines, and enhance distribution channels By engaging in mergers and acquisitions (M&A), firms can leverage the sales organizations, market knowledge, and established relationships of acquired companies, creating a solid foundation for further growth For instance, foreign companies looking to enter the Vietnamese market can significantly reduce both time and investment costs by acquiring local firms that already possess the necessary human resources and operational capabilities.
Acquiring skills, assets and knowledge
Acquiring a target company can provide essential managerial skills, valuable assets, or exclusive technologies that are crucial for the acquiring firm's growth Many corporations view mergers and acquisitions (M&A) as a strategic approach to obtaining these critical resources.
Mergers and acquisitions (M&A) enable companies to increase their market share by acquiring competitors rather than developing their own capabilities Many firms assert that achieving a substantial size can provide a lasting competitive advantage by solidifying their market presence and creating effective barriers against potential threats.
Successful mergers and acquisitions (M&A) enable companies to reduce competition and increase their market share In Vietnam, Navigos Group's acquisition of the human resources division of Ernst & Young allowed them to eliminate a significant competitor in the headhunting industry.
The history of mergers and acquisitions
Mergers and acquisitions have historically occurred in waves, beginning in the early days of business Since the nineteenth century, five significant waves have emerged, each triggered by distinct events in the economic landscape.
During this period, many horizontal mergers took place among companies dominating sectors like railways and electricity; however, most were deemed unsuccessful due to their inability to achieve the desired efficiency This failure was exacerbated by a slowdown in the global financial system in 1903 and the subsequent stock market crash in 1904 Additionally, the regulatory environment was unfavorable, as a Supreme Court mandate allowed for the prohibition of anticompetitive mergers under the Sherman Act.
The second wave of mergers shifted focus from monopolies to oligopolies, driven by the economic boom following World War I Technological advancements, particularly in railroads and automobile transportation, facilitated these mergers and acquisitions Additionally, government policies in the 1920s promoted collaboration among firms, further stimulating M&A activity.
During this period, the majority of M&A deals were characterized as horizontal or conglomerate mergers, primarily involving manufacturers in the metals, automobile tools, food commodities, and chemicals sectors Additionally, investment banks played a crucial role in facilitating the M&A process.
During this period, the predominant mergers were conglomerate in nature, driven by rising stock values, increasing interest rates, and stringent enforcement of anti-trust regulations These mergers were primarily financed through equities, leading to a diminished role for investment banks in the process.
In 1968, the Attorney General's decision to split conglomerates marked the end of the third wave of mergers, driven by the poor performance of these companies Despite this, by 1970, certain mergers, including INCO with ESB and OTIS Elevator with United Technologies, demonstrated effective performance and left a significant impact.
The 4 th wave was characterized by acquisition targets which were much bigger in size as compared to the previous wave Mergers involved firms operating in industries like oil, gas, pharmaceutical, banking and airline with over-capacity and a need to reduce cost The wave was ended with the introduction of anti-takeover laws, restructuring of financial institutions and the Gulf War
The 5 th wave was triggered by globalization, stock market boom and deregulation Major mergers took place in the baking and telecommunication industries The mergers were driven long term profit motives, and were mainly sponsored by equity rather than debt However, this phase came to an end with the burst in the stock market bubble.
The trends of bank mergers and acquisitions
2.2.1 Bank mergers and acquisitions in the US
2.2.1.1 The overview of bank mergers and acquisitions in the US
Mergers and acquisitions (M&A) in the US banking sector have consistently thrived, with five significant waves occurring between 1895 and the late 1990s These waves unfolded during distinct periods: 1895-1905, 1929, the latter half of the 1960s, the first half of the 1980s, and the second half of the 1990s Notably, the peak of banking M&A activities was observed until the 1980s, highlighting the sector's dynamic evolution over time.
During a significant financial crisis in the U.S., characterized by the collapse of the thrift industry and challenges from Latin American loans and commercial real estate, the government opted for cost-effective solutions This led to a surge in domestic bank mergers, notably the remarkable growth of Nations Bank (NCNB) through mergers and acquisitions In 1982, Nations Bank expanded into Northern California with its purchase of First National Bank, and further increased its assets through the acquisition of First Republic Bank.
In 1987, the Texas legislature permitted the entry of out-of-state banks, paving the way for significant mergers and acquisitions This change enabled Chemical Bank of New York to acquire Texas Commerce Bank, which boasted assets worth $11.4 billion.
