PGDM 2016-18

Merger & Acquisitions

Strategic Management II

Submitted By:
Group V
1. Anand Kamal Roy
2. Anirban Mandal
3. Aruna Karmakar
4. Priyanka Das
5. Risha Bagchi
6. Saikat Roy
7. Somi Singh
Acknowledgement:
We would like to express our special thanks of gratitude to our Prof. Supriti Mishra, who gave us
the golden opportunity to do this wonderful project on the topic Merger & Acquisitions, which
also helped us in doing a lot of Research and we came to know about so many new things about the
merger and acquisitions that took place between companies around the world, for which we are
thankful to her.

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 CONTENTS

Chapter Title Page

Acknowledgement 2

Chapter 1 Introduction 4

Chapter 2 Merger & Acquisitions of Different Companies 5

2.1 Adidas & Reebok 5

2.2 Quaker Oats & Snapple 11
2.3 L’oreal & Body Shop 14
2.4 Luxotica & Essilor 16
2.5 Glaxo Wellcome & Smith Kline Beecham 19
2.6 TATA & JLR 22
2.7 Ranbax & Sun Pharma 29
Chapter 3 Reference 37

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Introduction
Mergers and acquisitions (M&A) are defined as consolidation of companies. Differentiating the two
terms, Mergers is the combination of two companies to form one, while Acquisitions is one
company taken over by the other. M&A is one of the major aspects of corporate finance world. The
reasoning behind M&A generally given is that two separate companies together create more value
compared to being on an individual stand. With the objective of wealth maximization, companies
keep evaluating different opportunities through the route of merger or acquisition.

Reason for Merger & Acquisitions:

 Financial synergy for lower cost of capital

 Improving company's performance and accelerate growth

 Economies of scale

 Diversification for higher growth products or markets

 To increase market share and positioning giving broader market access

 Strategic realignment and technological change

 Tax considerations

 Undervalued target

 Diversification of risk

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Adidas & Reebok Acquisitions:
About Adidas

Salomon AG Based in Herzogenaurach, Germany, Adidas-Salomon is the second largest sporting

goods company in the world with its core brands Adidas and TaylorMade–Adidas Golf. Excluding
the Salomon business segment, which is planned for divestiture at the end of September, the Adidas
Group had 14,217 employees and reached sales of €5.9 billion in 2004. The Group’s net income
attributable to shareholders from continuing and discontinued operations reached €314 million in
2004.

About Reebok International Ltd.

Reebok International Ltd. (NYSE: RBK), headquartered in Canton, MA, is a leading worldwide
designer, marketer and distributor of sports, fitness and casual footwear, apparel and equipment
under the Reebok, Rockport, CCM, Jofa, Koho and Greg Norman brands. Sales for 2004 totaled
approximately $3.8 billion. Reebok can be accessed on the World Wide Web at www.reebok.com.

The merger:

The combination of Adidas and Reebok accelerates the Adidas Group’s strategic intent in the global
athletic footwear, apparel and hardware markets. The new Group will benefit from a more
competitive platform worldwide, well-defined and complementary brand identities, a wider range of
products, and an even stronger presence across teams, athletes, events and leagues. The new Adidas
Group has pro forma aggregate 2004 revenues of €8.9 billion (U.S. $11.1 billion).

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Reasons for merger

The reasons resulting into the merger were:

COMPETITIVE ADVANTAGE: the growing threat of Nike dominating the market was the biggest
reason of the merger.

CORE COMPETENCIES: Both the companies had their own core competencies and combining
them together resulted into:

1. Adidas technology with Reebok design

2. Adidas sports with Reebok women's market

3. Adidas shoes with Reebok apparel

4. Adidas global strength & Reebok US strength

Rule the market: the decision was taken in terms of a long term planning to rule the market in
future.

Strategic Benefits:

Strategic and Financial Benefits of the Transaction Adidas believes that the complementary nature
of the two businesses in various geographies, products and consumer segments provides a
significant opportunity for increased value creation. The combination will enable the Group to
generate substantial cost savings as well as incremental revenue and profits from more complete
coverage of all consumer segments. Given the solid management teams at both companies, Adidas
expects to realize the benefits of this transaction quickly and efficiently following the transaction’s
close.

Strategy:

• Extended geographic reach and more balanced sales profile. Reebok complements Adidas’s
international profile and enhances Adidas’s strong position in North America. North America
represents approximately 50% of the global sporting goods market, and with Reebok, the Adidas
Group’s North American sales will more than double to €3.1 billion (U.S. $3.9 billion). In Europe
and Asia, Adidas enjoys stronger brand recognition, and has significant marketing expertise and
insights. Adidas expects to use this expertise to further develop Reebok’s global presence.

• World-class and talented employees. Both Adidas-Salomon and Reebok bring an exceptional team
of talented and experienced employees to the new group. As a result of this transaction, Group
employees will have even more exciting job opportunities.

• Broader portfolio of world-renowned brands. The combined entity will have a more complete
portfolio of brands that caters to a global consumer base. The portfolio will be anchored by two
brands with well-defined identities – Adidas, a leader in sports performance with a European
heritage, and Reebok, an American leader in sports and lifestyle products. With its broad portfolio

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of brands, including Adidas, Reebok, TaylorMade, Rockport, Greg Norman Collection, MAXFLI,
CCM, Jofa and Koho, the Adidas Group will be able to offer footwear, apparel and hardware
products based on cutting-edge technology, trend-setting street wear and classic design.

• A more complete product offering in key sports categories. The new Adidas Group will have a
stronger presence in American sports and a complete product offering that addresses key sports
categories, including soccer, basketball, running, American football, hockey, tennis, training,
outdoor and golf.

• Stronger presence across teams, athletes, events and leagues. Adidas expects that the combined
Group’s strong presence across teams, athletes, events and leagues will enable it to substantially
increase the worldwide visibility of its brands. The Group’s endorsement contracts will include
many of the world’s elite teams, such as Real Madrid, Milan AC, Bayern Munich and Liverpool
FC, and athletes, such as David Beckham, Tracy McGrady, Yao Ming and Allen Iverson, as well as
high-profile global events, such as the 2006 FIFA World CupTM and the Beijing 2008 Olympics.
The Group will also have licensing relationships with the UEFA Champions LeagueTM, more than
twenty National Olympic Committees and five premier sporting leagues – the NFL, NBA, NHL,
MLB and MLS.

• Enhanced R&D capabilities and cutting-edge technology. Adidas is an award winning technology
leader in the industry with the Adidas innovation team having developed cutting-edge technologies,
such as Adidas_1, the first “intelligent running shoe,” ClimaCool TM and a3®. Reebok also has a
very talented group of experienced research and development professionals who have developed a
distinguished portfolio of breakthrough product innovations, including the Pump 2.0 and DMX. By
harnessing both companies’ R&D expertise, the new Adidas Group expects to accelerate new
product introductions in footwear, apparel and hardware to help drive increased brand awareness
and consumer demand across all brands.

Financial:

• Accretive to earnings. Adidas expects the transaction to be accretive to the Group’s earnings per
share in the first full year after closing. information - 4

- • Return in excess of cost of capital. The transaction is expected to generate a return in excess of
cost of capital in the third full year after closing.

• Strong operating cash flow. With aggregate 2004 pro forma cash flow of approximately €671
million (U.S. $835 million), Adidas expects the combined Group’s financial strength to enable it to
reduce debt and continue funding the Group’s established growth initiatives.

• Substantial operational synergies. Adidas expects to achieve approximately €125 million (U.S.
$150 million) of annual cost savings by the third year after closing. In addition, the Group expects
incremental revenue and profits from more complete coverage of all consumer segments.

Barriers:

Rule the market: the decision was taken in terms of a long term planning to rule the market in
future.

