“Benefits and Advantages of

global level Mergers and Acquisitions”‘Global strategic management’

Presentation by,Jithin KoshyNikhar GargAman Gupta

Abishek ShuklaAkarsh Gupta

We shall see following cases of merger ahead:-

What do mean by Merger and Acquisition?

Mergers and acquisitions (M&A) is the area of corporate finances, management and strategy dealing with purchasing and/or joining with other companies.

• In a merger, two organizations join forces to become a new business, usually with a new name.

• In an acquisition, one business buys a second and generally smaller company which may be absorbed into the parent organization or run as a subsidiary.

Different Types of Mergers

• A horizontal merger - This kind of merger exists between two companies who compete in the same industry segment.

• A vertical merger - Vertical merger is a kind in which two or more companies in the same industry but in different fields combine together in business.

• Co-generic mergers - Co-generic merger is a kind in which two or more companies in association are some way or the other related to the production processes, business markets, or basic required technologies.

• Conglomerate Mergers - Conglomerate merger is a kind of venture in which two or more companies belonging to different industrial sectors combine their operations.

Different Types of Acquisitions• Friendly acquisition - Both the companies approve

of the acquisition under friendly terms.

• Reverse acquisition - A private company takes over a public company.

• Back flip acquisition- A very rare case of acquisition in which, the purchasing company becomes a subsidiary of the purchased company.

• Hostile acquisition - Here, as the name suggests, the entire process is done by force.

Benefits of Mergers and Acquisitions• Greater Value Generation - Mergers and acquisitions

generally succeed in generating cost efficiency through the implementation of economies of scale. It is expected that the shareholder value of a firm after mergers or acquisitions.

• Gaining Cost Efficiency - When two companies come together by merger or acquisition, the joint company benefits in terms of cost efficiency. As the two firms form a new and bigger company, the production is done on a much larger scale.

• Increase in market share - An increase in market share is one of the plausible benefits of mergers and acquisitions.

• Gain higher competitiveness - The new firm is usually more cost-efficient and competitive as compared to its financially weak parent organization.

Now we start with Acquisition of

Nokia CEO Stephen Elop (left) and Microsoft CEO Steve Balmer shake hands at the announcement of Microsoft’s Acquisition of Nokia for $7.2 billion.

History of NOKIAWhile Nokia may remind most of us of only mobile phones, the company in fact started out as a paper mill, which was established in 1865 by mining engineer Fredrik Idestam at the Tammerkoski Rapids in south-western Finland.

• For 3 decade the nokia also ventured into electricity generation.

• In 1918, Finnish Rubber Works acquired Nokia to secure access to the latter’s hydro-power resources, and in 1922, Finnish Cable Works was also acquired by the newly formed conglomerate.

• In 1967, 3 company merger together and Nokia Corporation was born.

• The newly formed company mainly focused on four markets: paper, electronics, rubber, and cable.

Portfolio expansion• In 1979, Nokia entered into a joint venture with

leading Scandinavian color TV manufacturer Salora to create Mobira Oy, a radio telephone company.

• Nokia launched the world's first international cellular system dubbed Nordic Mobile Telephone network, which linked Sweden, Denmark, Norway, and Finland. This was followed by the launch of the company’s as well as world’s first car-phone dubbed Mobira Senator, which weighed in at around 10 kg.

• In 1988, the company introduced its first compact phone called Mobira Cityman 900.

• In 1991, world’s first GSM call was made by the then Finnish prime minister, Harri Holkeri. Unsurprisingly, it was made using Nokia equipment. The next year, the company’s first hand-held GSM phone Nokia 1011 was launched.

• BY 2000, Nokia was the world leader in the mobile phones market.

Nokia Acquisition Deal• What the business includes Mobile Phones and Smart Devices business units as well as the design team, operations including production facilities, sales and marketing activities and support functions • Human Resources transferral Approximately 32,000 people transfer to Microsoft at closing • Patents Included licensing rights of Nokia’s utility patents for 10 years at an additional 1.65 bn Euros

• Total purchase price The purchase price had two components: EUR 3.79 billion relates to the purchase of the Devices & Services business and EUR 1.65 billion relates to the mutual patent license agreement and future option

Opportunities for Microsoft after deal

•  Wider range of products •  Increase the chance of Innovation breakthrough •  Complementarity between products •  Increased costumer and company benefits

Benefits for Microsoft Internal External

• Better cost structureVertical integration between microsoft and nokia

• Control over technologyBeing able to develop both hardware and software with integrated innovation

• Customer orientedCostumers perception on microsoft with a full range from entertainment to productivity

• Market opportunitiesWider set of products, allowing microsoft to complete for better market shares.

