You are on page 1of 13

Case Study on Merging of Ranbaxy and Diichi


Ranbaxy Companies Profile

Ranbaxy Pharmaceuticals Inc. (RPI), a wholly owned subsidiary of Ranbaxy

Laboratories Limited. (RLL), was established in the U.S. in 1994. RPI began
marketing FDA approved generic products in the U.S. in 1998 after receiving
its first FDA approval for Cefaclor, a broad spectrum anti-infective agent.

Ranbaxy Laboratories Inc. (RLI), also a wholly owned subsidiary of Ranbaxy

Laboratories Limited. (RLL), is the branded prescription division in the U.S.
RLI has been expanding and growing on the strength of Ranbaxy’s R&D
efforts, and continuing exploration of novel drug delivery systems (NDDS),
licensing activities, mergers and acquisitions. RLI is expanding the visibility
and presence of the Ranbaxy name by bringing value-added brand products
to the market.

Ranbaxy Pharmaceuticals Inc. and RLI have built on RLL's years of

successful pharmaceutical experience and expertise. Ranbaxy has
positioned itself as a robust and capable player in the U.S. market through
the combined commitment of RPI and RLI to developing new and innovative
products and a rapidly expanding generic and brand product portfolio.

Daiichi Sankyo Companies Profile

Daiichi Sankyo Company, Limited was established on September 28, 2005

as the joint holding company of two major Japanese pharmaceutical
companies - Sankyo Company, Limited and Daiichi Pharmaceutical Co., Ltd.
Daiichi Sankyo is a global pharmaceutical innovator, continuously
generating innovative drugs and services and maximizing its corporate
value. Sankyo and Daiichi Pharmaceutical have a broad range of major drug
products on the Japanese market, including the antihypertensive Benicar
(olmesartan medoxomil) and the synthetic antibacterial agent Cravit
(levofloxacin). Both companies have used their cumulative knowledge and
expertise in the field of cardiovascular disease as a foundation for
developing an abundant product lineup and R&D pipeline.

The Merging Deal

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%.

At the end of the exercise, scheduled to be completed by March 2009,

Ranbaxy will become a subsidiary of Daiichi Sankyo. Despite all the denials
from Ranbaxy leadership, an Indian icon will vanish. (Similar circumstances
drove Sunil Mittal of Bharti Airtel to walk out of a deal with MTN of South
Africa; he wouldn't compromise the Airtel brand which had become "the
pride of India.")

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.

Getting into Japan

As much smaller companies than Ranbaxy have gone to Japan, shopping

bag in hand, why didn't Singh try to purchase Daiichi Sankyo instead of
selling? Domestic laws make Japanese companies difficult to take over. But
there surely could have been an equivalent in Europe or the US. The Tatas
and the Birlas have successfully targeted foreign companies several times
their size. Why did Ranbaxy follow a different prescription?

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

• A complementary business combination that provides sustainable

growth by diversification that spans the full spectrum of the pharmaceutical
• An expanded global reach that enables leading market positions
in both mature and emerging markets with proprietary and non-proprietary
• Strong growth potential by effectively managing opportunities
across the full pharmaceutical life-cycle.
• Cost competitiveness by optimizing usage of R&D and
manufacturing facilities of both companies, especially in India."

Post-acquisition Objectives

In light of the above analyses, Daiichi Sankyo’s focus is to develop new

drugs to fill the gaps and take advantage of Ranbaxy’s strong areas. To
overcome its current challenges in cost structure and supply chain, Daiichi
Sankyo’s primary aim is to establish a management framework that will
expedite synergies. Having done that, the company seeks to reduce its
exposure to branded drugs in a way that it can cover the impact of margin
pressures on the business, especially in Japan. In a global pharmaceutical
industry making a shift towards generics and emerging market
opportunities, Daiichi Sankyo’s acquisition of Ranbaxy signals a move on
the lines of its global counterparts Novartis and local competitors Astellas
Pharma, Eesei and Takeda Pharmaceutical. Post acquisition challenges
include managing the different working and business cultures of the two
organizations, undertaking minimal and essential integration and retaining
the management independence of Ranbaxy without hampering synergies.
Ranbaxy and Daiichi Sankyo will also need to consolidate their intellectual
capital and acquire an edge over their foreign counterparts.


In summary, Daiichi Sankyo’s move to acquire Ranbaxy will enable the

company to gain the best of both worlds without investing heavily into the
generic business. The patent perspective of the merger clearly indicates the
intentions of both companies in filling the respective void spaces of the
other and emerge as a global leader in the pharmaceutical industry.
Furthermore, Daiichi Sankyo’s portfolio will be broadened to include steroids
and other technologies such as sieving methods, and a host of therapeutic
segments such as anti-asthmatics, anti-retrovirals, and impotency and anti-
malarial drugs, to name a few. Above all, Daiichi Sankyo will now have
access to Ranbaxy's entire range of 153 therapeutic drugs across 17 diverse
therapeutic indications. Additional NDAs from the US FDA on anti-
histaminics and anti-diabetics is an added advantage.