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BARRIER TO ENTRY: Adidas and reebok together will be able to control the market through their
effective prices and offers and will be able to control competition by restricting new entry into the
market
BARGAINING POWER OF BUYERS: there are much more buyer than the relative industry due to
which companies like Adidas keep on changing their product in comparison to the competitor in
order to increase sales and brand name really matters in the buying behavior of customers. (Team
Technology, 1995)

Change (post merger):

Both the companies got merged on 31st Jan 2006:
The combo of both the companies provided Adidas with $11.8 billion in the global market. Both
the brands are the top most brands hence a merger like this will provide them with a better
reputation and more scope in the global market with a stronger existence, more variety and range of
products will be available under the same company making the profit more than twice.
Inspite of the merger the products will be sold under their own brand name because both the brands
stand great value

SWOT Analysis:

Adidas-Reebok SWOT Analysis (After the merger)

Strengths

* Variety of products according to the customers

* Product line increase.
* Slope in the market share.
* Both segments of the market in terms of price are concealed.
* Shared R&D, Patents, technology & innovations

Weaknesses

* Different values of both the managements

* Difficulties of the combining of two corporate cultures
* both the companies are from a different part of the world

Opportunities

* Cost Reduction
* Less Competition
* Cross-over promotion by sponsored athletes
* Entry in new market/Segments

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Threats

* Nike.
* Expected industry growth rate of 9%

Resistance to change:

Different culture: both the companies had their own culture and environment of work absolutely
different from each other which created a lot of problem for the employees to work and took time to
adapt
Different countries:Adidas and reebok both are from different countries due to which their rules,
laws and traditions.
Management change: as Adidas acquired reebok the management of reebok changed which took
some time for them to accept and work with, the employees all were even tensed due to the fear of
cutting down of man power
But as both the companies are mega brand in itself finally it was decided that both the companies
will be selling their products under their own brands as they have very high values and hence both
the companies have different headquarters and sales team to work for the company.

Post Merger:
Adidas went through the merger which resulted into not only the rival in your team but also a much
firmer presence in US.
Adidas is trying its best to make the merger a great success and the company has closed their
factories in Indonesia in order broaden its value in the market with reebok, Adidas is giving way to
reebok to grow further on the track although it's going to take time but still they have to keep on
moving on the right direction.
The company is working on its sales and marketing strategy; it is decreasing its reliability on small
shopping mall based outlet but placing it on department stores and larger sporting good ventures.
Adidas has also started to take the help of famous actors and actresses for the launch of its products.
(Prasad, 2005).
Creating customer value satisfaction:
Nike now spills in comparison to Adidas-Reebok in terms of value as; consumers like to go for
Adidas-Reebok compared to Nike as they find that they get the value for the money spent and
Adidas-Reebok have a considerably higher customer loyalty score than Nike . (Lefton, 2009)
customer relationship management:
Excellence of product performance:

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The company provides the customer with the website support where they can find their product and
can get all possible information about the product
Excellence of price performance:
Adidas-Reebok has provided the consumers with discounts and offers on the specific product or
promotional product in their website.
Excellence of transaction:
Making transactions in order to buy products is quite easy for the customers to understand, Adidas-
Reebok provide their consumers with product tracking and account managing so that they can easily
track their orders.
Excellence relationship:
Adidas-Reebok is very good in maintaining customer relation by giving them services like
subscribing newsletter , consumers can contact Adidas-Reebok easily and if they don't find the
product satisfactory then they can get the refund whose process is mentioned in the website.
(Balboul, 2010).

Conclusion:

Adidas Reebok merger no doubt was a great success and both the big brands combining together are
doing great in order to capture the market share and prove themselves to be the leader of the
sportswear market but still there is a tough competition to them from Nike which is the best in the
same field.
The strategy behind the merger was to gain a competitive advantage by combining world's 2 best
companies in sportswear in order to rule the market and stop the continuous growth of Nike.

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Quaker Oats’ Acquisition of Snapple

Quaker Oats successfully managed the widely popular Gatorade drink and thought it could do the
same with Snapple. In 1994, despite warnings from Wall Street that the company was paying $1
billion too much, the company acquired Snapple for a purchase price of $1.7 billion. In addition to
overpaying, management broke a fundamental law in mergers and acquisitions: make sure you
know how to run the company and bring specific value-added skills sets and expertise to the
operation. In just 27 months, Quaker Oats sold Snapple to a holding company for a mere $300
million, or a loss of $1.6 million for each day that the company owned Snapple. By the time the
divestiture took place, Snapple had revenues of approximately $500 million, down from $700
million at the time that the acquisition took place.

Quaker Oats' management thought it could leverage its relationships with supermarkets and large
retailers; however, about half of Snapple's sales came from smaller channels, such as convenience
stores, gas stations and related independent distributors. The acquiring management also fumbled
on Snapple's advertising campaign, and the differing cultures translated into a disastrous marketing
campaign for Snapple that was championed by managers not attuned to its branding sensitivities.
Snapple's previously popular advertisements became diluted with inappropriate marketing signals to
customers. While these challenges befuddled Quaker Oats, gargantuan rivals Coca-Cola
(NYSE:KO) and PepsiCo (NYSE:PEP) launched a barrage of competing new products that ate
away at Snapple's positioning in the beverage market.

Quaker Oats:

The Quaker Oats Company has been heavily diversified almost from the beginning. Founded in
1891, it's one of the oldest food companies in North America, and while it was initially confined to
the cereal market, it soon acquired holdings in grocery, pet food, and toy companies, and later
diversified into optical wear and clothing. In 1983 the Quaker Oats Company purchased the
Gatorade brand (along with several others), a move put the company firmly at the head of the sports
drink market, where it still remains, with 75% of the North America market share.

Snapple:

Snapple began in 1972 as Unadulterated Food Products, Incorporated, which produced and
distributed a range of juices and other beverages to New York City health food stores. It then
entered the iced tea market with a ready-to-drink product that helped it to capture a large share of
that market. In 1992 the company was bought, renamed Snapple, and taken public, and thanks in
part to a savvy advertising campaign, along with the company's extensive network of independent
manufacturers, packers, and distributors, it was the fastest-growing beverage company of the early
1990s. However, by the end of 1994 the iced tea market was cooling, and competition from other
brands, such as Nestea (distributed by The Coca-Cola Company) and Lipton (distributed by
PepsiCo), was making inroads into Snapple's market share.

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Expected Synergies from the Acquisition:

Distribution Synergy: Gatorade, positioned as a mass product, and was sold through supermarkets
and convenience stores. Snapple products were sold largely through independent retailers, vending
locations and restaurants. Quaker Oats expected to utilize each of these distributi
distribution channels to
bolster the sales of the other product.

Learning curve effects: With the sales of Gatorade rising from $122 million in 1984 to about
$1.20 billion in 1994(22% compound annual growth rate). Quaker Oats felt that it could use
economies of scopee from its Gatorade to boost sales for Snapple.

Common Activities:: The Quaker Oat Management believed that there were significant synergies to
be achieved in common such as R&D, manufacturing and marketing.

Geographic expansion:: Snapple Generated only 1% of its sales outside North America, while over
31% of Quaker Oats’ sales came from its foreign operations. This provided a strong platform for
Quaker oats to offer Snapple products to a wider customer base.

What went wrong?

No single issue led directly to the problems that Quaker Oats found itself in upon purchasing
Snapple. Rather it was a collection of problems, each compounding the others, that led to disaster.
This situation is often referred to as 'the perfect storm' and it happens fairly regularly in business.
Quaker Oats had hoped to leverage Snapple's distribution system to gain more shelf space for its
Gatorade products, but it had fundamentally misunderstood how that distribution system operated,
and was unable to realize
alize those gains. In addition inventory problems forced Quaker Oats to dump a
large number of outdated Snapple cans and ingredients, as well as discontinued flavors. Because of
these operational issues, Quaker Oats failed to launch a new marketing campaigcampaign until nearly 18
months after purchasing Snapple. By then intensified competition made it impossible to regain the
market share that was lost. In 1995, Snapple posted a 5% decline in sales. The Quaker Oats
Company overpaid by up to $1 billion, according tto o Wall Street estimates, on the basis of what
Quaker believed was Snapple's growth potential. However, it's clear that Quaker significantly
overestimated that growth potential. In 1997, the Quaker Oats Company sold Snapple to Triac for
$300 million, $1.4 billion
illion less than it had paid for it just three years earlier. Various Wall Street

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advisers had warned Quaker Oats at the time of the takeover that they were overpaying for the
company, but it is clear that they were overconfident in the perceived synergies on offer. Poor
planning also meant that the acquired company immediately lost market share due to operational
problems and it was unable to regain it as competitors had forged ahead while they reacted. Three
years later, in 2000, Quaker itself was acquired by PepsiCo for $13.4 billion in stock. PepsiCo then
became the market leader in the sports drink market and it was said that they were more interested
in Gatorade than Quaker Oats, the cereal on which the company was originally founded. Now, in
2015, Quaker Oats is still owned by PepsiCo but rather than being a megabrand buying and selling
other brands it's just what it says on the box - a breakfast cereal.

