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Firms become takeover targets

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1 Firms become takeover targets on Mon May 23, 2011 8:26 pm

HA NOI — Prolonged stagnation of Viet Nam's stock market has lowered the value of many stocks, making a number of companies into attractive takeover targets.

According to the Viet Nam Association of Financial Investors (VAFI), current prices of most stocks are very cheap compared with their asset value, offering lucrative investment opportunities for both value-driven investors and investors who seek out a singular opportunity to take control of companies.

VAFI said an underground trend of acquisitions was developing on the stock market. This trend can be seen in conflict at a recent shareholder meeting at Fideco Corp (FDC), which specialises in financial investment and property development.

The firm had to hold a shareholder meeting again to reach an agreement on its business plan for this year. Agreement on the plan could not be reached at the initial meeting as several large investors blocked approval, in what some analysts say was a bid to exert more control over the company's policies.

After the conclusion of its recent meeting, two new members of the FDC management board were appointed, one of which – who holds 1 million shares – was nominated by a group of major investors.

The developments seen at FDC shareholder meetings are not isolated. Descon Construction Corp (DCC) has also seen groups of shareholders jockey for a controlling position. Recently, a group of investors from Binh Thien An Real Estate Co, who only held a 21.6 per cent stake in DCC, successfully took control of the company. These investors also nominated their representatives to DCC's management board.

With the Binh Thien An investors spending just VND60 billion (US$2.9 million) to gain leadership in DCC, which has a charter capital of VND250 billion ($12.2 million), the move was considered as extremely lucrative. DCC's Preche property project in HCM City alone is worth about $25-30 million.

Observers said the motives behind these take-overs were simply to gain control of valuable company assets. In the case of Fideco Corp, it owns profitable properties including Fideco Tower, housing and office buildings and industrial zone projects in southern cities.

Both FDC and DCC have valuable assets but are held back by inefficient business operations, according to To Hai, general director of Viet Capital Securities Co.

Hai said developments at DCC and FDC should be a warning that inefficient companies are at increasing risk of take-overs.

However, Hai also said the likelihood of the success of such take-overs was still unknown as buyers were often purely financial investors and there was still a gap between expectations and actual implementation.

Hai said if investors who made acquisitions wanted to liquidate assets, it would be difficult to succeed on the back of the current market downtrend.

But if these investors intended to restructure their companies, they had to understand that this restructuring can be a lengthy process. — VNS

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