Interfirst Bank with total assets of $8,8 billion acquired by Republic Bank
(1988) Within 2 years, Texas market was dominated by 5 out of state firms
Between 1982 and 1989, majority of M&A deals received encouragement and financial support from Government
1990s: Upgrading the retail banking system
In the evolving landscape of the banking sector, U.S banks are adopting innovative strategies to thrive amid intense competition Major banks are enhancing their retail banking systems and targeting specific customer segments New competitors are not only offering traditional banking products but are also introducing previously unavailable financial services such as mutual fund management, insurance, and investment advisory To capitalize on existing customer bases and expand their market presence, these banks are leveraging mergers and acquisitions, resulting in a significant wave of industry consolidation.
The growth of domestic banks in the United States was accompanied by a significant increase in foreign banks, which played a crucial role in the economy during the 19th and 20th centuries This period saw a series of notable mergers and acquisitions, particularly cross-border transactions, including Bank of America's acquisition of Security Pacific in 1992, Chase Manhattan's merger with Chemical Bank in 1995, Bank of America's merger with NationsBank in 1998, Travelers' acquisition of Citicorp in 1998, Chase Manhattan's acquisition of J.P Morgan in 2000, and Citibank's acquisition of Mexican Grupo Financero Bnamex in 2000.
Over the past decade, the US banking sector has experienced two significant trends: small banks facing collapse risks and large banks engaging in mergers and acquisitions (M&A) Between 2008 and 2010, a total of 308 banks participated in M&A activities Additionally, in 2015, the US government aimed to decrease the number of banks by approximately 800.
2.2.1.2 The US Government’s role in bank mergers and acquisitions
The United States is a frontrunner in regulating mergers and acquisitions (M&A) through a centralized framework, focusing on safeguarding shareholder interests and maintaining market competitiveness To adapt to market changes, several laws have been updated, such as the Sherman Anti-Trust Act of 1890, which was succeeded by the Clayton Anti-Trust Act in 1914, both aimed at preventing monopolistic practices.
The Sherman Anti-Trust Act, enacted in 1890, is a significant piece of U.S legislation aimed at promoting economic competitiveness by prohibiting companies from monopolizing products or services This anti-monopoly law seeks to ensure fair competition in the marketplace.
The Clayton Antitrust Act of 1914, an amendment by the U.S Congress, enhances the Sherman Antitrust Act of 1890 by providing clearer definitions and prohibitions against anti-competitive practices This legislation aims to prevent actions that may undermine fair competition in the marketplace.
Established in 1914, the Federal Trade Commission (FTC) is an independent federal agency dedicated to safeguarding consumers and promoting a competitive marketplace It achieves these objectives by enforcing a range of consumer protection and antitrust laws designed to prevent harmful business practices and combat anti-competitive actions, including significant mergers.
- The Hart – Scott – Rodino Antitrust Improvement Act in 1976: made it easier for regulator to enforce the three laws above
In addition to the four foundational laws, the U.S Government has enacted several significant regulations, including the Glass-Steagall Act of 1933 (repealed in 1999), the Robinson-Patman Act of 1936, the Wheeler-Lea Act of 1938, and the Celler-Kefauver Act of 1950.
The U S Government always has specific regulations for M&A activity in banking sector
2.2.2 Bank Mergers and Acquisitions in Europe
Over the past two decades, the European banking sector has experienced significant growth, leading to the emergence of certain banks that are deemed "too big to fail." While bank mergers and acquisitions (M&A) in the 1990s were primarily domestic, the following decade saw a substantial rise in cross-border M&A activities According to Dealogic, an international financial software company, the value of European bank M&A reached unprecedented levels, reflecting the evolving landscape of the industry within the context of the Single European market.
$1.59 trillion in 2006, exceeding the figure of $1.54 trillion in the US
In recent years, the trend of cross-border mergers and acquisitions (M&A) has surged, particularly in the banking sector Notable examples include ABN Amro's acquisition of Banca Antonveneta in Italy, BNP Paribas's purchase of Banco Nazionale del Lavoro, and Banco Santander's acquisition of Abbey National in England This increasing activity in cross-border M&A is expected to remain a dominant trend in Europe’s banking landscape.