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L’Oréal’s Acquisition of Body Shop
In its Q4 2016 earnings call, Loreal admitted to exploring options to sell off its ownership of The
Body Shop. The persistent weak performance of the Sussex-based beauty retailer, which is known
for its natural and fair-trade ingredients, led L’Oréal to this decision.

The Body Shop’s acquisition by L’Oréal

The Body Shop has been referred to as the second largest cosmetics brand across the globe. The
enterprise is headquartered in West Sussex (England). The organization was originated in the year
1976 by Ms. Anita Roddick. The organization was engaged in production of various vegetables
goods such as Foot Lotion, Body Butter etc. It was known for its ethical products, exotic
ingredients, environment friendly practices and social activism. In 2006 L’Oréal acquired the
company for GBP 652m. Though Roddick faced criticisms at that time for selling the company to
the corporate beauty giant, she ensured that The Body Shop would continue following its principles
and ethics, as this was also mentioned under the terms of L’Oréal’s takeover. However, Roddick
passed away in 2007 and industry experts felt that there wasn’t much common ground between The
Body Shop and L’Oréal other brands.

Present scenario

Presently in over 3000 stores across 66 countries, The Body Shop’s sales fell by 5% to GBP 921
million in 2016, while its operating profit declined by 38% during the same period to 33.8 million.
The division’s operating margin fell below 4% in 2016, while that of Loreal’s main consumer
business stood at 20%. Loreal is aiming to sell the brand as a possible value of 1 billion.

The failure of the acquisition

The Body Shop’s credibility and reputation derives essentially from its values against animal
testing, protect the planet, support community trade, defend human rights and activate self-esteem.
This acquisition received many criticisms at the time, due essentially to difference of values.

Although L’Oréal had stated they had stopped testing on animals, several articles have claimed that
these practices remain, which was going against one of The Body Shop’s core values. Although the
potential growth opportunities were easily visible, there was a concern regarding the possibility of
The Body Shop losing their main competitive advantage: their strong ethical standards. However,
the core The Body Shop team claimed that they “won't change The Body Shop's core values”, since
The Body Shop would continue to operate independently. Instead, they claimed that L’Oréal was
going to be the one transformed and influenced by their practices and values. At that time, there was
a concern that consumers would switch for other natural and organic personal care products for
ethical reasons. Although this acquisition was supposed to also allow L’Oréal to learn from The
Body Shop about CSR, there is not much evidence about their behavior changing. Some loyal
consumers boycotted Body Shop’s products believing that The Body Shop has deserted its values
by agreeing to being taken over by L’Oréal. Hence the Body Shop core team needs to devise on a
strategy to maintain its core values, make their customers believe that they are still maintaining the
core values, not letting the acquisition hamper The Body Shop’s ‘nature caring’ image and maintain
the existing customers and acquire new customers with their original values and mission even after

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the acquisition.The Body Shop is currently facing competition from ethical brands such as Dr.
Hauschks, Chantecailleetc.

Conclusion

Loreal is planning to sell The Body Shop in a GBP 877 million deal to Brazilian cosmetics
company Natura which owns the Aseop brand.

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Luxottica and Essilor Merger
On January 16, 2017, Italy-based eyewear leader Luxottica SpA and French lensmaker Essilor
International SA announced one of the largest cross-border mergers ever in Europe. The combined
company, which should have an estimated market value of about €47bn (pre-synergies), will be a
global leader in the €90bn fast-growing eyewear industry.

About Luxottica Group SpA

Luxottica is the world’s largest eyewear company. Founded in 1961 by Leonardo Del Vecchio, who
to this date is CEO and Executive Chairman, it is headquartered in Milan, Italy and over the years
has expanded its presence to more than 150 countries across 5 continents. The company is currently
listed in Milan and New York. As a vertically integrated business, the company designs,
manufactures, distributes and retails its products. Its portfolio includes both proprietary brands,
among which Ray-Ban, Persol and Oakley, as well as licensed brands, including Giorgio Armani,
Bulgari and Valentino. Luxottica’s strategy so far has consisted of a continued expansion in the
eyewear and eye care sector either organically or through acquisitions, 10 of which took place over
the past 6 years. This approach has proven to deliver consistently positive results: FY2015 net sales
of €9bn show a 5-year CAGR of 11% and FY2015 net income of €804m is more than double net
income recorded in 2010. Moreover, over the same time span the company has seen a remarkable
reduction in leverage, measured as Net Debt to EBITDA, which has dropped from 1.8x to 0.5x. The
company will report annual results for 2016 on March 1, although 2016 adjusted 9-month net sales
of €6.94bn are in line with the prior year figure (€6.95bn). Mr. Del Vecchio, through his holding
company Delfin, is the major shareholder with a 61.9% stake. Other big owners are Giorgio Armani
(4.7%) and Deutsche Bank Trust Company Americas (5.49%).

About Essilor International SA

Essilor is a French company founded in 1849 and listed in the Euronext Paris. The group’s
historical activity has been producing corrective (ophthalmic) lenses of which it is, as of today, the
world’s largest manufacturer. More recently, it is has also expanded its operations in the sun and
reading glasses businesses as well as in the production of ophthalmic instruments and equipment.
With as many as 250 acquisitions completed in 10 years, the company has been growing quickly,
and profitability has been consistently improving. Revenues and net income have both tripled since
2004, reaching respectively €7bn and €757m in 2015. Essilor will post 2016 full-year results on
February 17, and has reported 2016 9-month net sales of €5.31bn, up 5.5% from the prior year
figure (€5.03bn). Essilor had been included in Forbes’ ranking of the World’s 100 most innovative
companies. It currently holds 7900 patents and operates 5 R&D centers, in which it has invested
more than €200m just in 2015. In that same year, the company has launched more than 250 new
products.

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Industry Overview

The eyewear industry is heavily dominated by the two players in question: about 70% of all glasses
sold are from Luxottica, and Essilor commands a similar presence in the lenses industry. There are
currently many different smaller players in the industry, such as niche, luxury companies like Gucci
(owned by the France-based holding company Kering), or innovative start-ups like the US-based
Warby Parker. Other than these, other main players in the industry include Italy-based Safilo Group
S.p.A., US-based multinational Johnson & Johnson, and a host of smaller players such as Germany-
based manufacturer of optical systems Carl Zeiss AG. According to data compiled by Essilor,
approximately 4.5bn people are in need of vision correction and over half of them still require
correction, especially among developing countries (Asia, Africa, and Latin America). Furthermore,
Euromonitor reports that the industry is set to enjoy a sustainable growth rate of 2.5% until the end
of the decade. Although the largest players reach high levels of vertical integration, there are many
up-and-comers working to disrupt the supply chains of Luxottica and Essilor, either through selling
goods directly to customers, or by means of bypassing traditional distribution networks through a
range of e-commerce solutions. Moreover, the industry exhibits a remarkable consolidation trend,
best exemplified by the long history of acquisitions perpetrated by Luxottica’s iconic founder
Leonardo Del Vecchio, as well as by Essilor’s recent acquisition of UKbased Vision Direct Group
Ltd., amongst others. Despite the prospects of growth, the industry faces an important structural
challenge. Not all types of glasses are regarded by consumers as essential goods (e.g. sunglasses).
This can have a relevant impact on revenues, especially in periods of economic downturn. In
addition, developing markets have gradually acquired a very important role in relation to the future
prospects of the industry. A number of additional risk factors come with expansion in developing
countries, translating primarily in higher revenue volatility and exchange rate risk.

