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QUESTIONS
FOR
CASE
STUDY ASSIGNMENT
Mergers
& Acquisitions and Strategic Alliance
Licensed
for use by the students of the
Executive MBA Program,
The Icfai University.
Not to be reproduced.
Executive MBA Program,
The Icfai University.
Not to be reproduced.
QUESTIONS FOR CASE
STUDY ASSIGNMENT
Mergers
& Acquisitions and Strategic Alliance
ANSWER
THE QUESTIONS FOR ANY TEN CASE STUDIES
Questions
for 18 case studies are given below. Each case study assignment has 2 questions.
Students are required to answer questions for any 10 case studies (20 answers).
Students are advised to submit answers for all 10 cases in one go, for results
to be adjudged in one instance.
1. The
betapharm Acquisition: DRL’s Inorganic Growth Strategy in Europe
a. Many experts believed that it was
difficult for Dr. Reddy’s Laboratories Limited (DRL) to establish a strong
marketing infrastructure and get instant access to German market through
organic growth. Discuss in general the various advantages and disadvantages of
adopting organic and inorganic growth strategies in organizations. Also,
justify the inorganic growth strategy adopted by DRL in Europe.
Answer: Dr Reddy’s Laboratories (DRL) was promoted in 1984 by Anji Reddy, a
pioneering scientist-entrepreneur, as a manufacturer of bulk drugs or active
pharmaceutical ingredients (APIs). Over the last three decades, DRL has emerged
as an integrated global pharmaceutical company offering a wide range of
products including APIs, generics, biosimilars, and differentiated
formulations. Nearly 80% of the company’s revenues are derived from overseas
markets that include the United States (US), Russia
b. Discuss the rationale behind DRL’s
acquisition of betapharm. Critically analyze the pros and cons of this
cross-border acquisition.
Answer: Acquisitions are very, very risky. The execution risk in
acquisitions is much higher than in organic growth because there are very few
factors that you can control once an acquisition is made. First, I think the
company should be very clear about why it is acquiring at all. Today, we spend
a lot of time writing down the hypothesis for the acquisition and the rationale
for it, without get carried away by the size. Acquiring for size is a stupid
approach, according to me. I think you need to acquire only when you can take
the asset and create much greater value than before. Two plus two can become
six or seven if you have a very strong strategic rationale and approach for
what you will do with the
2. Fortis’s
Acquisition of Wockhardt Hospitals
a. Comment on Fortis’s strategy of
inorganic growth in the Indian healthcare industry with a special note on the
rationale behind its acquisition of 10 Wockhardt hospitals. Critically analyze
the pros and cons of the acquisition.
Answer: Inorganic growth is typically the result of a deal between two
businesses. Sometimes the two businesses merge, sometimes one buys another
outright, and sometimes one business buys the clients from another business.
Whatever the case, this is growth that would not happen as the result of
everyday, organic business operations.
b. Identify the challenges Fortis is
going to face in the future, and explore strategies it can adopt to overcome
the challenges.
Answer: Wockhardt Hospitals Ltd, promoted by the founders of pharma major
Wockhardt Ltd, on Friday sold ten of the 17 hospitals it owns to New
Delhi-based Fortis Healthcare, India’s biggest hospital chain by market value,
for Rs 909 crore.
It plans to use
Rs 500 crore of the money raised to repay debt, making Wockhardt Hospitals
nearly debt-free, and the rest to set up, surprisingly
3. The
Adidas – Reebok Merger
a. Examine the circumstances that led
Adidas to acquire Reebok. Was it a move driven by compulsion or by choice?
Justify your answer.
Answer: BY now, Madison Avenue has become used to the consolidation of big
clients that sell consumer products in competitive categories: Daimler-Benz
buying Chrysler, Coors and Molson merging, Whirlpool possibly acquiring Maytag.
Even so, the announcement yesterday that Adidas-Salomon would take over Reebok
International sent executives scurrying to assess the potential effects of the
deal on the hard-fought
b. Examine the integration efforts
planned by Adidas. Assuming that there are no regulatory pressures, what would
be the best strategy for Adidas to employ in order to handle product overlaps?
Give reasons for your answer.
Answer: One of the more pressing issues of subcontracted labour is the
non-payment of a legally mandated terminal compensation (‘severance’). In 2011,
the PT Kizone factory in Indonesia was forced to close and 2,700 workers were
left immediately without jobs. The factory produced for Nike, Adidas and the
Dallas Cowboys. As indicated in a report by the Workers Rights Consortium
(WRC), Nike and the Cowboys immediately agreed to pay their share of what was
owed, £1m and £33k respectively.
4. CEMEX’s
Acquisition Strategy – The Acquisition of Rinker Group
a. As most of CEMEX’s growth came from
acquisitions, the company had developed strong post-merger expertise. What,
according to you, are the advantages that a company gains from such an
expertise? Discuss with special emphasis on deals leading to geographical
diversification.
Answer: CEMEX S.A.B. de C.V., known as Cemex, is a Mexican multinational
building materials company headquartered in San Pedro, near Monterrey, Mexico.
It manufactures and distributes cement, ready-mix concrete and aggregates in more
than 50 countries. It is the second largest building materials company
worldwide, only after LafargeHolcim.
