Re: Motives behind M & A

[Guest guest]

Dear Members:

Listed below are some motives behind M & A and some of their advantages as per Mr. D. S. Barar, former CEO of Ranbaxy Pharmaceuticals Ltd.

Motives behind M & A8

These motives are considered to add shareholder value:

• Economies of Scale: This generally refers to a method in which the average cost per unit is

decreased through increased production, since fixed costs are shared over an increased

number of goods. In a layman’s language, more the products, more is the bargaining power.

This is possible only when the companies merge/ combine/ acquired, as the same can often

obliterate duplicate departments or operation, thereby lowering the cost of the company

relative to theoretically the same revenue stream, thus increasing profit. It also provides

varied pool of resources of both the combining companies along with a larger share in the

market, wherein the resources can be exercised.

• Increased revenue /Increased Market Share: This motive assumes that the company will be

absorbing the major competitor and thus increase its power (by capturing increased market

share) to set prices.

• Cross selling: For example, a bank buying a stock broker could then sell its banking

products to the stock brokers customers, while the broker can sign up the bank’ customers

for brokerage account. Or, a manufacturer can acquire and sell complimentary products.

• Corporate Synergy: Better use of complimentary resources. It may take the form of revenue

enhancement (to generate more revenue than its two predecessor standalone companies

would be able to generate) and cost savings (to reduce or eliminate expenses associated

with running a business).

• Taxes : A profitable can buy a loss maker to use the target’s tax right off i.e. wherein a sick

company is bought by giants.

• Geographical or other diversification: this is designed to smooth the earning results of a

company, which over the long term smoothens the stock price of the company giving

conservative investors more confidence in investing in the company. However, this does not

always deliver value to shareholders.

• Resource transfer: Resources are unevenly distributed across firms and interaction of target

and acquiring firm resources can create value through either overcoming information

asymmetry or by combining scarce resources. Eg: Laying of employees, reducing taxes etc.

• Improved market reach and industry visibility - Companies buy companies to reach new

markets and grow revenues and earnings. A merge may expand two companies' marketing

and distribution, giving them new sales opportunities. A merger can also improve a

company's standing in the investment community: bigger firms often have an easier time

raising capital than smaller ones.

Advantages of M & A’s:

The general advantage behind mergers and acquisition is that it provides a productive platform for

the companies to grow, though much of it depends on the way the deal is implemented. It is a way

to increase market penetration in a particular area with the help of an established base. As per Mr

D.S Brar (former C.E.O of Ranbaxy pharmaceuticals), few reasons for M & A’s are:9

• Accessing new markets

• maintaining growth momentum

• acquiring visibility and international brands

• buying cutting edge technology rather than importing it

• taking on global competition

• improving operating margins and efficiencies

• developing new product mixes(Ref: Mergers and Acquisitions in India - A general Analysis

Kanwardeep Singh Panjrath and Navpreet Panjrath)

With regards

Dr. Geer M. Ishaq

Story So Far....

Hi NetRUMians,

In the last few years, the Indian Pharma companies have been a part of numerous "Mergers and Acquisitions"Here is a gist of some of them :

Story so far...In India:

Year 2006: In the year 2006, the Indian pharmaceutical companies had executed more than 40 deals with 32 cross-border transactions worth about $2,000 million which included deals like Dr Reddy's acquisition of Betapharm of Germany for Euro 480 million (Rs 2,550 crore) and Milpharm of the UK and Ranbaxy's Terapia buy in Romania for $324 million (over Rs 1,250 crore), Ethimed of Belgium, GSK's facilities in Spain and Italy, Terapia and Be-Tabs of South Africa.

Year 2007: In the year 2007, the Indian Pharma industry witnessed about 25 mergers and acquisitions (M & A), with 15 cross border transactions with an estimated value of about $600-700 million. Had the Taro Pharma (Israel) acquisition by Sun Pharma been successful ($400 million+ deal), it would have been a whopping $1 billion worth transactions in 2007.

The major pharmaceutical M & A deals in 2007 were Wockhardt's acquisition of the French company Negma Laboratories for $265 million (Rs 1,045 crore) and the US-based Morton Grove Pharmaceuticals for $38 million (Rs 150 crore), Jubilant Organosys' acquisition of Hollister-Stier Laboratories of the US for $122.5 million (about Rs 500 crore) and Alembic's buyout of the entire domestic non-oncology formulation business of Dabur Pharma for Rs 159 crore.

(Source: http://www.rediff. com/money/ 2007/dec/ 31pharma. htm )Sincerely,-- Dr.Manoj Swaminathan MBBS, MPHPharmacovigilance PhysicianSciformix Technologies (P) LtdMLD Complex, MIDC, Andheri (E)Mumbai 400093India.Tel: +91-22-67304339

Not happy with your email address? Get the one you really want - millions of new email addresses available now at -- Dr.Manoj Swaminathan MBBS, MPHPharmacovigilance PhysicianSciformix Technologies (P) LtdMLD Complex, MIDC, Andheri (E)Mumbai 400093India.Tel: +91-22-67304339

Download prohibited? No problem. CHAT from any browser, without download. -- Dr.Manoj Swaminathan MBBS, MPHPharmacovigilance PhysicianSciformix Technologies (P) LtdMLD Complex, MIDC, Andheri (E)Mumbai 400093India.Tel: +91-22-67304339

Bring your gang together. Do your thing. Find your favourite Group.