Case study 1: Ranbaxy Daichi

Ranbaxy Overview

The DEAL

Daiichi got to acquire a controlling stake .51.62% in Ranbaxy for $ 3.4-4.6 billion Singh family promoters of Ranbaxy sold entire stake 34.8% for Rs 10000 crs ($2.4 bio) at Rs 737/Daiichi had to make an open offer to acquire 20% more from other shareholders. Japanese company was to acquire another 4.9% through preferential of share warrants Ranbaxy was to get $1bn via preferential allotment, funds were to be used to 2 retire debt

The DEAL

Reasons for Takeover

Daiichi
A complementary business combination An expanded global reach Strong growth potential Cost competitiveness by optimizing usage of R&D and manufacturing facilities

Ranbaxy
The R&D pipeline was not delivering enough products, the generic market was not generating adequate returns. Ranbaxy had three choices It could spend lot of money in acquiring a big generic company to grow inorganically Merge with a global player Sell-out The sell out option was most profitable
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Conclusion

Joint Ventures (JV)

JV is an entity formed between two or more parties to undertake economic activity together. The parties agree to create a new entity by both contributing equity, and they then share in the revenues, expenses, and control of the enterprise. The venture can be for one specific project only, or a continuing business relationship such as the Sony Ericsson joint venture. This is in contrast to a strategic alliance, which involves no equity stake by the participants, and is a much less rigid arrangement. Project Based JV: These are Joint Ventures entered into by companies in order to accomplish a specific project. Functional JV: These are Joint Ventures wherein, companies agree to share their functions and facilities such as production, distribution, marketing, etc. to achieve mutual benefit
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JV- Goals, Benefits

Goals Synergies Transfer of technology/skills Diversification Benefits Complementary Benefits Acquiring and Sharing Expertise New Business / Product Development Capacity Expansion
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JV- Issues
Issues in Joint Ventures Due Diligence Business Strategy Development of HR Strategies Implementation

Case Study 2: Maruti Suzuki Joint Venture

HISTORY

Maruti Udyog Ltd was established in February 1981 Actual Production commenced in 1983 with Maruti 800 Project Maruti started by Indira Gandhi & Sanjay Gandhi Indian experts started search for collaborators Negotiated with Toyota, Nissan, Honda & Suzuki After rounds of negotiation Suzuki was selected Joint venture of Govt of India & Japanese Company Suzuki Motors Corp Previously Govt of India owned 80% equity & Suzuki had 20% Now Indian Financial Institute has 18.28%, Suzuki has 54.24% & 25% equity is public offering
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SWOT Analysis
STRENGTHS Goodwill of Suzuki Brand Contemporary Technology Market Share & reliability

WEAKNESS Japan for technical support OPPORTUNITIES Infrastructure Innovation THREATS Govts Policies, taxes etc
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BENEFITS OF JOINT VENTURE

For Maruti Suzuki Motor Corporation, the parent company, is a global leader in mini and compact cars for three decades Suzukis technical superior Lightweight engine that is clean and fuel efficient Nearly 75000 people are employed directly by Maruti Suzuki and its partners For Suzuki Large Indian Market Monopolistic trade in the Indian automobile market Availability of resources
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Case Study 3: Hero Honda Joint Venture

The Market before JV

The license raj that existed prior to economic liberalization (1940s-1980s) in India did not allow foreign companies to enter the market. In the mid-80s when the Indian government started permitting foreign companies to enter the Indian market through minority joint ventures.

The entry of these new foreign companies transformed the very essence of competition from the supply side to the demand side. 12

The Deal Is Done.(June 1984)

Honda agreed to provide tech. know-how to HHM and setting up manufacturing facilities. This included the future R & D efforts. Honda agreed for a lump sum fee of $500,000 & 4% royalty on SP. Both Partners held 26% of the equity with other 26% sold to the public and the rest held to financial institutions.
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Success Story
HHM had grown consistently, earning the title of the worlds largest motorcycle manufacturer Worlds largest two-wheeler manufacturer with annual sales volume of over 2 million motorcycles. Owns worlds biggest selling motorcycle brand Hero Honda Splendor.

