Name: Nguyen Thi Huong Lien Student ID: 0851010499 ESP ASSIGNMENT Topic: M&A - Overview and reality

in Vietnam M&A, which abbreviates Mergers and Acquisitions, is an economic activity having grown strong for a long time in the world trade but attracting Vietnamese companies in just recent years. However, this business model holds both tremendous benefits and imminent drawbacks to those deciding to take part in it. My essay is going to illustrates M&A overview, analyze its benefits and challenges as well as the reality of M&A in Vietnam. Overall, Merger and Acquisition refers to the act of combining or acquiring different companies into one legal entity. However, these two terms are different in some points which are going to be clear afterwards. To specify, a merger is the result of combining two relatively equal companies in order to form a company with more value for shareholders than the total of its parts. For example, JDS Fitel Inc. and Uniphase Corp. merged in 1999 to form JDS Uniphase. In the meantime, an acquisition is the purchase of a smaller company by a much larger one, which means the two parties might be unequal to each other. In this case, it is not necessary to have a mutual decision as sometimes the larger one can force the smaller to a takeover against its managers will. A stark example of acquisition is Skype acquisition by Microsoft in 2011 at the price of $8.5 billion, the biggest takeover in Microsofts history, which made Skype a division within Microsoft. So what are the motives or benefits for companies to progress M&A? The key point is that it could create more value for the both parties. Generally, companies always want to diversify their business fields, to introduce new products or services and enter new markets. Then buying or combining with a company not only brings them more capital, human resources but also takes advantages of the existing brands and customers. Moreover, stronger position in a market, larger market share, reducing competition, benefiting from economies of scale and making use of plant and equipment are such motives leading to M&A decision. The Skype acquisition of Microsoft showed that this deal brings Microsoft a service which helps it access to 170 million Skype users, adopt to future version of Windows Mobile operating system and gaining competitiveness over Google, Cisco or Apple when expanding into cloud computing. When it comes to challenges for businesses after M&A, it is obvious that challenges are not easy to overcome. First, culture of different companies from different countries may conflict each other as they do not have the same concept of time, working style, and language could probably becomes a barrier. While Western culture appreciates individual opinions and independence, Asian culture like Japan, Vietnam pays respect to those having experienced or devoted to the company for a long time. Second, mergers and acquisitions also destroy leadership continuity in top management teams of both companies for at least a decade following a deal. According to a statistic, target companies lose 21 percent of their executives each year for at least 10 years. Finally, mergers and acquisitions often create

brand problems, beginning with what to call the company after the transaction and going down into detail about what to do about overlapping and competing product brands. Considering these challenges, a report by KPMG (2009) revealed that up to 70% of M&A deals end up in failure. However, this business model still exists as it is beneficial to those who know to tackle its problems. The main solutions to overcome challenges of post-merger are appropriate planning and implementation. First, it requires to develop a clear standardized integration plan, then to complete the acquisition process quickly. Second, carefully managing the integration of the companies cultures is also a significant step which definitely needs close involvement of Human Resources managers and helps people communicate with each other effectively. Merging two companies is somehow similar to the situation that two strange people share an apartment. They live together to reduce the rent cost but conflicts might arise easily as they have different ways of thinking, different lifestyle. One wants to clean the floor a couple of times a week while the other just makes it a mess, reckoning once a week is suitable. In other cases, one is sociable, invites his or her friends all the weekend while the other wish to have quiet time to relax. That is when people or the companies managers should discuss together, finding a way to harmonize different opinions in order to gain mutual goals. In Vietnam, M&A has just begun in recent years but promises booming years in the near future despite our limitation understanding about it. The number of M&A deals and their value has increased significantly over 5 years from 2005 to 2010. Starting modestly with 18 deals in 2005, valuing $61 million, the figure increases exponentially 8 times to 164 deals in 2008 with nearly six-fold bigger value. Moreover, this activity is booming in varying fields such as finance and banking, stock exchange, insurance, delivery, IT and so on. For example, HSBC, ANZ, Standard Chartered Bank acquired shares of Techcombank, Sacombank and ACB respectively at the rate of 20, 10, 15 percent. However, generally M&A in Vietnam is progressed in a small scale with little information and understanding, lacks prestigious organizations involvement. Many among M&A deals are not real M&A but merely stock investment. The rate of successful M&A is quite low with imminent threat of dominating the market and unfair competition. Moreover, some deals are to acquire weak state owned companies which are on the brink of bankruptcy or ineffectively operating, limiting the benefits of M&A. Besides, Vietnamese government also needs to promulgate detailed law regulating this activity. To sum up, M&A deals are well developed in the world trade but still green in Vietnam. This essay has just mentioned basis principles, solutions and reality of this economic activity. Ongoing researches in detailed processes of M&A applying to Vietnam emerging market are necessary in different edges of the activity, helping businesses to seize chances and enhance their competitiveness.