VIETNAM GENERAL CONFEDERATION OF LABOUR TON DUC THANG UNIVERSITY FACULTY OF BUSINESS ADMINISTRATION ĐẠI HỌC TÔN ĐỨC THĂNG NEGOTIATION IN BUSINESS LATENT VALUE IN M&A ACTIVITY BETWEE
OBJECTIVES 0 .ec
This deal marks the success in the strategy of merging the two largest manufacturing and trading segments in Vietnam The author strongly identifies the special points as well as the impact in this deal So, the author decided to do some research and find out the reasons for the success of this commercial affair The purpose of this essay is:
- Having a general awareness of the Vietnamese market's retail industry
- Exploiting some aspects of the production and business of these two companies and giving the most overview of the role and meaning of this success
- Understanding problems that Masan and Vingroup are facing, learn deeply about BATNA, know better about FMCG market as analyzed above
- Deeper analysis the level of satisfaction as well as effectiveness of this commercial affair
- Offer some solutions before M&A and after M&A between two giants.
LITERATURE REVIEW .0 ceccccceece
INTEGRATIVE NEGOTIATION 0000000
An integrative negotiation seeks to achieve the best possible outcomes for all parties involved To put it another way, to achieve the best possible outcome or solution toa problem Problem solving is used to find a solution to a negotiation that is acceptable to all parties involved, and it entails identifying mutual interests and strategies for creating joint value (Koning and van Dijk, 2013) As a foundation for implementing an integrative negotiation, there must be a clear strategy focused on a win-win outcome and an exchange of information between the parties This exchange of information, whether in writing or in negotiations, will be determined by the climate and level of trust between the parties (Lopez-Fresnoand Savolainen, 2014) It requires a high level of trust Both academics and practitioners agree that it is a necessary component for successful negotiation (Ferrin et al., 2011; Kong et al., 2014; Lewicki and Polin, 2013)
Negotiators never place a high value on the amount of money they will receive as an individual party Instead of concentrating efforts on improving overall outcomes through collaboration among parties Integrated negotiation tactics are only effective when fair procedures are adhered to, and fair results are obtained This frequently means that individuals approach the negotiating table as partners and collaborators rather than competitors (Getsmarter, Blog, 2020)
In this case, Masan and Vingroup, they are both in the negotiation phase to transfer the Vinmart brand After negotiation, Masan has established Crown X to own capital in VCM and MCH, with Masan owning 70% of Crown X shares via The Sherpa company and issuing 30% options to the seller, Vingroup The reason given by Vingroup for selling Vinmart was too free up resources for the company to focus on the group's industrial and technology segments soon As a result, this group is heavily investing in the manufacturing segment (cars and phones), and by pledging not to sell the brand to foreign countries, the sale of VCM to Masan is not entirely a meaningful economic transaction that demonstrates Vingroup's strong "national spirit” Masan has a chance to increase profits by lowering the cost of intermediaries between the manufacturer and the user
ANALYSIS .0 cece cee
SUMMARIZE THE CASE STUDYỶ - Q1 HH HH nhe 27
| 862 tr $ it = + } il GIic The Crown X
16.26% = 23.74% 85.71% 14.29% 33.33% soos | | | 600trs sotrs vom Masan >
Figure 3 4 Ownership structure after the merger between VinCommerce and Masan
In December 2019, Vingroup announced its withdrawal from the retail and agriculture segments when it decided to transfer the VCM system to Masan The Vingroup deal to transfer VCM took place very quickly within only 3 months from September 2019 to December 2019 Masan is the unit selected with the criterion of being a domestic enterprise and having enough financial capacity to carry out the deal
Despite being a large corporation, the implementation of a billion-dollar deal like this poses significant financial challenges for Masan This group needs to have a reasonable payment plan to ensure its financial stability and ensure the speed of business promotion Options to mobilize financial resources from the group level to subsidiaries, with many different financial instruments have been considered But to raise billions of dollars will take a lot of time in valuation, negotiating with shareholders and using all available financial resources from financial leverage and all available cash to implement Currently, the deal will cause many risks in Mason's financial balance So, making a one-time cash payment is considered impossible in the current situation
To carry out this merger, Masan established Crown X to own capital of VCM and MCH, in which Masan will own 70% of Crown X shares through The Sherpa company and issue 30% options to that seller, Vingroup According to published information by Masan, Crown X will own 83.74% of VCM shares after the swap,
