Date post: | 04-Jun-2018 |
Category: |
Documents |
Upload: | vinay-goyal |
View: | 221 times |
Download: | 0 times |
of 32
8/13/2019 Merger Cases
1/32
Case study 1: Ranbaxy DaichiRanbaxy Overview
1
8/13/2019 Merger Cases
2/32
The DEAL
Daiichi got to acquire a controlling stake .51.62% in Ranbaxy for $ 3.4-4.6billion
Singh family promoters of Ranbaxy sold entire stake 34.8% for Rs 10000 crs
($2.4 bio) at Rs 737/-
Daiichi had to make an open offer to acquire 20% more from other
shareholders. Japanese company was to acquire another 4.9% through
preferential of share warrants
Ranbaxy was to get $1bn via preferential allotment, funds were to be used to
retire debt 2
8/13/2019 Merger Cases
3/32
The DEAL
3
8/13/2019 Merger Cases
4/32
Reasons for Takeover
DaiichiA complementary business combination
An expanded global reach
Strong growth potential
Cost competitiveness by optimizing usage of R&D and manufacturing facilities
Ranbaxy
The R&D pipeline was not delivering enough products, the generic market
was not generating adequate returns.
Ranbaxy had three choices
It could spend lot of money in acquiring a big generic company to
grow inorganically
Merge with a global player
Sell-out
The sell out option was most profitable
4
8/13/2019 Merger Cases
5/32
Conclusion
5
8/13/2019 Merger Cases
6/32
Joint Ventures (JV)
JV is an entity formed between two or more parties to undertake
economic activity together.
The parties agree to create a new entity by both contributing
equity, and they then share in the revenues, expenses, and control
of the enterprise.
The venture can be for one specific project only, or a continuing
business relationship such as the Sony Ericsson joint venture.
This is in contrast to a strategic alliance, which involves no equity
stake by the participants, and is a much less rigid arrangement.
Project Based JV: These are Joint Ventures entered into by
companies in order to accomplish a specific project.
Functional JV: These are Joint Ventures wherein, companies agree
to share their functions and facilities such as production,
distribution, marketing, etc. to achieve mutual benefit6
8/13/2019 Merger Cases
7/32
JV- Goals, Benefits
Goals
Synergies
Transfer of technology/skills
Diversification
Benefits
Complementary Benefits
Acquiring and Sharing Expertise
New Business / Product Development
Capacity Expansion
7
8/13/2019 Merger Cases
8/32
JV- Issues
Issues in Joint Ventures
Due Diligence
Business Strategy Development of HR Strategies
Implementation
8
8/13/2019 Merger Cases
9/32
HISTORY
Maruti Udyog Ltd was established in February 1981
Actual Production commenced in 1983 with Maruti 800
Project Maruti started by Indira Gandhi & Sanjay Gandhi
Indian experts started search for collaboratorsNegotiated withToyota, Nissan, Honda & Suzuki
After rounds of negotiation Suzuki was selected
Joint venture of Govt of India & Japanese Company Suzuki
Motors Corp
Previously Govt of India owned 80% equity & Suzuki had 20%
Now Indian Financial Institute has 18.28%, Suzuki has 54.24%
& 25% equity is public offering
Case Study 2: Maruti Suzuki Joint Venture
9
8/13/2019 Merger Cases
10/32
SWOT Analysis
STRENGTHSGoodwill of Suzuki Brand
Contemporary Technology
Market Share & reliability
WEAKNESS
Japan for technical support
OPPORTUNITIES
Infrastructure
Innovation
THREATS
Govts Policies, taxes etc
10
8/13/2019 Merger Cases
11/32
BENEFITS OF JOINT VENTURE
For Maruti
Suzuki Motor Corporation, the parent company, is a globalleader in mini and compact cars for three decades
Suzukis technical superiorLightweight engine that is clean and fuel efficient
Nearly 75000 people are employed directly by Maruti Suzukiand its partners
For Suzuki
Large Indian MarketMonopolistic trade in the Indian automobile market
Availability of resources
11
8/13/2019 Merger Cases
12/32
The Market before JV
Case Study 3: Hero Honda Joint Venture
The license raj that existed prior to economic
liberalization (1940s-1980s) in India did not allow foreign
companies to enter the market.
In the mid-80s when the Indian government started
permitting foreign companies to enter the Indian market
through minority joint ventures.
The entry of these new foreigncompanies transformedthe very essence of competition from the supply side to
the demand side. 12
8/13/2019 Merger Cases
13/32
The Deal Is Done.(June 1984)
Honda agreed to provide tech. know-how toHHM and setting up manufacturing facilities.
This included the future R & D efforts.
Honda agreed for a lump sum fee of $500,000& 4% royalty on SP.