Over 9 million motorcycles on Indian roads.

Deep market penetration with 5000 outlets.
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Reasons for success

The deep penetration network of hero largely benefited the sales. Absence of major competitors in initial years. Sound and proven technical capabilities of Honda and the reliability of Hero.

Increased market for motorcycles

Better Fuel efficiency. Change in peoples perception. Decrease in price difference with scooters.
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Wholly Owned Subsidiary

What Does Wholly Owned Subsidiary Mean? A subsidiary whose parent company owns 100% of its common stock. In other words, the parent company owns the company outright and there are no minority owners.

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Case Study 4: Dr Reddys & Betapharma

- The Acquirer
Among the largest domestic pharma companies in India Annual turnover of over INR 4900 Cr. Annual PAT of INR 438 Cr. Approved by USFDA, MHRA (UK) Formulations make 37% of companys product mix; generic products account for 13%
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- The Target
Fourth largest generic pharma company in Germany EBITD margins between 24 26% Portfolio of over 145 products
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- The Target
Turnover Eur 186 million 3.5 market share in Germany Breakup of products

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Valuations - The Target

Sticker Price of 480 mn. from PE firm 3i Revenues of 165 mn. 2.9X revenues and 12X EBITDA The transaction was funded using a combination of DRLs internal cash reserves and committed credit facilities Dr Reddy's buys 100% equity of German Co Betapharm for Rs 2,250 cr (Euro 480 mio) Biggest overseas acquisition by an Indian pharma co
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Goodies for DRL

Access to lucrative German generic drug market Enhanced portfolio Leverage its product development skills and lowcost manufacturing in India to boost Betapharms EBIT margins Help DRL realize its ambitions of becoming a $1 billion mid-size global pharma company

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Side Effects for DRL

Betapharm booked losses in 08 & 09 Raw materials problems in Mexico The German market underwent significant changes after it acquired the company, shifting to a tender-based model wherein the insurance companies called for tenders from drug makers and the lowest bidder got the order for supply of drugs Absence of upsides (revenues arising out of marketing exclusivity of authorized generics)
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Present Scenario for DRL

DRL has long been bleeding under the impact of Betapharms losses Decline in German sales by 26 per cent Dr Reddy's Laboratories (DRL) is currently restructuring German subsidiary Betapharm Fierce competitive bidding from various generic companies has increased the acquisition cost for DRL and extended the payback period

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Case Study 5: Tata Corus Merger

'Tata Steel', formerly known as TISCO (Tata Iron and Steel Company Limited), was the world's 56th largest and India's 2nd largest steel company with an annual crude steel capacity of 3.8 million tonnes. Post Corus merger, Tata Steel is India's secondlargest and second-most profitable company in private sector with consolidated revenues of Rs 1,32,110 crore and net profit of over Rs 12,350 crore during the year ended March 31, 2008
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Corus Overview
Corus was formed from the merger of Koninklijke Hoogovens N.V., a Dutch steel producer with British Steel Plc on 6 October 1999. It has major integrated steel plants in UK and Netherlands. Group turnover for the year to 31 December 2005 was 10.142 billion. Profits were 580 million before tax and 451 million after tax.
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Synergies from the deal

