Professional Documents
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Sankyo
Singh is selling his 34.8% stake for around Rs. 10,000 crore ($2.4 billion) at
Rs. 737 ($17) per share. Daiichi Sankyo will pick up another 9.4% through a
preferential allotment. According to Securities & Exchange Board of India
(Sebi) norms, it will have a make an open offer to the shareholders of
Ranbaxy for another 20%. There could also be a preferential issue of
warrants to take the Daiichi Sankyo stake up by another 4.9%. That will
come into play if the ordinary shareholders don't respond to the open offer
and Daiichi Sankyo needs another way to raise its stake to 51%.
What will Singh be doing with his $2.4 billion? He says that major
investments are needed in Religare and Fortis, the group's forays into
financial services and hospitals. But both are really part of the herd in their
sectors while Ranbaxy was number one.
Ranbaxy, with $1.6 billion in global sales in 2007, had a profit after tax of
$190 million, a gain of 67% over the previous year. It has a footprint in 49
countries and manufacturing facilities in 11. It has 12,000 employees,
including 1,200 scientists and has been pouring money into R&D, though
obviously not on the same scale as the Western majors. Ranbaxy is among
the top 10 global generic companies. Its stated vision has been to be among
the top five global generic players and to achieve global sales of $5 billion
by 2012. How much of that survives the Daiichi Sankyo regime remains to
be seen.
Indeed, there is a question over whether Singh himself will survive. He said
that Ranbaxy is in his genes and there is no question he will remain CEO
and, now, chairman. But will he be able to make the transition from a
promoter to a professional CEO? He may have delivered Ranbaxy to Daiichi
Sankyo, but now he has to deliver the goods.
Daiichi Sankyo is the product of a 2005 merger between Sankyo and Daiichi.
In the financial year ended March 2008, it had net sales of $8.2 billion and a
profit after tax of $915 million. It has a presence in 21 countries and
employs 18,000 people. It is the second largest pharmaceutical company in
Japan. The company can trace its roots back to 1899, though the formal
entity today is relatively new. Daiichi Sankyo makes prescription drugs,
diagnostics, radiopharmaceuticals and over-the-counter drugs.
The combined company will be worth about $30 billion. The acquisition will
help Daiichi Sankyo to jump from number 22 in the global pharmaceutical
sector to number 15. "The deal will complement our strong presence in
innovation with a new, strong presence in the fast-growing business of non-
proprietary pharmaceuticals," according to Shoda.
The combination has other benefits for the Japanese company. It gets a
stake in a major player in generics, an area that is becoming increasingly
important in Japan. According to the 2008 Japanese Pharmaceuticals &
Healthcare Report (2nd quarter), the country's pharmaceutical market is
currently valued at $74.4 billion and is the most mature in the Asia-Pacific
region. By 2012, the market will grow to $82 billion. The country's generics
sector is one of the most promising. "In an effort to control ballooning
healthcare costs, the ministry of health plans to raise the volume share of
generics within the total prescription market to at least 30% by 2012," says
the report. "The current value of the sector is $5.5 billion, which equates to
7.3% of total medicines sales. Changes to prescribing procedures and the
influx of foreign firms with low-cost goods will provide a stimulus to the
generic drug sector." The comparative figures of volume share of generics
for the U.S. and the UK are 13% and 26%, so there is some way to go.
The answer may be in the fact that that Ranbaxy was on a much
weaker wicket. The official version talks of synergies. Says a joint
company statement: "Daiichi Sankyo and Ranbaxy believe this
transaction will create significant long-term value for all stakeholders
through:
Post-acquisition Objectives
Conclusion
The Deal
In August 2005, German adidas-Salomon AG announced plans to acquire
Reebok at an estimated value of € 3.1 billion ($3.78 billion). At the time,
Adidas had a market capitalization of about $8.4 billion, and reported net
income of $423 million a year earlier on sales of $8.1 billion. Reebok
reported net income of $209 million on sales of about $4 billion. While
analysts opined that the merger made sense, the purpose of the merger
was very clear. Both companies competed for No. 2 and No. 3 positions
following Nike (NKE).
Why Merger?
Nike was the leader in U.S. and had made giant strides in Europe even
surpassing Adidas in the soccer shoe segment for the first time. According
to 2004 figures by the Sporting Goods Manufacturers Association
International, Nike had about 36%, Adidas 8.9% and Reebok 12.2% market
share in the athletic-footwear market in the U.S. Adidas was the No. 2
sporting goods manufacturer globally, but it struggled in the U.S. – the
world’s biggest athletic-shoe market with half the $33 billion spent globally
each year on athletic shoes. Adidas was perceived to have good quality
products that offered comfort whereas Reebok was seen as a stylish or hip
brand. Nike had both and was a favorite brand because of its fashion status,
colors, and combinations. Adidas focused on sport and Reebok on lifestyle.
Clearly the chances of competing against Nike were far better together than
separately. Besides Adidas was facing stiff competition from Puma, the No.
4 sporting-goods brand. Puma had then recently disclosed expansion plans
through acquisitions and entry into new sportswear categories. For a
successful merger, the challenge was to integrate Adidas’s German culture
of control, engineering, and production and Reebok’s U.S. marketing- driven
culture.