Both Partners held 26% of the equity with
other 26% sold to the public and the rest heldto financial institutions.
13
8/13/2019 Merger Cases
14/32
Success Story
HHM had grown consistently, earning the title of the worlds
largest motorcycle manufacturer
Worlds largest two-wheeler manufacturer with annual salesvolume of over 2 million motorcycles.
Owns worlds biggest selling motorcycle brand Hero Honda
Splendor.
Over 9 million motorcycles on Indian roads.
Deep market penetration with 5000 outlets.
14
8/13/2019 Merger Cases
15/32
Reasons for success
The deep penetration network of hero largely benefited the sales.
Absence of major competitors in initial years.
Sound and proven technical capabilities of Honda and the reliability of Hero.
Increased market for motorcycles
Better Fuel efficiency.
Change in peoples perception.
Decrease in price difference with scooters.
15
8/13/2019 Merger Cases
16/32
Wholly Owned Subsidiary
What Does Wholly Owned SubsidiaryMean?
A subsidiary whose parent company owns 100% of its common stock.
In other words, the parent company owns the company outright and there areno minority owners.
16
8/13/2019 Merger Cases
17/32
- The Acquirer Among the largest domestic pharma
companies in India
Annual turnover of over INR 4900 Cr.
Annual PAT of INR 438 Cr.
Approved by USFDA, MHRA(UK) Formulations make 37% of companys product
mix; generic products account for 13%
Case Study 4: Dr Reddys & Betapharma
17
8/13/2019 Merger Cases
18/32
- The Target
Fourth largest generic
pharma company in
Germany EBITD margins between
2426%
Portfolio of over 145products
18
8/13/2019 Merger Cases
19/32
Turnover Eur 186 million
3.5 market share in Germany
Breakup of products
- The Target
19
8/13/2019 Merger Cases
20/32
Valuations
Sticker Price of 480 mn. from PE firm 3i
Revenues of 165 mn.
2.9X revenues and 12X EBITDA
The transaction was funded using a combination ofDRLs internal cash reserves and committed creditfacilities
Dr Reddy's buys 100% equity of German CoBetapharm for Rs 2,250 cr (Euro 480 mio) Biggest overseas acquisition by an Indian pharmaco
- The Target
20
8/13/2019 Merger Cases
21/32
Goodies for DRL
Access to lucrative German generic drug market
Enhanced portfolio
Leverage its product development skills and low-
cost manufacturing in India to boost BetapharmsEBIT margins
Help DRL realize its ambitions of becoming a $1billion mid-size global pharma company
21
8/13/2019 Merger Cases
22/32
Side Effects for DRL
Betapharm booked losses in 08 & 09
Raw materials problems in Mexico
The German market underwent significant
changes after it acquired the company, shifting toa tender-based model wherein the insurancecompanies called for tenders from drug makersand the lowest bidder got the order for supply ofdrugs
Absence of upsides (revenues arising out ofmarketing exclusivity of authorized generics)
22
8/13/2019 Merger Cases
23/32
Present Scenario for DRL
DRL has long been bleeding under the impact ofBetapharms losses
Decline in German sales by 26 per cent
Dr Reddy's Laboratories (DRL) is currentlyrestructuring German subsidiary Betapharm
Fierce competitive bidding from various genericcompanies has increased the acquisition cost for DRL
and extended the payback period
23
8/13/2019 Merger Cases
24/32
Case Study 5: Tata Corus Merger
'Tata Steel', formerly known as TISCO(Tata Ironand Steel Company Limited), was the world's56th largest and India's 2nd largest steel
company with an annual crude steel capacity of3.8 million tonnes.
Post Corus merger, Tata Steel is India's second-largest and second-most profitable company in
private sector with consolidated revenues of Rs1,32,110 crore and net profit of over Rs 12,350crore during the year ended March 31, 2008
24
8/13/2019 Merger Cases
25/32
Corus Overview
Coruswas formed from the merger of
Koninklijke Hoogovens N.V., a Dutch steel
producer with British Steel Plc on 6 October
1999. It has major integrated steel plants inUK and Netherlands.
Group turnover for the year to 31 December
2005 was 10.142 billion. Profits were 580million before tax and 451 million after tax.
25
8/13/2019 Merger Cases
26/32
Synergies from the deal
Some of the prominent synergies that could arise from the deal were as follows :
Tata was one of the lowest cost steel producers in the world and had selfsufficiency in raw material. Corus was fighting to keep its productions costs under
control and was on the look out for sources of iron ore.