27 including 64.3% shares of Vingroup and 19.44% shares of other individual shareholders Accordingly, with a temporary valuation of 3.07 billion USD, to own 83.74% of VCM shares, Masan must spend an estimated amount of up to 2.57 billion USD (59,752 billion VND) Crown X will represent MCH to issue corresponding shares to Vingroup in return for owning 64.3% of VCM shares and can proceed to make cash payments to 19.44% of the remaining group of shareholders to own a total of 83.74% VCM These shares are sold to Vingroup with a call option under which Masan has the right to buy back these shares after having enough time to prepare financial resources On the Vingroup side, this unit has an agreement on the option to sell shares of Crown X in exchange for shares of Masan Group after a certain period or will sell these shares to a third party if Masan does not exercise its right of redemption
In June and August 2020, Masan Group bought back 14.8% of Crown X's equity from Vingroup for a total amount of VND 23,692 billion ($1.02 billion) After the acquisition, Masan Group's ownership rate in Crown X increased from 70% to 84.8% With this transaction, Crown X's valuation is estimated at $6.9 billion The entire transaction was financed by cash and a loan from Masan
With the announcement on April 1 by CEO Masan at the general meeting of shareholders, Masan will change the brand name VinMart to WinMart, VinMart+ to WinMart+, in addition to the color, brand identity logo and the main red color of the chain This retail share will not be significantly altered Since taking over the VinCommerce system, many restructuring activities have been carried out by Masan to realize the goal of becoming a "giant" in the competitive retail market fierce with the presence of big men both at home and abroad
3.3.1 BATNAs of Masan and Vingroup
According to the Issue part that the author has just mentioned above, Vincommerce reported a loss for four years Specially, the reason for selling Vincommerce given by Vingroup is so that the company can free up concentrated resources for Industrial and Technology segments soon At the same time, Vincommerce can relieve cash flow pressure and free up investment resources in the Industry and Technology
Vingroup aspires to become a top technology company by investing in and creating innovative technologies for the sector The fact that this group announced the redirection, ceding the retail system and clean agricultural production to Masan is an inevitable thing, it is a way for Vingroup to avoid spreading investment, focusing on its core segments Vingroup can prepare enough capital resources to focus on developing
28 modern technology production lines In the last two years, Vingroup has begun producing VinFast vehicles, two wheelers and made-in-Vietnam cars, VSmart smartphones, and is researching production in 5G-related technologies
Vingroup can select international entities with more financial potential for transfer because of the size of the Vincommerce system chain, including Lotte Group (Korea), Aeon (Japan), etc Foreign nations can purchase VCM for up to billions of dollars in total transaction value It is clear from the study above that Vingroup, in addition to Masan, has a variety of opportunities to sell to international units and earn a sizable sum of money to reinvest in production But a spokesperson of Vingroup said in
2016 that he would never export Vietnamese brands to other nations, even after it was revealed that 7-Eleven will buy the Vinmart and Vinmart (+) chains Selecting a partner capable of carrying out this $1 billion contract is quite challenging because VCM's target audience is limited to just local firms Masan is the ideal target that Vingroup wants to go after for this reason as well
Masan's benefits when participating in the M&A deal with Vingroup: Vinmart and Vinmart+ supermarket systems would be a complete piece in Masan's farm-to-table strategy while, according to the press release about the merger agreement, the new company would own a network of more than 2,600 supermarkets and VinMart and VinMart+ stores in 50 provinces and cities, helping Masan strengthen its competitive advantage and increase profit margins as it does not have to depend on and share goods with its network of distributors in another mix Masan would have many advantages when acquiring VinCommerce and VinEco because they did not have to invest in system building and could exploit the available number of customers Truong Cong Thang, Chairman of the Board of Directors of Masan, said, "The entry of VinCommerce and VinEco not only resonates and enhances the value of Masan's core competencies but also helps us quickly achieve our goal of becoming a leading consumer goods retail group in the country, aiming to reach out to the world” Having an independent distribution channel gives Masan additional negotiating power with current MT (modern sales channel) channels (at least 5% discount), eliminates the risk of being forced out of distribution chains owing to foreign ownership, and increases its overall competitiveness At the same time, Masan can use this tool to gain a competitive advantage over other rival brands
