Why Masan Consumer Acquires VCF?

At present, three coffee companies are listed on Vietnamese stock exchanges, namely Vinacafe Bien Hoa Joint Stock Company (VCF), Thai Hoa Viet Nam Joint Stock Company (THV) and An Giang Coffee Joint Stock Company (AGC). However, they are quite different in business operations. While AGC and THV, both listed on the Hanoi Stock Exchange (HNX), focus on manufacturing and exporting coffee, the Hochiminh Stock Exchange (HOSE)-listed VCF concentrates on processing instant coffee for domestic market. According to its financial reports in 2010, VCF’s net revenues were VND1,302 billion, of which grain nutrient drinks generated 19.7 percent, and coffee milk products accounted for 78 percent. Taken together, coffee products brought in some 80 percent of sales. Meanwhile, export volume and value accounted for 8 percent and 6.6 percent, respectively.

 

An analyst from Habubank Securities Company said Vinacafe Bien Hoa is a long-standing coffee company with more than 30 years’ experience and a nationwide distribution network. At the present time, Vinacafe takes the lead in the Vietnamese coffee market with more than 40 percent of market share, followed by Nescafe with 35 percent. However, compared with other instant coffee brands like MacCoffee, Nescafe and G7 (Trung Nguyen Coffee), Vinacafe’s processing capacity is still modest with only 880 tonnes of processed products compared with Nescafe’s 1,000 tonnes and G7’s 3,000 tonnes. However, the output of Vinacafe will mount to 3,200 tonnes in March 2012 after new facilities are put into operation.

 

In addition, the HOSE-listed company’s business performance is quite good. In the first six months of 2011, its net profit reached VND122.5 billion. Return on assets (ROA) and return on equity (ROE) were relatively high in previous years, reaching 30.8 percent and 34.5 percent in 2009 and 26.5 percent and 31.2 percent in 2010, respectively.

 

The Vietnamese coffee market is forecast to keep a high annual growth of 8-10 percent in the years to come, higher than the world average of 6 - 7 percent. Domestic consumption currently accounts for just 6 percent of production capacity, while VCF is a market leader in instant coffee thanks to its broad distribution network and good business situation. Thus, Masan Consumer’s tender offer is likely aimed at controlling the instant coffee market.

 

VCF’s share authorised capital is over VND265 billion, equivalent to 26.5 million shares (par value of VND10,000). State-owned Vietnam National Coffee Corporation (Vinacafe) is the largest shareholder with 37.3 percent. Masan Consumer’s tender offer for 50.11 percent of stake may be reached if the price is good enough. In case Vinacafe does not divest and other investment funds do not change hands (one fund with 17 percent of stake), Masan Consumer will be unlikely to buy 50.11 percent of stake at registered price because VCF’s liquidity will be very low. Thus, there is a possibility that VCF has reached an agreement to buy back shares from some investment funds and the tender volume will not be as big as registered.

 

It is also assumed that Masan Consumer has prepared for this deal for months and has relied on third parties to purchase the stake Vinacafe cut from 50.26 percent down to 37.3 percent in May 2011. Then, Masan Consumer will possibly purchase a part of its announced volume.

 

Beside Vinacafe, VCF has two other major shareholders, namely Beta Securities (8.63 percent) and Mr Tran Quang Loc (7.7 percent). Mr. Huynh Anh Tuan, General Director of SJC Securities Joint Stock Company, said Masan Consumer may have completed its deal by purchasing shares from funds wholly divested in VCF like VinaCapital, VF1, Vietcombank Fund and Vietnam Holding, scoured some on the stock market, and agreed to purchase from the two major shareholders.