CASE 2:-

CADBURY HISTORY• Cadbury Is A British Multinational Confectionery.

• Started By John Cadbury In 1824 (England).

• ITS Headquartered In Uxbridge, London (UK).

• Started Producing The World Famous Dairy Milk Chocolate In 1905.

• In 1969 The Cadbury Group Merged With Schweppes.

• Taken Over By Kraft Foods On 19 Jan 2010.

KRAFT FOODS HISTORY

• Kraft Foods Group Is an American manufacturing and processing company, headquartered in Chicago (USA).

• Kraft Food Company Formed In 10 Dec 1923 By Thomas Mclnnerney.

• IT Is The World’s Second Largest Food Company After Nestle With Presence In More Than 150 Countries.

• Its Famous Brands Is – Philadelphia Cheese, Oreo Biscuits & Trident Gum.

• Kraft Foods Group was focused mainly on grocery products.

Takeover & Mergers Of

• In August 2009 Krafts Chairman Irene Rosenfeld Meets Cadbury Chairman Roger Carr & Offers To Buy Cadburys Shares But Carr Dismissed The Approach.

• Kraft, the deal offers a chance to expand in emerging markets and in higher-growth sectors like gum and candy.

• Cadbury agreed to an improved takeover offer from Kraft Foods, worth about $19 billion.

• And Finally Kraft Sign a deal to buy Cadbury for £12 Billion.

Reasons For The Deal• Entering Emerging Market Through Cross border

Acquisitions. Like India, China Brazil, South Africa ETC

• Overcoming Entry Barriers In new Markets.

• Increasing Market Power.

• Breaking New Grounds By Cadbury.

• In india it is called MONDELEZ.

• It recently lauched in India called Cadbury choclairsgold.

• It has been loved by consumer over the year

• This versatile mix of emotion makes commercial ingaging.

www.sunpharma.com

www.ranbaxy.com

Creating theWorld’s 5th Largest

Specialty Generic Pharma CompanySun Pharma – Ranbaxy Merger – April 7, 2014

SunPharma Ranbaxy Acquisition

Introduction: Pharmacy Sector

• The pharmaceutical industry develops, produces, and markets drugs or pharmaceuticals licensed for use as medications. Pharmaceutical companies are allowed to deal in generic or brand medications and medical devices.

• The Pharmaceutical industry has grown from mere US$0.3 billion turnover in 1980 to 15 billion in 2012-2013.

• Globally, India ranks 3rd in terms of volume of production(10 per cent of global share) and 14th largest by value. (1.5 per cent of global share)

• The reason for lower value share is the lowest cost of drugs in India ranging from 5 to 50 per cent less as compared to developed countries.

Sun Pharma• Established in 1983, listed since 1994 and

headquartered in India, Sun Pharma is an international, integrated, specialty pharmaceutical company.

• In India, the company is a leader in niche therapy areas of psychiatry, neurology, cardiology, diabetology, gastroenterology, orthopedics and ophthalmology.

• The company has strong skills in product development, process chemistry, and manufacturing of complex dosage forms and APIs.

• The 2014 acquisition of Ranbaxy will make the company the largest pharma company in India, the largest Indian pharma company in the US, and the 5th largest speciality generic company globally.

Ranbaxy• Ranbaxy Laboratories Limited is an Indian

multinational pharmaceutical company that was incorporated in India in 1961. The company went public in 1973 and Japanese pharmaceutical company Daiichi Sankyo acquired a controlling share in 2008.

• Ranbaxy Limited is an integrated, research based, international pharmaceutical company producing a wide range of quality, affordable generic medicines, trusted by healthcare professionals and patients across geographies.

• Ranbaxy serves its customers in over 150 countries and has an expanding international portfolio of affiliates, joint ventures and alliances, ground operations in 43 countries and manufacturing operations in 8 countries.

• In 2011, Ranbaxy Global Consumer Health Care received the OTC Company of the year award.