Sharing the benefits of M&A with each of the countries mentioned above and, at the same time, avoiding the risks of M&A with foreign countries due to a lack of understanding of the law and potential sharing abroad (according to Anninhthudo.vn), the largest distribution channel in Vietnam, Males still belong to the Vietnamese Still, with the goal of protecting Vietnamese manufacturers, Vingroup had a reason to choose
Masan over another foreign enterprise The specialization in optimizing resources is also a trend at many big companies Therefore, the cooperation between Vingroup and Masan would help increase the strength of both when Vingroup cut further investment in VinFast and VinSmart while Masan was investing heavily in the livestock sector (already branded) Vingroup's strong position has been reinforced by the acquisition of the country's largest retail network, MeatDeli, and the agricultural segment
3.3.2 The development processes of Masan and Vingroup
Since the two brands VinMart and VinMart+ were officially established in 2014, while VinMart follows the model of a supermarket with a large store area of 3,000- 15,000 m2, located in a Vincom commercial center, VinMart+ is a convenience store small area of 150-300 m2, located in residential areas or people's markets, to take advantage of the abundant number of visitors in these areas In the first phase, Vingroup only had 4 VinMart supermarkets and 10 VinMart + convenience stores However, just one year later, the total retail sales increased more than 30 times, with 50 VinMart supermarkets and 500 VinMart+ stores That is, on average, every month, about 4 VinMart supermarkets have been opened and more than 1 convenience store appears everyday
Figure 3 5 Number of vinmart supermarkets and vinmart + stores from 2014 to 11/2019
EVALUATION |
The benefits that the two sides have achieved after the M&A deal are not small, they are based on the positive attitude, dynamism, and solidarity of the domestic private sector - cooperating for mutual development These benefits are summarized as follows The first is that Vingroup can be more "hands-free" to focus on developing other fields such as manufacturing and technology, which has been considered the keystone of the Group in the past three years Withdrawing from the retail segment, which has not yet brought the expected profits, may even cost more money in the coming period if it continues to be retained before reaching the breakeven point, will help Vingroup improve its capacity finance On Masan's side, the Vinmart and Vinmart+ supermarket systems will be a complete piece in the farm-to-table strategy (Feed Farm Food - 3F model), when in the press release about the merger agreement, the company will own a network of more than 2,600 supermarkets and VinMart and VinMart+ stores in 50 provinces and cities, helping Masan strengthen its competitive advantage and increase profit margin, as it does not have to depend on and share goods for the network of stores other distributors In addition, the benefits from this deal also help the retail industry not to fall completely into foreign enterprises when Vietnam opens the market With the
40 largest retail chain today, if Vingroup chooses to transfer to a foreign corporation instead of Masan, it will be like a warning bell for domestic manufacturers
In addition to the benefits that both sides gain, there are disadvantages as well as losses that both corporations must face First, the share price of Masan Group - the parent company of Masan Consumer, the main object of the merger deal, dropped sharply when foreign investors sold out consecutively, in the first week after the merger completion has depreciated by more than 11% However, this is considered a normal thing in M&A deals when the buyer is often strongly sold by investors because they are supposed to buy at a higher price than the actual value because the information difference is obvious Masan's business performance in the future is also a question mark as this segment has caused Vingroup to suffer a loss during its operation under Vingroup Obviously, with the burden from Vingroup shifting to Masan, investors are afraid and selling off this stock is not unusual Besides, despite the core filter in the consumer goods industry, the management of retail distribution channels is not an area in which Masan has much experience But this transfer may not bring more efficiency to the distribution chain than under Vingroup, especially when consumers have been biased for many years about some scandals in the company's product communication strategy of Masan
CHAPTER 4: SOLUTIONS 4.1 SOLUTIONS FOR THE PROBLEMS HAPPENING IN THE PAST
Firstly, changing brand identity Since it belongs to Masan Corporation, Winmart has not had many changes in brand identity, except changing its name It makes this brand gradually lose its competitive advantage over competitors Brand identity is a very important factor to help customers identify, choose, and stick with a brand for a long time In other words, the brand identity is the face of a company A brand like Winmart of course also needs a brand identity of its own Firstly, this helps Winmart become a completely new brand, no longer Vinmart of Vingroup but Winmart of Masan Group Color, logo, store layout are the most basic features of a new interface, representing Winmart