Deal Structure

The combination appears as a genuine merger of equals, with both companies’ EV being in the
range of €26-27bn. According to the terms of the deal, Delfin will contribute its entire stake in
Luxottica (approx. 62%) to Essilor in return for newly issued Essilor shares, at an exchange ratio of
0.461 Essilor shares for each Luxottica share. Subsequently, in accordance with Italian take-over
provisions, Essilor will launch a mandatory public exchange offer to acquire all the remaining
issued and outstanding shares of Luxottica, at the same exchange rate. The final objective is
eventually to proceed with Luxottica’s de-listing. At transaction closing, which is expected in H2
2017, Essilor will become a holding company with the new name of “EssilorLuxottica” and will
take on all the operating activities previously performed by Essilor. EssilorLuxottica will be listed
on the Euronext Paris and will be part of the CAC 40 index, with Delfin being the largest
shareholder. Mr. Del Vecchio’s holding company is expected to own between 31% and 38% of
EssilorLuxottica’s shares, although its voting rights will be capped, like that of any other
shareholder, to 31%. Leonardo Del Vecchio will serve as Chairman and CEO of EssilorLuxottica.
Hubert Sagnières, Essilor’s CEO and Chairman, will become Vice-Chairman and deputy CEO of
EssilorLuxottica, having equal powers to Mr. Del Vecchio. Both managers will also retain their
previous positions in Luxottica and Essilor International. The board composition of
EssilorLuxottica also reflects the balance of powers between the combining entities: Essilor and
Delfin will each appoint 8 out of 16 board members.

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Deal Rationale

The deal is backed by a strong rationale. First, the two companies have highly complementary
business models: Luxottica focuses on the production of sunglasses and frames, whereas Essilor
concentrates on lenses manufacturing. Secondly, in recent years both companies have entered lines
of business where they faced competition from each other. As a result, and naturally, the merger
alleviates the burden of such competition. Moreover, analysts at US-based investment bank
Jefferies forecast stable future growth rates for the visual health and eyewear business, ranging
between 2% to 4%. The two companies are also claiming that 2.5bn people worldwide suffer from
uncorrected vision problems. Thus, the deal will put the combined entity in a favorable position to
address such growing demand, with sales in 150 countries and a total of 140’000 employees
worldwide. As regards synergies, the companies expect benefits from cost cutting, cross selling and
distribution enhancement in the range of €400m to €600m per year, of which €200-300m per annum
coming from market growth acceleration (revenue), and €200-300m per annum from supply chain
optimization as well as G&A and purchasing cost reduction (cost). The market appears to be
optimistic in this regard, with the equity value of the soon-to-be combined companies rising overall
by €4.8bn (as of Jan 16), potentially implying even higher expected synergies. EssilorLuxottica is
expected to generate more than €15bn in revenues with an EBITDA of approximately €3.1bn,
excluding synergies. In addition, Luxottica will benefit from the deal also from a governance
standpoint. In fact, Del Vecchio is finally putting an end to Luxottica’s succession puzzle
(controversially, he has never wanted to let any of his six children take control of the company),
which had generated issues in retaining top management, with 3 CEOs leaving the company in the
past three years. The biggest question mark still pending on the deal is whether regulators will allow
the merger in light of anti-trust legislation. Despite the complementary operations, detaining
significant market power over the both manufacturing of frames and that of lenses could
understandably lead regulators to identify a monopolistic threat. Finally, the combined company is
likely to face increasing competition from innovative products combining high technology and
eyewear, like the Google Glass or the Spectacles developed by Snap. In that regard, the merger
strengthens the two companies’ position to invest either internally or externally in research and
development, continuing the trend of Luxottica’s failed partnership with Google, or Essilor’s R&D
effort in the production and design of connected glasses.

Market Reaction:

The market reaction on the day of the announcement (January 16, 2017) was positive, with an
11.9% increase in Essilor’s share price and an 8.2% rise in Luxottica’s. As of February 10, 2017,
both share prices have declined from the peak that was reached upon the announcement, but are still
higher then pre-deal levels, signaling investors’ confidence in the merger.

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Merger between Glaxo Wellcome & SmithKline Beecham:
Introduction:

Mergers are not new in pharmaceutical industry in the recent years and the same for both Glaxo
Wellcome and SmithKline Beecham throughout each other's history. Considering the political,
social and economic resistance, the general driving forces for these mergers in this industry are,
more firms showed interest in using strategic partnerships and joint ventures to develop and market
new products. Though pharmaceutical holds a global market, the US market decided the growth of
the industry as it holds 45% of the global market. So not surprisingly the US political, social and
economic resisted and delivered a strong impact on the growth of the whole pharmaceutical
industry.
However Pfizer's merger pushed Glaxo SmithKline to 2nd rank in the industry, they were number
one immediately after their merger. So the business changes of the organization had a heavy impact
on the whole pharmaceutical industry. So this paper had assessed the reason for the merger and
extend the aims of the merger is achieved.
Background of SmithKline Beecham:

SmithKline Beecham resulted from the merger of SmithKline Beckman (SKB) and Beecham.
Beecham was well known for its traditional research strength whereas SKB was known for its
aggressive sales force in US. Though the process of merger was lengthy, the change from more laid
British approach of Beecham to process oriented working was success. The new company tried to
keep up with critical mass but they lacked in budgeting R&D, which was the real constrain for
company's growth.

Background of Glaxo Wellcome:

Glaxo Wellcome's birth was from Glaxo's takeover of Wellcome in 1995. Glaxo was well known
for its strong marketing approach, commercial success of its R&D efforts and blockbuster product
Zantac whereas Wellcome is non-profit medical institution well known for its academic approach to
pharmaceuticals. Though there were several clashes between Wellcome's laid back management
style and Glaxo's hard-nosed, commercial and control driven culture, with the help of economic of
scale in R&D activities, Glaxo reduced the conflicts and resistance. However the company's
growths in producing blockbuster products were lacking.

Reasons for the Glaxo SmithKline Merger:

Merger of Glaxo Wellcome and SmithKline Beecham was a global one. The merger was a unique
all over the world and various divisions of both the companies merged in around 170 countries in
2000, expect Pakistan. The merger came through after UK court order in January 2000; however it
happened in Pakistan only on 23rd October 2002. So the merger of Glaxo Wellcome and
SmithKline Beecham in Pakistan was the off shoot of the global merger of the companies.
There were six reasons which compelled both the legendary companies to go for the merge and to
build a leading company in the entire pharmaceutical industry. The reasons for merging up together
were:
 To reduce the Research & Development pipeline.

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  To reduce the Research & Development cost.
 Drug reimbursement issues.
 Political pressures and growing concerns over drug prices.
 Patent expirations / Generic competition.
 Recent developments in biotechnology and the mapping of the human genome.
The right theme and idea backing the merger was, to improve quality of human life for enabling
people to do more, feel better, live longer. As both the companies holds the strength in more similar
kind of field that is, developing drugs for infectious respiratory neurological gastrointestinal and
metabolic disease, they want to lead the way in providing treatment for the same. Apart from the
above field, the join company appeared to be the world's leading producers of prescription
medicine, vaccine and consumer health care products. So they planned for delivering innovative
medicines and products that help billions of people round the world live longer, healthier and
happier life.
The whole pharmaceutical industry was focusing and investing in R&D as it delivers modern ways
to handle prolonging problems and helps in the long term growth of the industry. The hunger to
deliver medicines for new diseases made the join group (GlaxoSmithKline) to pay more attention in
R&D and wished to reduce the number of products in the pipeline of R&D. Though both companies
produced similar kind of drugs and so integrating their products line was very obvious, the process
demanded more time and efforts. This was mainly because; both had more number of products in
the pipeline and hardly had blockbuster products in market. Still the management believed that the
time for working on new diseases will be reduces by working together on lesser products. And in
general all research and development evolves a risk of failure. Not that each compounds and all
research towards developing new drugs for a targeted diseases comes out as success but in turn
consumes high time, efforts and money. But the R&D is the only answer for the long term growth
of both the joint company and the industry. So sticking to mission and vision of the new company,
GSK has decided to focus of R&D but in a different way of approach .i.e. cost saving, economics of
scale and licensing from other firms.
Apart from these, a PEST analysis on the pharmaceutical industry will give a clear picture and
highlight the hidden reason for the recent merger activities in industry and in particular GSK.

