Once upon a time… nostalgia of first stocks

Bibica JSC pushed into power struggle

SGI

As a leading confectionery brand in Vietnam, Bibica Joint Stock Company (BBC) was viewed by many domestic and foreign organizations for acquisition of its valued shares.

Bibica's cake production line.

Bibica's cake production line.

However, high unrealistic ambitious goal of BBC partners pushed the company into extreme difficult situations due to fierce competition between two major shareholders.

Shares increased abnormally

Bien Hoa Confectionery Joint Stock Company, BBC’s forerunner was established in 1999 by equitizing three workshops of the company meant for making of cookies, candy and malt sugar. BBC was one of the first 10 stocks listed on HOSE on 19 December 2001, with reference price of VND 27,000/share.

As "veterans" in the stock market, BBC encountered many difficulties in early years, even facing a time when its shares fell to VND 10,000/share, before a boom period in the stock market in 2007. From transactions on 3 October 2007, BBC set high value of VND 110,000/share. After this peak period, BBC shares strongly sold out and reduced to nearly VND 10,000/share from 2008 to 2009.

After fluctuation in transactions in BBC share value in nearly 10 years, BBC suddenly set a historical peak of VND 120,000/share in the trading session on 14 February 2017. After this peak level, BBC adjusted to decrease its share value but still maintained transactions at around VND 100,000/share in 2017. It was noteworthy that BBC's ability to maintain a share value at a high price didn’t come from business results, but was derived from the race of share collection between its two major shareholders, namely, PAN Food Joint Stock Company (PAN Food) and Lotte Confectionery Co. Ltd (Lotte) with the aim of increasing their ownership ratio.

At this time, despite a disagreement between the two major shareholders about direction and benefits, their relationship was quite peaceful due to equal shareholding ratio in the total number of BBC shares, namely, PAN Food with 43.73% and Lotte with 44.03%.

Power struggle between two major shareholders

A fight between the two major shareholders, PAN Food and Lotte broke out at the annual shareholders meeting in 2018. As soon as the meeting opened, PAN Food representatives with 53% of shares did not approve the proposal developed by Lotte for publicized details of Vinh Loc 2 investment project in Ho Chi Minh City. Accordingly, PAN Food group affirmed that declaring publicly details of this investment project at a time of many competitors was not necessary. Information needed to be kept a secret to make sure that the project could be successfully carried out. Subsequently, the business plan for the year of 2018, including revenues and profits of VND 1,500 bn and VND 121 bn, also were not approved due to aggressive response from the Lotte group.

On 15 July, PAN Group Joint Stock Company (PAN), the holding company of PAN Food, announced its Board of Directors’ resolution for a takeover bid of more than 7.7 million BBC shares equivalent to 49.93%, with expected price of VND 68,500/share valued at VND 527 bn. In BBC's shareholder structure, PAN Food is the largest shareholder with 50.07%, while Lotte only holds about 44.03%.

Thus, with a takeover bid of upto 49.93%, it meant that Lotte could accept to sell all its current shares to PAN. However, the possibility that Lotte transfer BBC to PAN was still unclear, because this Korean corporation with an annual revenue of upto USD 50 bn had already planned to enter Vietnam's confectionery market over the past 10 years. Specifically, at the end of 2007, Lotte officially became BBC’s strategic shareholder with 30% of shares and continued to increase to 39% in 2009.

With such holding ratio, Lotte repeatedly made decisions for its own benefits, such as proposing more employees to many positions on the BBC Board of Directors, requesting to produce cookies under the Lotte brand, and even asking to change the corporation name by combining Lotte name with Bibica name at the shareholder meeting in 2012. However, due to the holding ratio it was incapable of controlling BBC operations, and these requirements were not approved by the Board of Directors. Therefore, Lotte silently continued to collect BBC shares over the past years and consequently it raised the ratio to nearly 43% in 2013, currently holding more than 44%.

On the other hand, because many internal shareholders worried about risk potential of Lotte corporate takeover of BBC, they decided to sell 35% of their shares to PAN Food. In 2017, BBC officially became a subsidiary company of PAN Food, after PAN Food unexpectedly purchased an extra 1.2 million shares, raising its holding ratio to more than 50%. Fierce internal fight between BBC’s two major shareholders truly began in 2018, as mentioned above.

Profit decline

Like Lotte, PAN Food also attempted a takeover of BBC to build a high quality confectionery brand. Being pushed into the power struggle between the two big shareholders, BBC was really affected in many ways. Accordingly, in the period 2008-2011, BBC revenues maintained at an average growth rate of around 22% per year, but from 2012 till now this rate has been decreasing to only a one-digit number and has continuously failed to meet business targets.

For example, in 2017, BBC set a target revenue of VND 1,400 bn but actually gained around VND 1,300 bn; in 2018, the target was VND 1,500 bn but only reached around VND 1,400 bn. In the period 2012-2013, BBC investment activities almost stopped and most projects could not be implemented because the two biggest shareholding groups could not come to a common consensus. The culmination of this disagreement was that the business plan for the year of 2018 was totally rejected.

At the annual shareholders meeting in 2019, when BBC officially became a subsidiary of PAN Food, the business plan for the year 2019 was easily approved because the Lotte group did not make any comments. Accordingly, revenues and profits in 2019 were expected to reach VND 1,600 bn, an increase of 12.5% and VND 110 bn, equivalent to profits in 2018. The business plan that was aimed at strong revenue growth and unchanged profits was easily approved without Lotte's opposition. This did not mean a sign of "surrender" by the Lotte group, but sent a clear bad signal to BBC, where everything seems to be very peaceful before the big storm.

In fact, Lotte may be temporarily agreeing with PAN Food about the business plan in 2019, because their current holding ratio is still large, and this group is completely able to veto BBC’s potential investment decisions. Supposedly, if Lotte transfers all of its shares to PAN Food, with administration given to a new boss, BBC’s breakthrough ability would be under question. The reason is that PAN has signed of an "exhaust" after a series of recent takeovers by BBC.

Translated by Thúy Hằng

Kim Giang

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