Figure 2.1: M&A Deal volume in Europe between 1990 and 2005
Source: Bank M&A in Central and Eastern Europe
Between 1990 and 2005, the European banking industry experienced a significant surge in mergers and acquisitions (M&A), with a total deal volume nearing $794 billion Cross-border M&A deals saw a notable increase, rising from approximately 25% in the early 1990s to over 40% by 2004 and 2005, contributing $203 billion to the total Notably, M&A activities in Eastern Europe accounted for around 4.1% or $32 billion of the overall transaction volume during this period Furthermore, nearly one-third of bank M&A transactions in Europe over the last decade involved Western European banks acquiring interests in Central and Eastern European (CEE) banks From 1995 to 2005, there were 274 cross-border M&A deals recorded.
Table 2.1: Top 10 announced cross – border deals in Western Europe
Year Target name Target nation
1 15,371 2005 HVB Group Germany UnitCredit Italy
4 7,169 2000 Bank Austria Austria HVB Group Germany
Italy ABN Amro Netherla nds
7 4,135 1997 Merita Oyj Finland Nordbanken Sweden
Source: PricewaterhouseCoopers analysis of Dealogic Data
Between 1996 and 2005, the majority of the top 10 cross-border banking deals focused on retail banking, as major banks expanded their European presence by acquiring retail banks in other Western countries.
The bank Mergers and Acquisitions in Vietnam
In Vietnam, M&A activities in financial – banking sector has taken place for
20 years In the first stage, banks implemented M&A as a compulsory way to avoid bankruptcy Nonetheless, along with the development of banking system, M&A activities have changed remarkably
Before 2005: Reviving after financial crisis
In 1997, the financial crisis arising in Asia left a huge impact on Vietnam economy, followed by the M&A waves
Between 1998 and 2001, Vietnam experienced a significant increase in the number of banks, reaching 84 by the end of 1998, including 51 joint-stock commercial banks Despite this growth, many banks struggled with weak performance and low competitiveness, prompting the Vietnamese government to implement a three-year bank reconstruction plan aimed at improving banking efficiency Recognizing the potential of mergers and acquisitions (M&A) to bolster competitiveness and mitigate bankruptcy risks, several banks pursued this strategy Following the Asian financial crisis, 10 banks were either closed or merged with larger institutions such as BIDV, Agribank, and Vietcombank, resulting in a reduction of commercial banks to 39 by 2002.
In 2000, with the high penetration of foreign financial institutions, M&A in M&A activities in order to expand market shares and improve financial capability:
Table 2.4: Bank M&A deals in Vietnam (1997 – 2003)
Acquiring bank Target bank Times
Southern Bank Dong Thap Commercial Joint
Southern Bank Dai Nam Commercial Joint Stock
Southern Bank Dinh Cong Thanh Tri People’s
Tu Giac Long Xuyen Commercial Joint Stock Bank
Southern Bank Chau Phu Commercial Joint Stock
VIB Mekong Commercial Joint Stock
Sacombank Thanh Thang (Can Tho)
Saigon financial company (SFC) (forming Viet A Commercial Joint Stock Bank)
Habubank Quang Ninh Commercial Joint
Techcombank Hai Phong Rural Commercial
Tay Do Rural Commercial Joint Stock Bank
Southern Bank Cai san Rural Commercial Joint
BIDV Nam Do Commercial Joint Stock
Tan Hiep Rural Commercial Joint Stock Bank
Source: Official websites of all Vietnam commercial bank
Since the introduction of the "Law on Foreign Investment in Vietnam 2005," "Enterprise Law 2005," and "Law on Securities 2006," M&A activities in Vietnam have flourished This legal framework encouraged banks to create diversified financial conglomerates to boost their competitiveness Consequently, from 2006 to 2008, M&A activities surged, with domestic banks selling shares to foreign credit institutions and acquiring shares in other domestic credit institutions.
In 2007, credit institutions in Vietnam faced a significant profit decline due to liquidity shortages caused by the State Bank of Vietnam's increase in the reserve requirement ratio This situation led banks to engage in a competitive interest rate race, heightening the risk of bankruptcy for several institutions Additionally, the stock market downturn further contributed to the profit loss for banks and stock companies To address these challenges, mergers and acquisitions (M&A) emerged as a viable solution, with SSI and VCBS serving as notable examples of this strategic approach.
In 2011, Vietnam Post Corporation (VNPost) merged with Lien Viet Commercial Bank (LienvietBank), with VNPost contributing 997 billion VND, representing 14.99% of the total investment This merger allowed LienViet Bank to leverage VNPost's extensive network of over 10,000 transaction points nationwide, particularly enhancing access in rural and mountainous regions Additionally, VNPost benefited by diversifying and modernizing its offerings, expanding beyond traditional deposit services to include credit services, financial advisory, and modern payment solutions.