SunPharma + Ranbaxy=

Profile of a New Global Leader

Acquisition• Apr 06, 2014:To create world’s 5th largest

specialty generic pharma company• No. 1 pharma company in India with

leadership position in 13 specialty segments• No. 1 Indian pharma company in the US• Daiichi Sankyo to become the second largest

shareholder in Sun Pharma

Why Ranbaxy?• Ranbaxy has got a lot of ANDA's (Abbreviated

New Drug Application) approved for marketing in USA. Their problem is to find an API plant because main source of API was from Toansa. If Sun Pharma fills this gap, Ranbaxy can begin its export to the USA. So, Sun Pharma has got into this deal at the right time and deal has an upside for all the shareholders.

• Sun Pharma’s managing director Dilip Shanghvi has acquired a reputation for acquiring companies in trouble at a good price, and then turning around their operations

Why Daichi sold Ranbaxy

• Daiichi faced criticism after Ranbaxy’s plants came under the US Food and Drug Administration’s (FDA’s) 

• Ranbaxy’s inability to overcome its FDA-related problems has put pressure on its promoters.

• With Sun Pharma acquiring Ranbaxy, Daiichi is relieved of the burden of managing Ranbaxy’s problems. It will hold a 9% stake in Sun Pharma, as a result of its current stake in Ranbaxy.

Valuation• Sun Pharmaceutical Industries fully acquired

troubled Ranbaxy Laboratories, in an all-stock transaction with a total equity value of USD 3.2 billion.

• Under these agreements, Ranbaxy shareholders received 0.8 share of Sun Pharma for each share of Ranbaxy.

• The deal lead to 16.4% dilution in the equity capital of Sun Pharma. This is because its total equity value is $3.2 billion and the deal size is $4 billion

• The combined entity’s revenues were USD 4.2 billion with EBITDA of USD 1.2 billion for the twelve month period ended December 31, 2013.

Transaction HighlightsSun Pharma to acquire Ranbaxy• Ranbaxy shareholders to get 0.8 shares of

Sun Pharma stock for every share of Ranbaxy

• Deal size approximately US$ 4 billion.• Daiichi Sankyo to become the second

largest shareholder in SunPharma. Strategic business relationship to continue with SunPharma Voting Agreements

• Daiichi Sankyo to vote in favor of transaction (~63.5% ownership) SunPharma promoters to vote in favor of transaction (~63.7% ownership)

Indemnity:• In connection with the transaction, Daiichi

Sankyo has agreed to indemnify SunPharma and Ranbaxy for, among other things, certain costs and expenses that may arise from the recent subpoena which Ranbaxy has received from the United States Attorney for the Toansa facility.

• Conditions to close:• Requisite approval of Sun Pharma and

Ranbaxy shareholders• Approval of the Indian Central Government

and various other regulatory bodies

Advisors• Citi and Evercore were acting as financial

advisors for the transaction to Sun Pharma. Sun Pharma’s legal advisors are Shearman & Sterling LLP, Crawford Bayley & Co and S. H. Bathiya & Associates.

• Ranbaxy’s financial advisor for the transaction is ICICI Securities and its legal advisors are Luthra & Luthra Law Offices and Amarchand & Mangaldas & Suresh A Shroff & Co.

• Daiichi Sankyo’s financial advisor for the transaction is Goldman Sachs and its legal advisors are Davis Polk & Wardwell LLP and Amarchand & Mangaldas & Suresh A Shroff & Co.

Problems to be faced by SunPharma

• The deal, has also seen Sun assume $800 million of debt on Ranbaxy’s books, needs shareholder and regulatory clearances.

• Ranbaxy’s all four plants have been banned by the USDFA for violations of manufacturing norms. In 2013, the company agreed to pay USD 500 million fine after pleading guilty to felony charges over manufacturing and distribution of adulterated drugs in the US.

Conclusion• That was the right time for Sun Pharma to buy

Ranbaxy. Ranbaxy's problem with US Food and Drug Administration (FDA) cannot get more intense than they are already, things can only improve from now onwards. There will be tremendous synergy between the two companies when they are merged as single entity. It will be the largest Indian generic company and the fifth largest in the world.

• The merger will see Sun Pharma’s revenue jump by a healthy 40% but its operating profit will rise by a meagre 7.5%, based on pro forma 2013 financials. Its operating profit margin will decline from 44.1% to 29.2%. Thus, the merger will have a negative effect on its performance in the near term.

Bibliography• http://www.rediff.com/business/report/

benefit-of-ranbaxy-deal-to-accrue-in-few-years-sun-pharma/20140929.htm

• http://businesstoday.intoday.in/story/nokia microsoftshareholders-experts/1/205526.html

• www.sunpharma.com• www.cadbury.com• www.moneycontrol.com • www.kraftfoods.com