To what extent have the aims of Glaxo SmithKline merger been achieved?
Some of the aims of the newly formed Glaxo SmithKline were,
Not to protect future earnings growth but actually to increase critical mass to really outperform the
industry.
To become the indisputable leader in the industry in terms of conquering the challenges that the
industry faces.
To deliver innovative products that helps millions of people in the world to live longer, healthier
and happier.
To achieve the aims, the management formed a new structure for R&D, highlighting the cost
reductions and breaking of pipeline. However, the lack of focus on general organizational structure
and internal management structure resulted in low returns compared to the estimate one. To handle
the situation, the all the long terms aims has left unfocused and the management tried to recover the
company from the 'sudden-death syndrome'.

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This clearly gives an evidence for Glaxo SmithKline's downfall form the anticipated growth. The
inability of GSK in producing blockbuster products, joint hand with the above described situation
made things worse.
Focusing on employees and other internal management issues in the later part helped the company
to handle the global resisting issues and focus on their long term goals.
Analysing GSK's stock market performance (1998 - 2003), tells that GSK failed to touch the
anticipated heights and were only able to sail along with the industry growth. Based on the Lewin's
force field model, the driving forces of GSK were not too enough to overcome the resistance for
change and thus failed to achieve the fixed target.
Methodology:
NPV is the simplest method of valuation is used, Under the NPV approach the present value of both
firms is calculated individually before merger and it is compared with the present value of
combined entry after merger. If the gain exists then the economic justification for the merger exists.
Gain= PVGSK-(PVGW-PVSK)
PVGSK= 85,000,000,000/ (1.05)3 = €66,599,701,000
GSK market capitalization for the year of 2003 is €85 billion.

PVGW= Glaxo Wellcome’s share price month before merger (Quoted Price) * Number of Glaxo
Wellcome’s share on December 27, 2000.
= 17.5 * 3,653,435,656
= €63,935,123,980

PVSK= Smith Kline share price month before merger (Quoted Price) * Number of SmithKline’s
share on December 27, 2000
=7.9 * 5,643,732,950
= €44,585,490,310
Evidence for GSK Losing Record:
In the first year of post-merger, GSK claimed 12% increase in pharmacy industry, with the help of
cost savings and disposal of assets. The firm anticipated double the level of saving in the next year.
The health care grew only 3%.
They fail to record returns in R&D in spite of combined R&D budget and investment. It also failed
to deliver blockbuster product to enhance the revenue. Instead to maintain the tempo, the
management kept buying 40 licenses from other companies.
GSK has shed more than 15,000 jobs; Managers were unable to retain the talent that resides on the
firms. Instead of creating a "powerhouse", research was split into smaller, autonomous units.

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GSK's new radical structure was a response to a series of failures in research at the two merger
partners.
At the AGM on 19 May 2003, GSK shareholders rejected a motion regarding a £22 million pay and
benefits package for CEO, JP Garnier. This was the first time such a rebellion by shareholders
against a major British company has occurred, but was regarded as a possible turning point against
other so-called "fat cat" deals within executive pay structure.

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Acquisition of Jaugar & Land Rover by TATA Motor
Introduction

In June 2008, India-based Tata Motors Ltd. announced that it had completed the acquisition of the
two iconic British brands - Jaguar and Land Rover (JLR) from the US-based Ford Motors for US$
2.3 billion. Forming a part of the purchase consideration were JLR's manufacturing plants, two
advanced design centers in the UK, national sales companies spanning across the world, and also
licenses of all necessary intellectual property rights. There was a widespread skepticism in market
over an Indian company owning the luxury brands. According to industry analysts, some of the
issues that could trouble Tata Motors were economic slowdown in European and American
markets, funding risks, currency risks etc. Market conditions were extremely tough, especially in
the key US market. Tata’s needed to invest a lot in brand building to make JLR profitable. Onset of
recession not only made investment look mistimed, but also started wiping out the JLR market.

TATA -FORD (JLR Deal)

Ford Motors Company (Ford) is a leading automaker and the third largest multinational corporation
in the automobile industry. The company acquired Jaguar from British Leyland Limited in 1989 for
US$ 2.5 billion. After Ford acquired Jaguar, adverse economic conditions worldwide in the 1990s
led to tough market conditions and a decrease in the demand for luxury cars. The sales of Jaguar in
many markets declined, but in some markets like Japan, Germany, and Italy, it still recorded high
sales. In June 2007, Ford announced that it was considering selling JLR. After failing to rebrand
and integrate these luxury brands with its product portfolio, Ford Motors felt that acquisition was
not the right way of penetrating into the upscale segment. Tata Motors was interested in acquiring
JLR as it will reduce the company’s dependence on the Indian market alone, which accounted for
90% of its sales. Morgan Stanley reported that JLR’s acquisition appeared negative for Tata Motors,
as it had increased the earnings volatility, given the difficult economic conditions in the key markets
of JLR operated - US and Europe. Tata Motors raised $3 billion (about Rs 12,000 crore) through
bridge loans for 15months from a consortium of bank, Citigroup, State Bank of India and
financialinstitution- JP Morgan. Tata Group came under severe cash crunch because of the Corus
deal and the huge investments in the TATA Nano project which itself was surrounded in a lot of
uncertainties. The credit rating companies also took a negative outlook toward this deal because of
the huge debt requirement to complete the deal.

Reasons for Merger & Acquisitions

Tata Motors' long-term strategy included consolidating its position in the domestic Indian market
and expanding its international footprint by leveraging on in-house capabilities and products. Tata
Motors acquired JLR due to the following reason:

1) The acquisition would help the company acquire a global footprint and enter the high-
end premier segment of the global automobile market. After the acquisition, Tata Motors
would own the world's luxury marquees like the Jaguar and Land Rover.
2) Tata also got two advance design studios and technology as part of the deal. This would
provide Tata Motors access to latest technology which would also allow Tata to improve

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 their core products in India, for eg, Indica and Safari suffered from internal noise and
vibration problems.
3) This deal provided Tata an instant recognition and credibility across globe which would
have otherwise have taken years.
4) The cost competitive advantage was as Corus was the main supplier of automotive high
grade steel to JLR and other automobile industry in US and Europe. This would have
provided a synergy for TATA Group on a whole. The whole cost synergy that can be
created can be seen in the following diagram.
5) In the long run TATA Motors will surely diversify its present dependence on Indian
markets (which contributed to 90% of TATA’s revenue). Along with it due to TATA’s
footprints in South East Asia will help JLR do diversify its geographic dependence from
US (30% of volumes) and Western Europe (55% of volumes).
6) Corus being the major supplier of automotive steel in JLR.

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Strategic Advantage that TATA Motors Acquired:
After the acquisition of the British Jaguar Land Rover (JLR) business, Tata Motors had
obtained numerous benefits and advantages. Below are the reasons behind Tata Motors’s
decision to acquire JLR: Subsequent to the acquisition of JLR, Tata Motors benefited:

100% stake in Jaguar & land Rover Business
Three plants in UK
Two advanced design & engineering center
Twenty six National sales company
Intellectual property rights
Capital Allowance
Support from Ford Motor Credit
Pension Contributed by Ford
Tata Motors has acquired the business &
initially they will be operated independently
of the partner.
Tata Motors will directly own these two well
invested plants by Ford.
4000-5000 engineers engaged in testing,
prototype design & power train engineering,
development &integration.
Both existing national sales companies of
JLR and also those that are carved out of
current Ford operation would be owned by
Tata Motors.
These covers all key technologies to be
transferred to JLR & perpetual royalty free
license on technologies shared with Ford.
Capital allowance with a minimum
guaranteed amount of US $1.1 billion to be
carried forward for future tax savings.
Ford Motor Credit will continue to support
the sales of JLR for the next 12 months
Ford will contribute US$ 600 million of the
Pension Fund to the workers in United
Kingdom

ACQUISITION SYNERGY
Tata Motor was facing a lot of problem after the acquisition. But still the deal was anticipated
to generate generates two synergies such as:

1. Cost Synergies
2. Revenue Synergies
Project: Merger & Acquisitions

Cost Synergy:

TATA STEAL
• Leader in auto motive grade steel in the European Markets.
• 16%of the revenue from auto steel division.
• Enjoys “Q1” supplier status with Ford to supply stell for jaguar and Land Rover
Daimler- Chrysler. FIAT.