A robust banking sector is essential for the growth of developing countries In late 2011, the Government of Vietnam, along with the State Bank of Vietnam (SBV), initiated a banking restructuring plan aimed at reforming the country's banking system by the end of the designated timeline.
In 2015, the strategy aimed to consolidate Vietnam's banking sector by reducing the number of small and weak credit institutions while restructuring larger banks, with the goal of achieving a total of 15 to 17 banks in the country.
On December 6, 2011, the State Bank of Vietnam (SBV) approved the merger of three struggling banks: First Joint Stock Commercial Bank (Fincombank), Viet Nam Tin Nghia Commercial Joint Stock Bank (TinNghiaBank), and Saigon Commercial Bank (SCB) This merger aimed to address their liquidity issues and restore their ability to repay depositors, with BIDV providing a common capital quota for the newly merged entity Prior to the merger, these banks faced operational inefficiencies and had mismanaged their funds by using short-term capital for long-term loans This landmark merger marked a significant step in the central bank's strategy to restructure Vietnam's commercial banking system.
Between 2012 and 2014, M&A activity surged, highlighted by key mergers such as Habubank's merger with SHB on August 28, 2012, the integration of Dai A Commercial Joint Stock Bank into Ho Chi Minh City Development Bank in November 2013, and the formation of Vietnam Public Joint Stock Commercial Bank (PVcomBank) from the merger of Western Commercial Joint Stock Bank and PetroVietnam Finance Joint Stock Corp in September 2013.
Besides M&A deals through purchasing property, these activities took place in form of purchasing shares
Table 2.5: Bank M&A deals in Vietnam (2011 – 2012)
1 3/2011 IFC purchased 10% of stakes of Vietinbank
2 2011 Mizuho Corporate Bank purchased 15% of stakes
3 1/2012 Eximbank owns 9.7% of Sacombank after buying stake from Australia and New Zealand Banking Corporation (ANZ), holding the largest stake in Sacombank
4 12/2012 Bank of Tokyo – Mitsubishi UFJ purchased 20% of stakes of Vietinbank worth $743 million
Source: http://www.vietinbankschool.edu.vn
The rapid growth of mergers and acquisitions (M&A) in the banking sector has led to the emergence of several specialized firms in Vietnam's M&A market, including financial investment companies like Del Partners and Tiger Invest, as well as VLT law firms that provide expert advice on M&A procedures.
2.3.2 The merger between Habubank and SHB
Founded on January 1, 1989, Habubank was Vietnam's first Joint-Stock Commercial Bank, starting with a chartered capital of 5 billion VND and a team of 16 employees By 2009, after two decades of growth, Habubank emerged as one of the country's strongest banks, boasting a chartered capital of 3,000 billion VND, total assets of 26.286 trillion VND, and more than 100 transaction points nationwide.
Nevertheless, since 2009, Habubank’s performance got worse with the dramatic growth in the number of NPLs Afterwards, Habubank ran its business with negative profit margin
Source: http://giaoduc.net.vn/
Table 2.6: Special assessment for the highest level of risk on Feb 9, 2012
Indicator Special assessment for the highest level of risk on Feb 9, 2012
The cause of Habubank’s fall has been widely blamed on the fact that they dealt with only a small number of large customers The debt of Habubank’s
50 major customers accounted for 65% of their losses
The bank incurred significant losses exceeding 267 billion VND due to defaults on loans from major clients, including the Vietnam Shipbuilding Industry Group (Vinashin) and Binh An Seafood Joint Stock Company (Bianfishco).
On February 28, 2012, Habubank was officially merged into SHB, terminating 23 years of its operations
2.3.2.2 The outstanding characteristics in Habubank – SHB merger deal
The merger was conducted transparently, with oversight from shareholders and regulatory agencies, setting it apart from other deals Additionally, both banks were publicly listed on the stock market prior to the merger, ensuring the reliability of the information and assessments involved.
Secondly, the transaction between Habubank and SHB is the prominent example of friendly M&A with over 85.21% of Habubank’s shares voting and 99.4% of SHB’s shares voting approving the plan
The merger between Habubank and SHB marked a significant milestone as the first equity swap merger in Vietnam's banking sector Under this agreement, Habubank's shareholders were given the opportunity to exchange their shares for 0.75 shares of SHB, while SHB's shareholders benefited from an additional 0.21 shares of SHB for each share they already owned.