The ADDYY and RBK Merger – Impossible is Nothing
On January 31, 2006, adidas closed its acquisition of Reebok International
Ltd. The combination provided the new adidas Group with a footprint of
around €9.5 billion ($11.8 billion) in the global athletic footwear, apparel
and hardware markets.
Hainer also said, “The brands will be kept separate because each brand has
a lot of value and it would be stupid to bring them together. The companies
would continue selling products under respective brand names and labels.”
The Reebok acquisition was seen as a key factor in growing the Adidas
brand in developing and fashion-oriented markets of Asia like China, Korea,
and Malaysia. Moreover, Reebok already had marketing tie-ups in China
(with Yao Ming) and Adidas did not have to cover all China segments
Conclusion
Year-end order backlog represents firm future revenues from contracts
signed up to that date. Order backlog is a key indicator of future sales for
retailers and Reebok’s lower order backlog remains the key question mark.
Order backlog of brand Adidas was excellent up 17 percent which can be
partly attributed to the Euro 2008 soccer championship and Beijing
Olympics this year. However, Reebok’s order backlog was down 8 percent
(down 20 percent in North America). Nike reported worldwide futures orders
for athletic footwear and apparel (scheduled for delivery from December
2007 through April 2008) totaling $6.5 billion, 13 percent higher than such
orders reported for the same period last year.
Air Deccan, the airline was previously operated by Deccan Aviation. It was
started by Captain G. R. Gopinath and its first flight took off on 23 August
2003 from Hyderabad to Vijaywada. It was known popularly as the common
man's airline, with is logo showing two palms joined together to signify a
bird flying. The tagline of the airline was "Simpli-fly," signifying that it was
now possible for the common man to fly. The dream of Captain Gopinath
was to enable "every Indian to fly at least once in his lifetime." Air Deccan
was the first airline in India to fly to second tier cities
like Hubballi, Mangalore, Madurai and Visakhapatnam from metropolitan
areas like Bangalore and Chennai.
Kingfisher Profile
Merger
Air Deccan airlines merged with Kingfisher Airlines and decided to operate
as a single entity from April, 2008. It would be known by a different name-
Kingfisher Aviation. The merger is based on recommendations of Accenture,
the global consulting firm. KPMG was asked to do the valuation and the
swap ratio was decided accordingly. The merger came through on as Vijay
Mallya from Kingfisher airlines bought 26% of the stake in Air Deccan. The
unification of the two carriers had to be sanctioned not only by the two
panels, but also by the institutional investors, independent directors, and
other shareholders. Air Deccan had four independent directors-which
included prominent persons like IIM Prof Thiru Naraya, Tennis player Vijay
Amritraj, and A K Ganguly, Former MD Nabisco Malaysia.
The charter service of the respective airlines would be hived off and operate
as a separate entity. Post merger, KingFisher would operate as a single
largest (private) airline in the sub-continent. Besides, operational synergies
(engineering, inventory management and ground handling services,
maintenance and overhaul), the management and staff of both the airlines
would be integrated. They would be stronger vis-a vis lessors, aircraft
manufacturers (Airbus in this case), and will also spend less on training and
employees.Costs would also reduce which is associated with maintenance of
aircraft. The savings in cost would be lower by about 4-5% (Rs 300 crores)
(Business Standard, June 3, 2007, 4) which is a large sum. It would result in
a saving of 3 billion in the first year itself through the sharing of aircraft and
workers. (Business Standard, June 13, 2007, p-13.)
Further, by devising a more optimal routing strategy it could help in
rationalizing the fares. Before the merger Air Deccan recorded a net loss of
Rs 213.17 crores on revenue of Rs437.82 crores for 2006-07. The company
had also raised Rs 400 crores through an IPO inMay 2006.
The merger will create a more competitive business in scale and scope to
emerge as market leader.
Air Deccan began its operations with one aircraft and with one flight but
after the alignment with Kingfisher Airlines, has a total fleet of seventy one
aircrafts-41 Airbus and 30 ATR aircraft (Business Standard, June 7, 2007, p-
8). It operates 537 flights (Business Standard, June 3, 2007, p-4) and covers
70 destinations. It offers point to point service. I
After the merger, it is expected that Kingfisher will focus more on the
international routes while Air Deccan will give it a wider domestic reach.
Also Air Deccan plans to continue as a low cost carrier while Kingfisher will
function as a full-service carrier. There will be immense synergies as both
operate Airbus. The average age of the Air Deccan fleet is 6.1 years as of
Apr 2006.* Air Deccan operates a fleet of 43 aircraft comprising 20 brand
new Airbus A320 aircraft and 23 ATR aircraft. The Airbus aircraft serve
metro routes while ATR are utilized for Tier II and III cites and also for small
airports. The newly formed company plans to revisit their fleet plan in
coordination with each other to rationalize the fleet structure. Working on
these lines the company has already placed orders from the European
aircraft major, Airbus Industries for about 90 aircrafts. These
include five of the largest aircraft-A380, the first of which is slated to be
delivered to Kingfisher by 2011.
Conclusion
It’s a capital intensive industry, With few scale efficiencies, Within a partly
regulated infrastructure, Free market entry Price competency This was the
right decision to merge for achieving all of the above objectives.