INCAT
• Provides service like supplier programs, consulting services and global sourcing.
• Major customers are Chrysler, Ford, GM, Honda and Nissan

TCS
• Provides services like engineering design, manufacturing solutions and sourcing
services.
• Automotive division accounted for 15% revenues.
• Major customers are Chrysler, Ford, GM

TATA AUTO COMP

• Flagship company of TAMO’S ancillary biz.
• Manufacturing, Engineering and Supply chain management.
• Customers include Global OEMs like Ford, Daimler-CHRYSLER, FIAT.

Revenue Synergy
Such as well known brands, distinguish brand identity of Land Rover and Jaguar, emerging Indian
car market and opportunity to sell brands in India and opportunity of global presence. Due to
these reasons these products being taken over by Tata group.

SWOT ANALYSIS

Opportunities:
• Rising appetite for luxury automobiles in growing markets like India and China
• Established European brands available at affordable investment
• Support from Jaguar in Technology, Engine, IT, Accounting
• Complete product line with addition of luxury brands
• Access to European and American Market

Threats
• Volatility in market driven by new products
• Strong presence of competitors like Mercedes, BMW, Lexus and Infinity
• Receding sales and brand image

Report by Group V 26
Project: Merger & Acquisitions

• Downturn making Investment riskier and costlier

• 90% of TAMO revenues comes from one market alone-India

Strengths:
• Tata’s strong management capability
• Strong monetary base to invest
• Synergy due to Corus, TACO and TCS
• Experience in growing market like India
• New product development and brand building experience
JLR would give TAMo an in-house R&D and designing capabilities
• Better utilization of cash reserves available with TAMo
• Reduce production cost of JLR by synergizing better with other TATA cos like Corus
Acquisitions like JLR will help TAMo in competing with brands like Merc. etc.
• Proven Management and brand building capabilities would facilitate faster JLR
turnaround
• Strong financial muscle will help TAMo to invest in R&D and produce new better
products
• Improve risk profile of TAMO with diversification in different markets
Weaknesses:
• Inexperience in handling luxury automobile brand
• Inexperience in turning around loss making company
• R & D and designing capabilities. JLR experience and designing capability would
help TAMO in improving their existing products in Indian markets.
• JLR’s strong brand image will ease acceptance of TAMO in international markets
• Make Jaguar design center as their global design HQ
• Use Jaguar channel to distribute TAMO brands without merging the brands.

Pitfalls of the Deal:

Morgan Stanley reported that JLR’s acquisition appeared negative for Tata Motors, as it had
increased the earnings volatility, given the difficult economic conditions in the key markets
of JLR including the US and Europe. Moreover, Tata Motors had to incur a huge capital
expenditure as it planned to invest another US$ 1 billion in JLR. This was in addition to the
US$ 2.3 billion it had spent on the acquisition. Tata Motors had also incurred huge capital
expenditure on the development and launch of the small car Nano and on a joint venture
with Fiat to manufacture some of the company’s vehicles in India and Thailand. This,
coupled with the downturn in the global automobile industry, was expected to impact the
profitability of the company in the near future.

Worldwide car sales are down 5% as compared to the previous year. The automobile
industry the world over is rationalizing production facilities, reducing costs wherever
possible, consolidating brands and dropping model lines and deferring R&D projects to
conserve funds.

Report by Group V 27
Project: Merger & Acquisitions

The Chinese and Indian domestic markets for cars have been exceptions. While China has
witnessed a significant reduction in its automotive-related exports and supplies to
automobile companies, the Chinese domestic car market has grown by 7%. In India the
passenger car market has remained more or less flat compared to the previous year.

Since then, its fortunes have been unsure, as the slump in demand for automobiles has
depressed its revenues at the same time Tata has invested nearly $400 million in the Nano
launch and struggled to pay off the expensive $3 billion loans it racked up for the
Jaguar/Land Rover shopping bill. Within the space of a year, Tata Motors has gone from
being a developing-world success story to a cautionary tale of bad timing and overly
ambitious expansion plans.
Tata Motors' standalone Indian operations' profits declined by 51% in 2008-09 over the
previous year. All through the fiscal year ended March 2009 the company bled money, losing
a record $517 million on $14.7 billion in revenues, just on its India operations. Jaguar and
Land Rover lost an additional $510 million in the 10 months Tata owned it until March 2009.
In January 2009, Tata Motors announced that due to lack of funds it may be forced to roll
over a part of the US$ 3 billion bridge loan after having repaid around US$ 1 billion. The
financial burden on Tata Motors was expected to increase further with the pension liability of
JLR coming up for evaluation in April 2009.

Conclusion:

JLR’s acquisition appeared negative for Tata Motors, as it had increased the earnings
volatility, given the difficult economic conditions in the key markets of JLR including the US
and Europe. This, coupled with the downturn in the global automobile industry, was expected
to impact the profitability of the company in the near future.Domestic Market Effect: The
Nano was targeted at the segment of two-wheeler drivers. The Nano was touted to be
the least expensive car in the world. Tata Motors spent approximately US$ 430 million on
developing the Nano. The company had invested more than Rs 20 million on the Singur
plant, which had created many problems for the TATA’s to shift the plant for safety of
Labours. A merger is considered a success if it increases shareholder value faster than if the
companies had remained separate because corporate takeovers and mergers can reduce
competition, they are heavily regulated, often requiring government approval. To increase
chances of the deal’s success, acquirers need to perform rigorous due diligence-a review of
the targeted company’s assets and performance history-before the purchase to verify the
company’s stand-alone value and unmask problems that could jeopardize the outcome.
But this deal had created the big issues for the TATA such as drop in share prices, failure of
rights issue, and huge debt burden by acquiring the giant and the sales volume had decreased
by 35.2%. Nobody was interested if TATA wants to Issue Following Public Offer (FPO).

Report by Group V 28
Project: Merger & Acquisitions

Merger of Ranbaxy & Sur Pharma:

Introduction to the Players

Sun Pharma

Sun Pharmaceuticals was established by Mr. Dilip Shanghvi in 1983 in Vapi with five
products to treat psychiatry ailments. Cardiology products were introduced in 1987 followed
by gastroenterology products in 1989. Today it is the largest company in chronic prescription
and a market leader in psychiatry, neurology, cardiology, orthopedics etc.

The 2014 acquisition of Ranbaxy will make the company the largest manufacturer of
pharmacy products in India and the 5th largest in generics products globally

Over 72% of the Company’s Sales come from markets outside India. The US is the single
largest market accounting for around 60% of the total revenues. Manufacturing operations are
in 26 locations including countries like US, Canada, Brazil and Israel.

In the US, the company markets a large basket of generics, with a strong pipeline awaiting
approval from the U.S. Food and Drug Administration (FDA)

The company was listed on the stock exchange in 1995 and was back then oversubscribed 55
times. Today it is one of the most profitable pharma companies in India.

Ranbaxy

It’s an Indian multinational pharmaceutical company that was incorporated in 1961.The

Company went public in 1974 and Japanese pharmaceutical company Daiichi Sankyo
acquired a controlling share in 2008. The company was started by Ranbir Singh and Gurbax
Singh as a distributor for a Japanese company in 1937.

Ranbaxy has been involved in several issues with FDA. In 2009 the US Food and Drug
Administration said it halted reviews of all drug applications including data developed at
Ranbaxy's Paonta Sahib plant in India because of a practice of falsified data and test results in
approved and pending drug applications. In 2012 Ranbaxy halted production and recalled
forty-one lots of atorvastatin due to glass particles being found in some bottles. In 2013 US
FDA fined 500 million for manipulation generic data and selling adulterated drugs to United
States.

