Since 2005, the wave of foreign investment in Vietnam banking sector has started booming. However, most of investments are partial acquisition as Vietnamese regulation does not allow for foreign investors to capture more than 30% of stake in commercial banks, and for individual strategic investor the maximum is 15%, any individual strategic investor of 20% stake needs governmental approval. Since then, there have been 12 partial acquisitions in Vietnamese commercial bank sector. Most of tier 1 commercial banks (in term of chartered capital) now have foreign investment in its stake. This paper is designed to exam the impact of foreign partial acquisition on Vietnamese commercial banks performance and share price after acquisition. This can be used as precedent cases for other joint stock commercial banks to look at when they want to raise capital through issuing shares for foreign investors. It is noteworthy that the Vietnamese Government requires all commercial banks in Vietnam to have minimum chartered capital of VND3 trillion by the end of 2010. However, to date there are still about 28 joint stock commercial banks out of 38 commercial banks have not meet the requirements on minimum chartered capital. And most of them are now interested in selling stake for foreign strategic investors to increase its chartered capital.
Research aim/ objectives and Term of reference The aim of this paper is clearly stated in the title which is to exam if partial acquisition of foreign investors worthwhile for Vietnamese commercial banks, at the aspects of share price and post - financial performance. Thus, its objectives are to answer the following questions: If partial acquisition would cause share price of targets (Vietnamese commercial banks) to fall or rise around the announcement of acquisition If partial acquisition improve or worsen the financial performance of targets after acquisition In order to achieve the research aim and objectives of this research paper, the term of reference set for this paper would be: Review the literatures on share price analysis around the acquisition announcement period, and on performance analysis after acquisition to find out how they would change Looking at more specific case of Vietnamese joint stock commercial banks, particularly looking at secondary data of share price around the acquisition announcement and financial performance before and after acquisition
Initial literature review
Review for acquisition/partial acquisition Acquisition is the takeover of another firm's assets or stock (acquiring/target firms). This is stock/assets for cash transaction. In the acquisition, the acquirer firm will become the owner/shareholder of acquiring firm. The acquisition can defined as hostile takeover or friendly take over. Mikkelson & Ruback (1985) defined partial acquisition is the purchase of more than 5% block of shares. Akhigbe, and others (2004) also defined partial acquisition as the acquisition of less than 50% of target's ownership. Meyer and Tran (2006) postulates that not many scholars pay attention in the important of partial acquisition. Some empirical studies on the important of partial acquisition as the entry mode when firms enter emerging/transition markets can be found in the works of Barkema & Vermeulen, 1998; Chen & Hennart, 2004; Duarte & Garcia-Canal, 2004; Meyer & Tran, 2006 It is notheworthy that in studies of Barkema & vermeulen (1998), the result shoe that partial ownership (partial acquisition) is favoured in high risk countries and in countries that impose legal restrictions on foreign ownership. This can explain the growth of foreign partial investment in Vietnamese banking sector.
Review for share price analysis Mikkelson and Ruback (1985) investigated and analyzed the share price of 473 companies in the U.S. during the period of 1978 and 1980. Their findings show the increase in share prices of target firms after the announcement of partial acquisition. Jensen and Ruback(1983, cited in Cheung at el, 2009) review 13 studies on the abnormal returns around takeover period and found that the average excess returns on stock price are of 30% and 20% for the successful tender offer and mergers. The studies in 1990s yet show contradicting result. Frank et al (1991, quoted in Cheung at el, 2009) shows no evidence to support earlier argument of the increase in abnormal return of target firm after three years since the bid date. Moore (1997) also studied on acquisition transactions of banks during June 1993 and July 1996. Moore's study indicates that the share prices of target banks had all negative return associated with the likelihood of being acquired. According to study (2009) of Cheung and others on listed companies in Asia during 1990s, the target firms' price responses (in term of CARR) (-2.5%) in the period before the announcement, and (-5.2%) in the period after announcement. The difference between studies in 1980s and 1990s is shown. This paper will investigate whether the recent studies (1990s) hold for partial acquisition in Vietnamese commercial banks.
Review for post performance Madden (1981), and Mikkelson and Ruback (1985) studies had shown the positive effect for target firms after partial acquisition in U.S market (quoted in Zhu and others, 2010). However, the later studies and research in 1990s shows different point of view. The later study of Eyssell (1990) shows no significant change of target firms' partial acquisition post-performance in US. Another studies of Longhran and Vijih (1997) also come to the same view that acquisition resulted in significant negative performance over time for the acquiring firm. And that is the research gap on post performance of partial acquisition. It seems that the post performance of partial acquisition will be different among various industries and various timing. This paper will exam the post performance of target firms in emerging banking sector in Vietnam in order to see how the performance affected after partial acquisition.
Intended methodology To answer the research questions mentioned above, the research will be based on positivism stand with secondary data being collected for the purpose of analysis on share price and post performance. And it will be comparative design. The analysis will be based on cross-sectional analysis which will compare the share price and performance of target firms before and after acquisition; and the share price and post performance of target firms with those of relevant commercial banks with no foreign partial acquisition The secondary data will be collected from reliable sources i.e banks' websites, stock exchanges' websites, other possible sources such as State Securities Commissions, Ministry of Finance. the sample sizes will include total 12 partial acquisition deals of more than 10% stake in Vietnamese commercial joint stock banks . The sample of control group consists of 6-10 commercial banks (where as information is available). Note that, due to limitation in information of share prices, the research might not include all stock information of sample commercial banks. For share price analysis, all stocks that are unlisted will be eliminated from the sample size. Up to date there are only 8 listed commercial banks, of which 3 commercial listed banks will be in control group sample. The share price of 2 listed banks with partial acquisition will be analyzed . It excludes 3 others listed banks with partial acquisition because those were listed on stock exchange after 1-2 years of the acquisition date, and with these cases, the share price analysis before and after acquisition can not be measured. The analysis on share price would be based on the AAR (accumulated abnormal return). For performance descriptive analysis, this will be based on financial ratios for banks to avoid the difference in years before and after the acquisition taken place. Those ratios are: ROA, ROE, liquidity, net gearing, cost to income ration, loans to total asset ratio, credit risk, diversity earnings, off-balance sheet, loan to deposit After the analysis on share price and financial performance through the calculation of ratios, T-test will be conducted to test the relationship between financial performance before and after acquisition, and also post performance with other commercial banks having no partial foreign acquisition The result of this research considered to be valid as the choice of sample is considered to be appropriate and representable with appropriate analysis technique. Data present in the tables is also considered to be reliable since data are collected from reliable sources and audited financial statements. Thus, if the research is repeated, the consistent results are expected.
Timescales The research and reading from this project will be started from December but not intensively. The intensive work will be taken place in mid February 2011, and to be finished in mid August 2011, about two weeks earlier than the expected deadline in end of August 2011. Below is the gantt chart specifies the timeframe for this projects Timetable for thesis work (Unit: days):
Reference Zhu, PengCheng, Jog, V., Otchere, I. (2010) Partial acquisition in emerging market: A test of the strategic market entry and corportate control hypotheses. Journal of Corporate Finance. doi:10.1016/j.jcorpfin.2010.09.003 Hannan, H. T., and Pilloff, J. S (2009) Acquisition Targets and Motives in the Banking Industry. Journal of Money, Credit and Banking, Vol. 41, No. 6, pp.1167 - 1187 Akhigbe, A., Madura, J., and Spencer, C. (2004) Partial acquisition, corporate ocntrol, and performance. Applied Financial Economics, Vol. 14, pp. 847 - 857