Table 2.6: Charter capital’s ownership before and after the merger
Source: SHB – Habubank merger plan
The equity swap merger between SHB and Habubank proved to be a cost-effective solution, minimizing expenses compared to traditional mergers This approach allowed SHB to expand its operational scale without incurring costs related to share issuance, while simultaneously addressing Habubank's financial challenges through support from its partners.
The merger of Habubank and SHB is considered as a typical story about the success of M&A deals
2.3.3 Evaluations of bank merger and acquisition activities in Vietnam 2.3.2.1 Achievement
Mergers and acquisitions (M&A) significantly enhance the resilience of credit institutions and boost the competitive capabilities of the banking sector by reallocating resources and shaping development strategies Following a four-year initiative aimed at restructuring the credit institution system from 2011 to 2014, the State Bank of Vietnam (SBV) successfully addressed issues in 8 out of 9 weak banks, with 5 of these resolved through M&A activities.
Along with the banking restructure effort, the banks performance has improved noticeably, especially in the value of capital and assets
Table 2.7: The changes in total assets
Secondly, thanks to M&A, banks could reduce the penetration cost, expand market and diversify products and services The M&A of LienVietBank and VNPost is the shining example
Forecasts of bank mergers and acquisitions activities in 2015
In December 2014, during a year-end meeting in Hanoi, Governor Nguyen Van Binh announced that the banking system would enter its second phase of restructuring in 2015, with the first half deemed critical for large banks He urged major banks like Vietcombank, BIDV, and Vietinbank to merge with smaller institutions to enhance their size, achieve economies of scale, and foster mutual development support.
In the near future, notable voluntary mergers and acquisitions in the market include the anticipated merger between Southern Bank and Sacombank, the restructuring of VNCB, the merger of Ocean Bank with a major bank, and the consolidation of several smaller banks with Vietcombank and BIDV.
In 2015, the State Bank of Vietnam emphasized the importance of restructuring within the banking sector, highlighting its commitment to facilitate voluntary and legitimate mergers and acquisitions (M&A) of credit institutions State-owned commercial banks are set to take a leading role in this process, with a focus on significantly restructuring weak banks that show little potential for recovery, even if it necessitates dissolution, bankruptcy, or other stringent measures.
In addition to the banks identified by the State Bank of Vietnam (SBV), market attention is focused on several other struggling institutions, including Petrolimex Group Commercial Joint Stock Bank (GPBank) and Global Petro Commercial Joint Stock Bank (PGBank) Furthermore, banks like NCB and Nam A Bank, which have been permitted to undergo self-restructuring in the initial phase, are also under scrutiny.
With SBV’s determination to consolidate the banking system, 2015 is expected to be a vibrant year with many different M&A and self-restructuring deals.
Lessons learned
Mergers and acquisitions (M&A) are crucial for the global development of banks, driven by motivations such as market share and product diversification The primary objective of banks in M&A deals is to achieve economies of scale However, it's essential for banks to recognize that M&A is not merely about short-term profit or market entry As Ned Hooper, Chief Strategy Officer and Senior Vice President of Cisco Systems, emphasizes, M&A yields the best outcomes when integrated into regular business processes and aligned with long-term development strategies.
When expanding into foreign markets, banks face various challenges, including cultural differences, consumer behaviors, and political obstacles, which often lead them to withdraw from mergers and acquisitions.
In mergers and acquisitions (M&A), disagreements over key terms, such as management roles in the newly formed entity, can prevent a deal from closing Additionally, government regulations may oppose mergers that risk creating monopolies A notable example is the merger between Pfizer and Pharmacia, where the companies had to divest certain products to comply with Federal Trade Commission requirements and avoid violating antitrust laws.
M&A deals can lead to shareholder disagreements due to their potential impact on stock profitability When a company faces a downturn, rumors of M&A can boost its share value, while a well-performing company may see a decline in shares as investors question the need for such actions Hewlett Packard Corporation (HP) exemplifies this situation, as its former president navigated these complexities.
Carly Fiorina proposed a merger between HP and Compaq Corporation, where HP would acquire its rival Initially, HP's main shareholders opposed the deal due to concerns over the high purchasing price and doubts about Compaq's growth potential However, Fiorina ultimately convinced the shareholders to approve the merger, leading to the successful acquisition.
Finally, M&A may not generate the amount of profit as shareholder expected The cost saving purpose may fail as a result of inconsistency within business operation.