Case Study on Merging of Adidas and Reebok


Reebok Companies Profile

Reebok International Limited, a subsidiary of German sportswear

giant Adidas, is a producer of athletic footwear, apparel, and accessories.
Joe and Jeff Foster founded Mercury Sports. In 1960, Joe and Jeff Foster
renamed the company Reebok in England, having discovered the name in
a dictionary won in a race by Joe Foster as a boy. The name comes from
the Afrikaans spelling of rhebok, a type of African antelope or gazelle. The
dictionary was a South African edition, hence the spelling.
In 1979, United States camping equipment distributor Paul B. Fireman saw a
pair of Reeboks at an international trade show and negotiated for the rights
to sell them in North America, where they did very well despite being pricier
than competitors Adidas, Nike and Puma.
In 1999, Reebok developed a new innovative fabric that holds any dirt
picked to avoid creating mess. The fabric was later specifically used for all
Reebok socks.

Adidas Companies Profile

Adidas is a major German-based sports apparel manufacturer and parent
company of the Adidas Group, which consists of the Reebok sportswear
company, TaylorMade-adidas golf company (including Ashworth),
and Rockport. Besides sports footwear, the company also produces other
products such as bags, shirts, watches, eyewear and other sports and
clothing related goods. The company is the largest sportswear manufacturer
in Europe and the second biggest sportswear manufacturer in the world,
after its U.S. rival Nike.
The company's clothing and shoe designs typically feature three parallel
bars, and the same motif is incorporated into Adidas's current official logo.
The "Three Stripes" were bought from the Finnish sport company Karhu
Sports in the 1950s. The company revenue for 2009 was listed at €10.38
billion and the 2008 figure at €10.80 billion.

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
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.

Adidas-Salomon AG Chairman and CEO Herbert Hainer said, “We are

delighted with the closing of the Reebok transaction, which marks a new
chapter in the history of our Group. By combining two of the most respected
and well-known brands in the worldwide sporting goods industry, the new
Group will benefit from a more competitive worldwide platform, well-defined
and complementary brand identities, a wider range of products, and a
stronger presence across teams, athletes, events and leagues.”

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.”

Adidas plus Reebok is equal to better competition with giant Nike

In 2006, Adidas (the German athletic apparel and the world’s second-
biggest sports goods maker after Nike) acquired Reebok in a US$3.1 billion
deal. The merger was aimed at helping Adidas increase its share in the U.S.
market and better compete with market leader Nike Inc. and fourth ranked
Puma AG. At the time experts felt that the merger made sense. But the key
challenge was to unite Adidas’s German culture of control, engineering, and
production and Reebok’s U.S. marketing- driven culture.

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

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.

Meanwhile, Nike announced (Mar 3, 2008) that it has completed its

acquisition of Umbro Plc. Nike’s Umbro takeover is an effort to consolidate
its position in the football market where Adidas has performed well. Last
year, Nike’s CEO Mark Parker outlined a brave plan to increase the
company’s business to $23 billion in revenue by 2011. Will Nike do it or will
the Adidas-Reebok merger spoil its plans, still remains to be seen.

Case Study on merging of Kingfisher Airlines and Air


Air Deccan Profile

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

Kingfisher Airlines is an airline group based in India. Its head office is

Kingfisher House in Vile Parle (East), Mumbai.[3][4] Kingfisher Airlines, through
its parent company United Breweries Group, has a 50% stake in low-cost
carrier Kingfisher Red.
Kingfisher Airlines is one of six airlines in the world to have a 5-star rating
from Skytrax, along with Asiana Airlines, Cathay Pacific, Malaysia
Airlines, Qatar Airways and Singapore Airlines. Kingfisher operates more
than 375 daily flights to 71 destinations, with regional and long-haul
international services. In May 2009, Kingfisher Airlines carried more than a
million passengers, giving it the highest market share among airlines in


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.

After the merger, the company has a combined fleet of 71 aircrafts,

connects 70 destinations and operates 550 flights in a day. The combined
entity has a market share of 33%. Gopinath would continue as the Executive
Chairman and Malay would take charge as Vice Chairman.

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.

It is also India’s largest private sector helicopter charter company, which

pioneered helitourism in India. It offers point to point service. It has a
secondary hub at Chennai.*Deccan Aviation is the largest private sector
helicopter charter company in India. It has a fleet of 12 helicopters and
small aircraft deployed in 8 bases across India. These bases are at
Bangalore, Mumbai, Delhi, Ranchi, Hyderabad, Surat, Katra and Colombo
(Sri Lanka). There are many changes that have taken place. This period of
consolidation in the sky gives a good signal to the airlines industry. It may
lead to reducing the over-capacity existing in the market and thereby
stabilizing prices, increasing yields and bringing down costs. The era of
cheap fares might also come to an end.

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.

Name: Priya Rao

Class: TY BMS
Roll No.: 32
Subject: Financial Management
Topic: Case Study on Merger And