VN’s Vicostone denies conflict of interest, after cross acquisition by competitor

Vicostone products, visual from the website

Vietnam based engineered-stone manufacturer Vicostone, has denied that it had any “conflict of interests” after the cross acquisition by its rival company Phuong Hoang Xanh A&A (Phenikaa).

Investors and the industry had raised some questions regarding this after Vicostone became a subsidiary of its Hanoi-based competitor.

Threatened by the declining growth and losing market share, Vicostone had accepted Phenikaa’s takeover offer by acquiring 58 per cent of the company from Red River Holding, DWS Vietnam Fund, Wonderful Kitchen and some other shareholders in August, 2014, .

According to available reports, by the end of last year, Vicostone’s chairman and CEO Ho Xuan Nang owned about 90 per cent stake in the acquirer company. The cross-deal has become “once in a blue moon” phenomenon in the Vietnamese M&A market, with Nang gaining control in both companies.

“Phenikaa and Vicostone are operated under the parent company – subsidiary model, which does not affect the benefits to the shareholders in either firm,” he affirmed.

In 2014, Vicostone saw a profit of VND212 billion ($9.95 million), which is triple the amount of that in 2013, and has targeted to increase the figure by 13 per cent in 2015.

In April last year, Phenikaa had reached an exclusive deal with Italian stone processing machine producer Breton to transfer its quartz production technology within six years, which meant Vicostone would have lost its source of supply and growth potential without an alternative plan.

“This restructuring [the takeover] helps strengthen our financial status as well as avoid the risks of direct fierce competition,” Nang said.

Vicostone’s leading position in the industry has been assured since the day it was established due to the influence wielded by of its founding shareholder, the national construction giant Vinaconex. Its charter capital had increased by 23 times during nine years to reach VND530 billion ($24.9 million) in 2014. Performance has been good with an annual revenue growth of some 30 per cent.

However, since 2011, the company has been exposed to instability as profit kept decreasing. Vinaconex also gradually divested from it.

Meanwhile, Phenikaa, established in 2010 with the initial investment capital of mere VND300 billion ($14 million), is an obscure name in the market. DEALSTREETASIA has learnt that Phenikaa is backed by several European investors and that is the main reason behind its success in gaining the exclusive contract with the European company.

In addition, a prolonged conflict between Vicostone and a group of large investors represented by Vietnam-focused investment fund Red River Holding was an opportunity for Phenikaa to jump in. The conflict began in 2012 when the French fund vetoed all documents released at the shareholder meeting after it had failed to get a seat on the board of directors.

In fact, the cross-holding deal should be seen as a win-win for both ends. Phenikka has strengths in advertising and communications but is weak in manufacturing. Acquiring Vicostone will help it develop Vietnam’s largest stone producer, which is in turn a good outcome for the aquired company.

Related stories:

Vietnam’s Masan buys stake in two competitors

PAN subsidiary acquires Southern Seed Corp

Vietnam’s Vietinbank confirms merger with PGBank