Some of the prominent synergies that could arise from the deal were as follows : Tata was one of the lowest cost steel producers in the world and had self sufficiency in raw material. Corus was fighting to keep its productions costs under control and was on the look out for sources of iron ore. Tata had a strong retail and distribution network in India and SE Asia. This would give the European manufacturer a in-road into the emerging Asian markets. Tata was a major supplier to the Indian auto industry and the demand for value added steel products was growing in this market. Hence there would be a powerful combination of high quality developed and low cost high growth markets There would be technology transfer and cross-fertilization of R&D capabilities between the two companies that specialized in different areas of the value chain There was a strong culture fit between the two organizations both of which highly emphasized on continuous improvement and ethics. Tata steel's Continuous Improvement Program Aspirewith the core values :Trusteeship,integrity,respect for individual, credibility and excellence. Corus's Continuous Improvement Program The Corus Way with the core values : code of ethics, integrity, creating value in steel, customer focus, selective growth and respect for our people.
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Valuation
On 20 October 2006 the board of directors of Anglo-Dutch steelmaker Corus accepted a $7.6 billion takeover bid from Tata Steel, the Indian steel company. Tata Steel's bid to acquire Corus Group was challenged by CSN, the Brazilian steel maker. In November 2006,Brazilian steel marker Companhia Siderrgica Nacional (CSN) challenged Tata Steel's proposal for acquisition. They countered Tata Steel's offer of 455 pence per share by offering 475 pence per share of Corus. Finally , on January 30, 2007, Tata Steel purchased a 100% stake in the Corus Group at 608 pence per share in an all cash deal, cumulatively valued at USD 12.04 Billion. The deal is the largest Indian takeover of a foreign company and made Tata Steel the world's fifth-largest steel group.
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Funding the deal TATA Corus merger

$3.53.8bn infusion from Tata Steel ($2bn as its equity contribution, $1.51.8bn through a bridge loan) $5.6bn through a LBO ($3.05bn through senior term loan, $2.6bn through high yield loan) The funding structure of this deal is the leveraged buyout model that Tata Steel used to fund the Corus buy. Effectively, the Tatas are paying only a third of the acquisition price. This was possible because Corus had relatively low debt on its balance sheet and was able to borrow more.

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Case Study 6: HINDALCO - NOVELIS ACQUISITION: CREATING AN ALUMINIUM GLOBAL GIANT Indian aluminium giant Hindalco acquired Atlanta based company Novelis Inc, a world leader in aluminium rolling and flat-rolled aluminium products in May 2007. Novelis processes around 3 million tonnes of aluminium a year and has sales centers all over the world. In fact, it commands a 19% global market share in the flat rolled products segment, making it a leader. Strategically, the acquisition of Novelis takes Hindalco onto the global stage as the leader in downstream aluminium rolled products. The transaction made Hindalco the world's largest aluminium rolling company and one of the biggest producers of primary aluminium in Asia, as well as being India's leading copper 29 producer.

Novelis - Background
World leader in the recycling of used aluminium beverage cans Recycles more than 35 billion used beverage cans annually. No. 1 rolled products producer in Europe, South America and Asia, and the No. 2 producer in North America. Produces the highest-quality aluminium sheet and foil products for customers in high -value markets including automotive, transportation, packaging, construction and printing. customers include major brands such as Agfa -Gevaert, Alcan, AnheuserBusch, Ball, Coca-Cola, Crown Cork & Seal, Daching Holdings, Ford, General Motors, Lotte Aluminium, Kodak, Pactiv, Rexam, Ryerson Tull, Tetra Pak, ThyssenKrupp, etc.

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Financing Structure put in place by Novelis Enterprise Value ~ USD 6 billion All cash deal Hindalco
HINDALCO
Figures in USD Millions

NOVELIS

Recourse Financing by banks on Corporate Guarantee of Hindalco

3100

Non Recourse Debt at Novelis

Term Loans
Liquidation of Treasury

1000 1400
2400

450 3550

High Yield Bonds TOTAL

TOTAL
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Benefits to Hindalco
establish Hindalco as a global integrated aluminium producer with low-cost alumina and aluminium production facilities combined with high -end aluminium rolled product capabilities. emerge Hindaloc as the biggest rolled aluminium products maker and fifth -largest integrated aluminium manufacturer in the world. The acquisition will give the company immediate scale and strong a global footprint. Hindalco's position as one of the lowest cost producers of primary aluminium in the world is leverageable into becoming a globally strong player. Novelis is a globally positioned organization, operating in 11 countries with approximately 12,500 employees. Novelis will work as a forward integration for Hindalco as the company is expected to ship primary aluminium to Novelis for downstream value addition. Novelis has a rolled product capacity of approximately 3 million tonne while Hindalco does not have any surplus capacity of primary aluminium.

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