Tata had a strong retail and distribution network in India and SE Asia. This would
give the European manufacturer a in-road into the emerging Asian markets. Tata
was a major supplier to the Indian auto industry and the demand for value added
steel products was growing in this market. Hence there would be a powerful
combination of high quality developed and low cost high growth markets
There would be technology transfer and cross-fertilization of R&D capabilities
between the two companies that specialized in different areas of the value chain
There was a strong culture fit between the two organizations both of which highly
emphasized on continuous improvement and ethics. Tata steel's ContinuousImprovement Program Aspirewiththe core values :Trusteeship,integrity,respect
for individual, credibility and excellence. Corus's Continuous Improvement
Program The Corus Way with the core values: code of ethics, integrity, creating
value in steel, customer focus, selective growth and respect for our people.
26
8/13/2019 Merger Cases
27/32
Valuation
On 20 October 2006 the board of directors of Anglo-Dutch steelmaker
Corus accepted a $7.6 billion takeover bid from Tata Steel, the Indian steel
company.
Tata Steel's bid to acquire Corus Group was challenged by CSN, the
Brazilian steel maker.
In November 2006,Brazilian steel marker Companhia Siderrgica Nacional
(CSN) challenged Tata Steel's proposal for acquisition. They countered Tata
Steel's offer of 455 pence per share by offering 475 pence per share of
Corus.
Finally , on January 30, 2007, Tata Steel purchased a 100% stake in the
Corus Group at 608 pence per share in an all cash deal, cumulatively
valued at USD 12.04 Billion.
The deal is the largest Indian takeover of a foreign company and made
Tata Steel the world's fifth-largest steel group.
27
8/13/2019 Merger Cases
28/32
Funding the dealTATA Corus merger
$3.53.8bn infusion from Tata Steel ($2bn as its
equity contribution, $1.51.8bn through a bridgeloan)
$5.6bn through a LBO ($3.05bn through senior term
loan, $2.6bn through high yield loan) The funding structure of this deal is the leveraged
buyout model that Tata Steel used to fund the Corus
buy.
Effectively, the Tatas are paying only a third of theacquisition price. This was possible because Corus
had relatively low debt on its balance sheet and was
able to borrow more.28
8/13/2019 Merger Cases
29/32
Case Study 6: HINDALCO - NOVELIS ACQUISITION:
CREATING AN ALUMINIUM GLOBALGIANT
Indian aluminium giant Hindalco acquired Atlanta basedcompany Novelis Inc, a world leader in aluminium rolling and
flat-rolled aluminium products in May 2007.
Novelis processes around 3 million tonnes of aluminium a year
and has sales centers all over the world. In fact, it commands a
19% global market share in the flat rolled products segment,
making it a leader.
Strategically, the acquisition of Novelis takes Hindalco onto the
global stage as the leader in downstream aluminium rolled
products.
The transaction made Hindalco the world's largest aluminium
rolling company and one of the biggest producers of primary
aluminium in Asia, as well as being India's leading copper
producer. 29
8/13/2019 Merger Cases
30/32
Novelis - Background
World leader in the recycling of used aluminium beverage cans
Recycles more than 35 billion used beverage cans annually.
No. 1 rolled products producer in Europe, South America and Asia, and the
No. 2 producer in North America.
Produces the highest-quality aluminium sheet and foil products forcustomers in high -value markets including automotive, transportation,
packaging, construction and printing.
customers include major brands such as Agfa -Gevaert, Alcan, Anheuser-
Busch, Ball, Coca-Cola, Crown Cork & Seal, Daching Holdings, Ford,
General Motors, Lotte Aluminium, Kodak, Pactiv, Rexam, Ryerson Tull,Tetra Pak, ThyssenKrupp, etc.
30
8/13/2019 Merger Cases
31/32
Financing Structure put in place by
Hindalco
Recourse Financing by
banks on Corporate
Guarantee of Hindalco 3100
Liquidation of Treasury 450TOTAL
3550
HINDALCO NOVELIS
Figures in USD Millions
Novelis Enterprise Value ~ USD 6 billion
All cash deal
Non Recourse Debt at Novelis
Term Loans 1000High Yield Bonds 1400TOTAL
2400
31
8/13/2019 Merger Cases
32/32
Benefits to Hindalco
establish Hindalco as a global integrated aluminium producer with low-cost alumina and
aluminium production facilities combined with high -end aluminium rolled product
capabilities.
emerge Hindaloc as the biggest rolled aluminium products maker and fifth -largest integrated
aluminium manufacturer in the world.
The acquisition will give the company immediate scale and strong a global footprint.
Hindalco's position as one of the lowest cost producers of primary aluminium in the world is
leverageable into becoming a globally strong player.
Novelis is a globally positioned organization, operating in 11 countries with approximately
12,500 employees.
Novelis will work as a forward integration for Hindalco as the company is expected to ship
primary aluminium to Novelis for downstream value addition.
Novelis has a rolled product capacity of approximately 3 million tonne while Hindalco does
not have any surplus capacity of primary aluminium.
32