Merger

In 1996 Sun Pharma purchased a bulk drug manufacturer Kohli pharmaceuticals. In 1998 Sun
Pharma acquired a number of respiratory brands from Natco pharma. In 2010, the company
acquired a large stake in Taro Pharma, Inc. amongst the largest generic derma companies in
the US, with operations across Canada and Israel. In 2011, Sun Pharma entered into a joint
venture with MSD to bring complex or differentiated generics to emerging markets

Report by Group V 29
Project: Merger & Acquisitions

In June 2008, Daichi Sankyo acquired a 34% stake in Ranbaxy for 2.4 billion USD. In
November 2008 Daichi Sankyo completed the takeover of the company from the Singh
family. Ranbaxy's Malvinder Singh remained as CEO after the transaction. In the same year,
it reached settlement on the world's two highest selling drugs - Lipitor (with Pfizer) and
Nexium (with Astra Zeneca).

Sun Pharma’s M&A activity

Sun Pharma has gone through a number of domestic and international M&A activities
through its inception. Some of the activities have been listed in the table below. Exhibit 1
shows successful turnaround of 16 acquisitions.

Year Target Company Acquisition Details

2013 Generics Business of URL Acquired a comprehensive list of ANDAs and generic
Pharmaceuticals products from Takeda Pharmaceuticals
2012 Dusa Pharmaceuticals Acquired a developer of a dermatological device used
to treat actinic keratoses
2011 Joint Venture with MSD Joint Venture with a focus on emerging markets
2010 Caraco Pharmaceutical Initial stake investment in 1997, 100% takeover in
Laboratories 2010
2010 Taro Pharmaceutical Acquired majority stake in a multinational generic
Industries Limited manufacturer with established North America
presence and a strong dermatology franchise
2009 Products from Forest Lab's
Inwood Division
2008 Chattem Chemicals Acquired a manufacturer of controlled substances with
Incorporated an API facility
2005 Assets of Able Laboratories Acquired controlled substance manufacturing assets.
2005 Hungarian Operations and Acquired Alkaloida’s controlled substance APIs and
Formulation Plant of ICN dosage form manufacturing plant.
2004 Products from Women's first
Healthcare
2004 Phlox Pharma Acquired manufacturer of cephalosporin API holding
USA and European approvals
2002 MJ Pharma Initial stake investment in 1996, 100% takeover in
2002. Acquired plant with USFDA and UKMHRA
approvals for oral dosage forms
2000 Pradeep Drug Company Chennai based API manufacturer is merged with Sun
Pharma.
1999 Milmet Laboratories Helped initiate entry in ophthalmology
1999 Gujarat Lyka Organics Initial stake investment in 1996, 100% takeover in
1999. Acquired Cephalexin and 7ADCA actives
manufacturing site

Report by Group V 30
Project: Merger & Acquisitions

1998 Products from NatcoPharma Helped initiate entry in chest and respiratory therapy
areas
1997 TamilnaduDadha Helped initiate entry in oncology and gynaecology
Pharmaceuticals Limited
1996 Bulk Drugs Plant from Knoll Acquired an API plant in Ahmednagar, Maharashtra
Pharma

The takeover of Ranbaxy

On Jun 11, 2008 Ranbaxy announced that a binding share purchase and share subscription
was entered between Daiichi Sankyo and Ranbaxy. With a purchase price Rs. 737 per share,
the transaction is valued at US $4.6 billion. Daiichi Sankyo acquired 34.8% stake. It made an
open offer to Ranbaxy shareholders for another 20%. It picked up another 9.12% through
preferential allotment. It was an all-cash transaction. It was funded through a mix of bank
debt facilities and existing cash reserves of Daiichi Sankyo. The debt was of value US$ 2.6
billion which is almost 50% of total funding required for the deal.

Strategic objectives and Synergies behind the deal

Daiichi Sankyo wanted to diversify geographically and especially paving its way into
emerging markets like India. The deal would help Daiichi Sankyo to enter into non-
proprietary drugs and take advantage for Ranbaxy’s strong areas. The acquisition of Ranbaxy
by Daiichi represents a major entry for the Japanese firm into the high growth business areas
of generic drugs.

Synergies

a) Considering that Ranbaxy is a generic company and Daiichi Sankyo an innovator

company, both businesses complement each other with negligible overlap.

b) Ranbaxy provides a low cost manufacturing set up to Daiichi Sankyo.

c) Ranbaxy has a small presence in the Japanese market where the generics market holds
good opportunities

d) Also Ranbaxy incurred lower costs, as it became debt free company

e) Ranbaxy geographically diversified presence across the globe will enable it to provide
a wider reach to Daiichi Sankyo’s portfolio, including India.

f) The deal made the amalgamated company to be the world’s 15th largest
pharmaceutical company in the world.

g) Ranbaxy bypassed a lot of European an U.S companies that were unable to enter the
Japanese markets due to its stringent safety and testing requirements.

Report by Group V 31
Project: Merger & Acquisitions

Market reactions to the acquisition announcement

The share price of Ranbaxy Laboratories rose by 3.86% to Rs 526.40 on June 9th 2008.
Daiichi Sankyo agreed to pay as much as $4.6 billion for a 50.1% stake in Ranbaxy. Later the
stock ended almost at Rs 560.80 on June 11th 2008. On June 13th 2008 it spiked to Rs 660
and settled finally at 567.75 points, up a mere 0.15%

Overview of Ranbaxy laboratories Valuation

Daiichi Sankyo paid about 4.7x Ranbaxy’s sales for the acquisition, as against 2.7x in a
similar deal between Mylan for Merck KGaA’s generic unit at a price of $ 7.6 billion in
2007. The higher valuation was due to Ranbaxy’s strong infrastructure, presence across
geographies, a robust product pipeline, including upsides from the settlements

Result of Deal

The EPS showed a double fold increase without much of increase in gross profit which
indicated that the reserves & surplus should have been made available accordingly. The
balance sheet of Daiichi Sankyo indicated that the current liabilities had increased to 161%
when compared to current assets which had decreased by (15.43%). COGS significantly
decreased in the year 2008 due to the increase in purchase of Investments owing to the
acquisition. Three weeks after the deal, Daiichi Sankyo reported currency – exchange losses
of Rs 9 billion in 2008 owing to the goodwill evaluation at the time acquisition.

On February 25, the U.S. Food and Drug Administration announced that a facility owned by
India-based Ranbaxy Laboratories falsified data and test results in approved and pending
drug applications. The agency halted review of drug applications from plant due to evidence
of falsified data; invokes application integrity policy. Daiichi Sankyo though learnt about the
US FDA invocation ignored it expecting it to get resolved. Daiichi, in its eagerness to tap the
expertise of a generic drug maker, took the risk of buying Ranbaxy for a top dollar. Daiichi
Sankyo though learnt about the US FDA invocation ignored it expecting it to get resolved.
Ranbaxy shares have staged a huge rally since hitting a low 133 rupees in March 2009,
trading at 465 rupees on March 14, 2011.

Market Response

The announcement by Sun Pharma on 6th April, 2014 that it would acquire 100% of Ranbaxy
Laboratories Ltd. In an all-stock transaction, valued at $4 billion, marked one of the landmark
deals of Indian Pharmaceutical industry which resulted in making Sun Pharma the largest
pharmaceutical company in India, the largest Indian Pharma company in the US and the 5th
largest generic company worldwide. On a pro forma basis, the combined entity’s revenues
are estimated at US$ 4.2 billion with EBITDA of US$ 1.2 billion for the twelve month period
ended December 31, 2013.The transaction value implies a revenue multiple of 2.2 based on
12 months ended December 31, 2013.

Report by Group V 32
Project: Merger & Acquisitions

Investor response to the announcement was lukewarm, with the stock prices moving in
opposite direction. As an immediate effect, shares of Sun Pharma went up to 2.7% in the
morning trade after the acquisition announcement while that of Ranbaxy went down by 3.1%.

The move is seen to improve Sun pharma’s global presence by providing it access to new and
emerging markets and product portfolios with Sun pharma having a presence in chronic
diseases while Ranbaxy having relevant presence in acute and OTC segments. Besides with
the acquisition of Ranbaxy, Sun pharma will add to its overall manufacturing base that is
expected to reap benefits in the long run. Overall, market perceived the deal as a win-win
situation for all the parties involved.

