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Acquisitions
1. Global Trust Bank and Oriental Bank of Commerce
2. Ranbaxy and Daiichi Sankyo
PRESENTED BY GROUP-1 Adarsh Ayan Heena Mohit Sandeep Souptik
Mergers
&
ACQUISITION OF
GLOBAL TRUST BANK BY
ORIENTAL BANK OF COMMERCE
Background GTB was a private bank promoted by Ramesh Gelli in the early
90’s
GTB was aggressive in its banking style.It lent large sums to stock market players.
Its failure was due to result of unavailability of excellent risk control system which lead to huge pile of bad debts.
There were large quantum of non-performing assets.
Attempt to build a capital base from foreign investment failed.
Nexus with Ketan Parekh, who was involved in one of the biggest stocks scandals in India.
After merger the only problem faced by OBC was difference between the pay structure of two banks
The Amalgamation
Global Trust Bank Ltd has been amalgamated with the Oriental Bank of Commerce. The merger took place on 14th August, 2004.
All the branches of Global Trust Bank Ltd. function as branches of Oriental Bank of Commerce with effect from this date.
Shareholders of GTB
In accordance with the Scheme of Amalgamation if any surplus remains after meeting all the liabilities out of the realization of assets of the Global Trust Bank Ltd., the shareholders may receive pro-rata payment.
The OBC would get Income Tax
exemptions in transferring the assets of GTB in its book during the merger process
Advantage OBC
The OBC bank took all the assets and liabilities of GTB, along with its 104 branches, 275 ATMs and a workforce of over 1400 employees.
According to the merger deal, The entire amount of paid-up equity capital of GTB was adjusted towards its liabilities. There was no share swap between GTB and OBC.
OBC benefited hugely, as its network and customer base expanded. It also earned tax benefits due to GTB’s large amount of investment in non-performing assets (NPAs) estimated Rs 1.2 bn and impaired assets of Rs. 3 bn.
The savings for OBC were estimated at nearly 40 per cent of GTB’s current liabilities.
The deal was equally beneficial for GTB depositors, as they could now enjoy the trust of a public sector bank.
The Downfall
In mid-2000, GTB disbursed loans of Rs 1.4 billion to Ketan Parekh who made huge profits after investing in stock markets.
Stock price rose from Rs 65/ share to Rs 114/ share due to high trading.
GTB has given 17 billion rupees worth of loans to stock brokers against shares as security.
The Downfall
As of August 13, 2004, GTB had Rs 1316.70 crores of gross NPAs and had net NPAs as a percentage of its net advances of 27.78%.
RBI declared bank’s networth has
turned negative in march 2002,but in June 2002, it gave a clean chit on GTB’s liquidity, though 9.23% of its net advances were bad debt.
Pricing
Mar 2003 Mar 2002 Mar 2000
Net NPAs 647.66 279.79 153.82
% of Net NPAs/Net Advances
19.77% 9.23% 3.75%
CAR 0 11.21% 12.71%
2004 2003
EPS -66.94 -22.47
Valuation
DCF Value of GTB before merger =Discounted cash flow for projected 10
years + Continuing Value = -9049.9DCF value of Oriental Bank of
Commerce before Merger = 43119.27
DCF Value of Oriental Bank of Commerce after merger =75040.5
Total Value of GTB & Oriental Bank of commerce before Merger is -9049.9+ 43119.27 =34069.38
Value After Merger = 75040.5Value added = 75040.5 – 34069.38=
40971.12
Aftermath
The depositors were permitted to withdraw only up to Rs. 10,000 from their savings bank account or current account or any other deposit account through any of the branches of the Bank.
There was no share swap between GTB and OBC, which meant that GTB shareholders were the ultimate losers, as they did not get any shares of OBC.
RANBAXY LABORATORIES – DAIICHI SANKYO DEAL
COMPANY PROFILE
Incorporated in 1961.
Ranked amongst the top 10 generic companies in the world.
Ground operations in 49 countries and manufacturing operations in 11 countries.
Exports contribute to around 80% of total revenues.
Aspires to become a research based pharmaceutical company in revenues of $5 bn by 2012.
COMPANY PROFILE…
SHAREHOLDING BEFORE DEAL
Category Share Holding
Promoters 54.8%
Domestic Institutions
33.2%
FII’s 12%
SHAREHOLDING AFTER DEAL
Category Share Holding
Daiichi Sankyo 57%
Rest 43%
DRIVING FACTORS FOR THE DEAL Enhancing the product line by:
Increasing its global presence Widening its market reach Enhancing the product portfolio Gaining access to new customers
Establishing its presence in a new domain in the pharmaceutical value chain.
Increasing efficiencies through leveraging economies of scale.
Gaining access to new proprietary technology
SNAPSHOT OF THE DEAL
Daiichi Sankyo will acquire the majority of the capital at a price of Rs.737 per share with total transaction value estimated at $4.6 billion.
Ranbaxy valued at $8.5 billion on the post closing basis of the transaction.
Equity stake in Ranbaxy to be acquired by a combination of: Purchase of shares held by Promoters. Preferential allotment of equity shares. Open offer to public shareholders. Exercise of a portion of share warrants issued on a
preferential basis at Rs. 737 per share if necessary.
SNAPSHOT OF THE DEAL…
Acquisition to be completed by the end of March 2009.
Deal financing through a mix of debt and existing cash resources of Daiichi Sankyo.
The purchase price of Rs. 737 represents a premium of 53.5% to Ranbaxy’s average daily closing price on the National Stock Exchange for the three months ending on June 10, 2008 .
QUANTITATIVE ANALYSIS
Year 2008 2009 2010E
Net Sales 82900 93700 105000
Sales Growth % 0.1170 0.13 0.12
EBIT 17400 22600 29100EPS 19.33 14.34 32.04
ROA 8.0 8.2 9.7
ROE 17.8 11.4 10.7
DPS 10.00 10.03 10.19
Div Yield 2.2 2.2 2.2
EV/EBITDA 23.4 18.7 15.3
DCF VALUATION – COST OF CAPITAL Ranbaxy post deal is debt-free
Since there is no debt after the deal, cost of equity would be equal to the overall cost of capital
Therefore, Ko = 11.2%
CAPM MODEL
Risk Free Rate (Rf) 7.3%
Equity Risk Premium (Rm-Rf)
6.5%
Beta .6
Cost Of Equity (Ke) Rf + Beta*(Rm-Rf)
Ke 11.2%
DCF VALUATION – ASSUMPTIONS
FROM THE Yr 2008-2017
Tax 20 %
Working Capital expenditure 22 % of Net Sales
Capex 6 % of Net Sales
Cash Flow From Operations 9 % of Net Sales
Growth in Net Sales 11-13 %
EBITDA Margin 16-19 %
Growth in FCF 4 % till perpetuity
THANK
YOU