Solutions
Asymmetric information theory, introduced by George Akerlof, Michael Spence, and Joseph Stiglitz in 1970, highlights how imbalances in information between buyers and sellers can result in inefficient market outcomes In the context of mergers and acquisitions (M&A), this information disparity significantly influences corporate decision-making and impacts deal pricing.
Vietnamese authorities and credit institutions are enhancing information disclosure methods and internet application usage The State Bank of Vietnam (SBV) publishes important updates, regulations, and news in both Vietnamese and English on its official website The Credit Information Center (CIC), with 15 years of expertise in credit information management, operates effectively in collecting and analyzing data Additionally, credit institutions listed on HOSE and HNX frequently update their news, including income statements and changes in ownership and executive structures.
In the banking and financial sector, a comprehensive information system for all institutions, particularly those not listed on the stock market, is lacking This information gap poses significant challenges for bank mergers and acquisitions (M&A) To enhance information accuracy, it is essential to establish a robust information system that is regularly updated and readily available Additionally, facilitating the initial public offering (IPO) process for credit institutions is crucial for improving information reliability.
Along with the development of M&A market, the role of M&A advisory organizations is getting more essential M&A advisory firm’s services typically include:
- Preparation of a pitch book or confidential information memorandum;
- Identification of prospective buyers and discussions with these parties;
- Providing negotiation of purchase and sale agreement and other deal related agreements;
- Resolving transaction issues throughout the process
Establishing a dedicated M&A advisory firm in Vietnam is currently unfeasible; therefore, it is essential to integrate these services within banks, stock companies, insurance firms, and financial institutions As advisory activities gain traction, the establishment of independent M&A advisory firms offering specialized expertise will become viable.
Improving M&A activities involving foreign factors
In the bank restructuring process, reducing the number of small and weak banks is essential Authorities and credit institutions must also consider mergers and acquisitions (M&A) involving foreign entities, as this presents a valuable opportunity for domestic banks to leverage foreign capital resources, advanced technologies, and management expertise.
To implement this type of M&A, Government and SBV should consider to loosen up the percentage of charted capital that foreign companies allow to hold
Large banks hold a competitive edge over their rivals due to their substantial financial resources, extensive market share, advanced technologies, and innovative products and services To effectively engage in mergers and acquisitions (M&A), these institutions should consider several key strategies.
To foster long-term growth, banks should actively pursue mergers and acquisitions (M&A) by partnering with financially robust institutions that possess significant market share, while also acquiring entities that, despite having a competitive edge, struggle with management capabilities.
- Being active in collecting information of partner through its performance on stock market; reviews from its customers and partners, judgements of reliable rating agencies, and so on
- Enhancing financial capacity through increasing equity and issuing shares and debt instruments
- Implementing M&A activities in different fields such as stock and insurance with domestic partners to diversify business operations
- Finding foreign partners to take advantage of technologies and management ability
- Establishing a department with members specializing in audit, financial analysis in order to find appropriate partners
Medium and small banks face challenges in actively acquiring competitors, making them vulnerable to larger banks and financial institutions To enhance their development, these banks should strategically pursue mergers and acquisitions (M&A) opportunities while implementing plans to mitigate the risks of unwanted acquisitions.
- Identify strategic goal which is protecting the existing market share in order to have plans of maintaining current customers
- Divest weak products and services, and gain a foothold in certain market segmentation
- Observe shareholders’ actions in order to avoid the public tender and proxy fight
- Be active in planning M&A process with same size or larger bank Strategic partners should be banks possessing healthy financial situation and operating in related market
In a downturn economy, mergers and acquisitions (M&A) emerge as a crucial strategy for bank restructuring, enabling the consolidation of the banking sector and enhancing the resilience of commercial banks during financial crises This approach not only boosts competitiveness but also positions Vietnam's banking sector to effectively compete on a global scale Despite its potential, M&A remains a relatively new concept within Vietnam's banking landscape, necessitating that credit institutions prepare thoroughly and proactively pursue opportunities to engage in successful M&A transactions.
This thesis explores the theoretical aspects of mergers and acquisitions (M&A) in the economy, with a particular focus on the banking sector It analyzes M&A activities across the United States, Europe, and Asia to identify prevailing trends, providing valuable insights for Vietnamese bank management seeking to enhance their own M&A strategies Additionally, the dissertation offers recommendations aimed at improving the efficiency of M&A activities.