Sun Pharma Ranbaxy Merger /Acquisition Process:

The Sun Pharma Ranbaxy Merger /Acquisition Process can be majorly divided into two
stages viz. 1) Pre-acquisition stage and 2) Post-acquisition stage

Pre-Acquisition Stage:

I. Making Decision to Buy -

Ranbaxy Laboratories Limited is an Indian multinational pharmaceutical company with a

sizeable drug pipeline, a very promising future and has announced some big product launches
in future in the US generics market, but for frequent run-ins with the US drug regulator. It has
been facing regulatory issues for the last 3years and now has ceased to make some profits.
However, the company has a big business and huge product portfolio across various markets
including India which makes it an attractive deal for Sun Pharma to acquire this company.
Daiichi (a Japanese company), the promoters of Ranbaxy was struggling to manage its plants
when came under the US Food and Drug Administration’s scanner after the acquisition.
Ranbaxy was unable to overcome these issues and increased pressure on its promoters.

Dilip Shanghvi, Managing Director, Sun Pharma has a reputation for turning around
companies in trouble by acquiring them at a good price. Sun Pharma and Ranbaxy deal has
many promising benefits as listed below. The combination of Sun Pharma and Ranbaxy:

 Creates the 5th largest specialty generics company in the world and the largest
pharmaceutical company in India.

 Gets leadership position in 13 specialty segments

 Operations in 65 countries, 47 manufacturing facilities across 5 continents, and a

significant platform of specialty and generic products marketed globally

 Ranbaxy’s branded derma business in the US adds to Sun's already strong derma
franchise

 Provides Sun Pharma access to strong human capital and reach in tier-II/III markets in
India, where it currently lacks presence, according to Edelweiss Securities.

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II. Due Diligence/ Company Evaluation -

Next stage is business valuation or assessment. It involves evaluation of both the present and
future value of the target company. A thorough research on the company’s capital gains,
culture, market share, capital structure, organizational structure, vendors, distribution
channel, specific business strengths and weaknesses, and brand name in the market.

This process has revealed details about Ranbaxy and the merger as mentioned below:

 Sun Pharma’s revenue will jump by a healthy 40% but its operating profit will rise by
a just 7.5%, based on pro forma 2013 financials.

 Ranbaxy’s profits have been hit by provisions related to foreign exchange and
inventory write-offs. Sun Pharma has said it expects to get Rs.1,550 crore in merger-related
synergies by the third year after the acquisition is completed. That is fairly significant and
these savings should be from procurement, sales growth and supply chain efficiencies.

 The merger will have a negative effect on Sun Pharma’s performance in the short
term reducing its operating profit margin from 44.1% to 29.2%.

 In terms of size, Sun Pharma will have a pro forma 2013 revenue of Rs.25,911 crore
and an operating profit of Rs.7,577 crore, with a net profit of Rs.1,710 crore.

III. Process Initiation/ Proposal Phase -

In process initiation, acquiring company sends a proposal for a merger or an acquisition to the
target company with complete details of the deal including the commitments, amount and the
strategies. It is a non-binding offer document which is not available in open public forum.
Sun Pharma has hired McKinsey & Company to facilitate the merger of the two leading
pharmaceuticals in the domestic market. McKinsey had been given a clear mandate,
including "integration, rationalisation and capacity utilisation".

IV. Structuring Business Deal -

Once the merger is finalized i.e. either forming a new entity or the take-over, acquiring
company has to take initiatives for creating strategies to announce the launch, enhance deal’s
credibility and its marketing. This stage emphasize on giving a proper structure to the
business deal. The road map includes,

 Regulatory approvals from various bodies such as SEBI, CCI, Stock Exchanges, High
Courts of Gujarat, Haryana and Punjab, and the stakeholders of both companies

 Streamlining of teams

 Resolving regulatory issues at Ranbaxy plants under US import alert

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 Restructuring of product portfolios to align with the interests of Sun Pharma

 Benchmark the staff-productivity ratio

V. Financial Settlement/ Exchange of Stocks :

Ranbaxy shareholders will receive 0.8 shares of Sun Pharma for each share of Ranbaxy. The
exchange ratio represents an implied value of Rs 457 per Ranbaxy share and the transaction
has a total equity value of approximately $3.2bn. After the deal, Daiichi will hold a stake of
about 9% in Sun Pharma. Hence, the deal is cashless.

Post-Acquisition Stage:

I. Merger Closing Phase and Post-Merger Integration Plans to Operate the Venture -

This stage includes the process of preparing the official documents, signing the agreement on
which both the companies have agreed upon, and negotiating the deal. It includes integration
of the companies differing on various parameters. It also defines the parameters of the future
relationship between the two. After signing the agreement and entering into the venture, Sun
Pharma has various plans as listed below:

 It has a detailed turnaround plan for its new purchase.

 The company’s basic structure and functions could be managed in the first year. There
is a plan to streamline and rationalise functions. While it will take at least two to three years
to turn-around the merged entity and to ensure contributions from the buyout.

 It has prepared a three-pronged strategy which includes:

 Resolution of regulatory issues

 Integration of supply chain and field force for enhanced efficiency and productivity

 Higher growth through synergy in domestic and emerging markets.

 It is targeting to engineer the full turnaround of Ranbaxy in three-year to four-year

period after the closure of the transaction.

Valuation:

Sun Pharmaceutical Industries Ltd. and Ranbaxy Laboratories Ltd on April 06, 2014
announced that they have entered into definitive agreements pursuant to which Sun Pharma
will acquire 100% of Ranbaxy in an all-stock transaction. Under these agreements, Ranbaxy
shareholders will receive 0.8 share of Sun Pharma for each share of Ranbaxy. This exchange
ratio represents an implied value of Rs.457 for each Ranbaxy share, a premium of 18% to
Ranbaxy’s 30-day volume-weighted average share price and a premium of 24.3% to
Ranbaxy’s 60-day volume-weighted average share price, in each case, as of the close of
business on April 4, 2014.

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On a pro forma basis, the combined entity’s revenues are estimated at US$ 4.2 billion with
EBITDA of US$ 1.2billion for the twelve month period ended December 31, 2013.The
transaction value implies a revenue multiple of 2.2 based on12 months ended December 31,
2013.

Regulatory issues
Typically, CCI takes decisions related to mergers and acquisitions (M&As) within 30 days,
though it can do so within 210 days of the filing of application in this regard. After that a
proposed deal is deemed to have been approved.

The proposed merger also requires approvals from stock exchanges, Sebi, the high courts of
Gujarat, Punjab and Haryana, creditors and shareholders of both companies. As cited by a
CCI official: “It is an important case and there are various complexities involved. It requires
close evaluation”

Four domestic manufacturing facilities of Ranbaxy have been banned from supplying
products to the US, following the US Food and Drug Administration finding serious
violations of its norms at these units. Resuming supplies from these plants to the US is
important for Sun Pharma, as the US is the largest export market for both companies. When
the proposed acquisition was announced in April, Shanghvi had addressing the concerns of
regulatory agencies worldwide were a priority.

The merger will create India’s biggest drug maker with an 8.5% share of the pharmaceutical
market, worth an annual Rs.76,000 crore by sales. Under India’s merger and acquisition
(M&A) rules, companies need CCI’s approval if the combined assets of the two entities are
worth more than Rs.1,500 crore or their combined revenue amounts to more than Rs.4,500
crore in India. The CCI approval is also mandatory if the companies have assets outside
India, or their combined assets are worth more than $750 million (Rs 4,566 crore), or if their
turnover is more than $2,250 million (Rs 13,700 crore).

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References:
1. http://www.ranbaxy.com/sun-pharma-to-acquire-ranbaxy-in-a-us4-billion-landmark-
transaction/
2. http://businesstoday.intoday.in/story/ranbaxy-acquisition-good-for-sun-pharma-shareholders-
experts/1/205526.html
3. Acquisition of Ranbaxy by SunPharma,Term Paper, IIM Indore,
4. https://www.thepharmaletter.com/listing/mergers-acquisitions/glaxosmithkline?tagid[]=5047
5. http://www.tatamotors.com/press/tata-motors-completes-acquisition-of-jaguar-land-rover/
6. https://www.adidas-group.com/en/investors/investor-events/reebok-acquisition/

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