Figure 4 1 Example about new logo for Winmart+
Source: Designed by report author Secondly, creating core values of Winmart Besides changing the external appearance, Winmart also needs to be renewed in terms of internal values Most of Winmart competitors in the market have special thing like special service, featured foods and drinks, low prices, Absolutely, it is necessary to build a core value of Winmart+ and the outstanding project for this goal has been made, it is "mini mall" - a model serving a variety of essential products and services (including necessities, pharmaceuticals, financial products and entertainment and telecommunications services which is approximately 80% of Vietnamese consumer spending on from offline to online platforms For example, Phuc Long's drink stalls are now available at most Winmart+ stores, creating positive effects on consumer reactions, contributing to a competitive advantage over competitors compete in the fierce retail market in Vietnam
Figure 4 2 Example about “Mini-mall” project of Winmart+ by Masan Group == ——_ 4+- = NÊN, _ en h
Source: CafeF & Baomoi.com published in 2021 4.2 SOLUTIONS IN THE FUTURE FOR VINGROUP AND MASAN
From the information gathered and analyzed above, the author evaluated and considered some solutions to improve the outcome of the negotiation Firstly, Masan already owns almost the entire Vinmart and Vinmart + retail chains, therefore, Masan also inherits the available values that Vingroup has built up such as its brand, market position, and customer data and especially VinID - a smart application that helps maximize the payment process of consumers, helping them have a perfect experience, which no competitor can keep up with in current This is a technology element that Winmart inherited from the father of Vingroup Therefore, the challenge and the next direction of Masan need to really control and grasp the core values of the system chain, thereby constantly improving and developing customer data management, creating favorable conditions for taking care of old customers and reaching potential customers in the future The main features of the VinID super app include: e VinID Voucher: Customers can receive many promotional offers and discounts every day from big brands e VinID Scan&Go: Just scan the product QR code, customers can shop conveniently e VinID Ticket: Support to buy tickets for entertainment programs, football events, sports conveniently e Vinhomes feature: Utility function for residents living in Vinhomes e VinID Pay e-wallet: Helping customers to pay online and shop easily e Utility bill payment: Customers can pay bills for electricity, water, Internet
TAM THE QUYEN NANG TANG NGAN QUYEN LOI
Second, when taking over this retail chain, Masan should carefully analyze the strengths and remaining problems of Vinmart and Vinmart + to have a detailed view of the existing market At the same time, Masan should take advantage of opportunities to develop its product chain, maximize distribution channels, increase brand recognition through new products with the initial goal of becoming a multi-industry enterprise Thereby, making a specific plan for the next goals, in which Vingroup will be an effective strategic consultant to reaffirm Winmart's position with Masan style
Finally, Winmart needs to make a more impression on the market through campaigns and promotions to promote purchases such as increasing the promotion in social platforms like Facebook, Instagram, Zalo or TikTok, etc to create consumption habits and increase brand awareness for new versions At the same time, constantly digital transformation puts the value of the consumer experience first in this fiercely competitive market
Negotiation is a crucial life skill that everyone should study When people want to attain a goal, it requires negotiation abilities in all domains, from business to everyday interactions Especially in business, negotiation skills are vital for both casual day-to- day interactions and formal transactions such as negotiating sale, lease, and service delivery terms, as well as other legal contracts Negotiation skills will help everyone develop positive connections, produce long-term, high-quality solutions rather than bad, short-term solutions that do not meet the needs of either party and avoid future difficulties and disputes
Through this report, readers may learn about negotiating abilities from the negotiations between Vingroup and Masan First and foremost, each party must define its own objectives and BATNAs, or what options are open if the other party refuses to consent to an agreement Because ZOPA could not be located, the two parties entered integrative dialogue to find a win-win solution Secondly, although negotiations are challenging, Masan still has a huge ecosystem of food and consumer goods production and distribution In contrast, Vingroup also had an effective strategy which allowed them to focus on the main categories Finally, thanks to our solutions above, both parties can develop towards the better in different ways
From there, negotiating abilities have aided both parties in achieving their goals
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