Lorenzo Zambrano
was the chairman and chief executive officer until his death on May 12, 2014.
About one-third of the company's sales come from its
b. Analysts said that CEMEX was
refinancing debt payment rather than paying it. Give suggestions on how CEMEX
can overcome its excessive debt problems.
Answer: CEMEX was founded with the opening of Cementos Hidalgo, in 1906.
Meanwhile, Cementos Portland Monterrey began operations in 1920, and in 1931,
the two companies merged, becoming Cementos Mexicanos, now CEMEX. In the 1960s,
CEMEX grew significantly when it acquired several more plants throughout
Mexico. In 1976, the company went public on the Mexican stock exchange, and
that same year, became the largest cement producer in Mexico with the purchase
of three plants from
5. The
Polaris – OrbiTech Merger
a. Discuss the reasons for the
Polaris-OrbiTech merger. Also, discuss the different problems associated with
the merger of cross-border IT software companies.
Answer: Under the terms of the merger, the shareholders of OrbiTech were to
receive 14 newly issued equity shares of Polaris (face value of Rs 5) each, for
every 25 OrbiTech shares (face value of Rs 2) held by them.
The swap ratio
was arrived at on the basis of the enterprise value of the two companies,
valued by Ernst & Young. While Polaris was valued at $210 mn, OrbiTech was
valued at $246.75 mn, 17.5 percent higher than Polaris. Polaris
b. Polaris reported revenues of Rs.
4017 mn in 2003. The company’s earnings before interest and tax (EBIT) are Rs.
768 mn and depreciation is Rs. 180 mn. The capital expenditure amounts to Rs.
250 mn and working capital is 40% of the revenues. The firm has outstanding
debt yielding a pre-tax interest rate of 7.5%. The tax rate for the firm is 35%
and the Treasury bill rate is 5.5%. The most recent beta for the firm is 1.20.
The debt equity ratio of the firm is 0.25. The firm expects revenues, earnings,
capital expenditure, and depreciation to grow at 8% a year from 2004 to 2008,
after which the growth rate is expected to drop to 4% (capital spending will
offset depreciation in the steady state period). The company also plans to
lower its debt/equity ratio to 0.13 for the steady state resulting in the
pre-tax interest rate drop to 6.5%. The annual market premium of the firm is
5%. Calculate the value of the firm according to Free Cash Flow to Firm (FCFF)
model.
Answer: Polaris Consulting and Services Ltd (BSE: 532254 ; NSE: POLARIS) is
a provider of financial technology products, legacy modernization services and
consulting for core banking, corporate banking, wealth & asset management
and insurance. Adrenalin eSystems Limited (AeSys) is a subsidiary of Polaris
Financial Technology Limited.
Polaris
Consulting & Services Limited was
6. Valuing
Sify’s Acquisition of IndiaWorld
a. IndiaWorld was acquired for Rs. 4.99
billion by Sify in November 1999. Using page views multiplier model to value
dotcoms, calculate the fair market value of IndiaWorld in October 1999.
Determine the Price/Revenue multiple in terms of page views for Rediff.com as
in October 1999. The market value of Sify on NASDAQ in October 1999 can be used
as a proxy for the market capitalization of Rediff.com. The page views of
Rediff.com for the second quarter of 1999-2000 was 70 million and the portal
advertising revenues for the quarter was $0.28 million.
Answer: In economics, valuation using multiples is a process that consists
of:
- Identifying comparable assets (the peer group) and obtaining market values for these assets.
- Converting these market values into standardized values
relative to a key statistic, since the absolute prices cannot be compared.
This process of standardizing creates valuation multiples.
- b. Study the
performance of Sify and IndiaWorld over the years as per the data given in
the case. Discuss whether the price paid for the acquisition was justified
by comparing the perceived synergies to the actual performance of Sify and
IndiaWorld. What are the future prospects of Sify after the acquisition of
IndiaWorld?
Answer: The growth of cyber cafes, which are the largest source of Internet
access in India, is declining sharply. According to a CII-IMRB Broadband
report, the number of cyber cafes, which was growing at almost 60% in 2004 and
2005, has fallen to almost 20% in 2008.
There are
1,80,000 cyber cafes in the country. Large industry players attribute the
decline to lack of subsidy and support provided by the government coupled with
increased security concerns and harassment of cyber cafe owners.
7. Hindalco’s
Acquisition of Novelis
a. Comment on the financing pattern of
the deal. What could be the rationale for Hindalco opting to pay the entire
deal amount in cash and not opting a share swap deal?
Answer: Mergers and Acquisitions have been the part of inorganic growth
strategy of corporate worldwide. Post 1991 era witnessed growing appetite for
takeovers by Indian corporate also across the globe as a part of their growth
strategy. This series of acquisitions in metal industry was initiated by
acquisition of Arcelor by Mittal followed by Corus by Tata’s. Indian aluminium
giant Hindalco extended this process by acquiring Atlanta based company Novelis
Inc, a world leader in aluminium rolling and flat-rolled aluminium products.
Hindalco Industries Ltd., acquired Novelis Inc. to gain sheet mills that supply
can makers and car companies. Strategically, the acquisition of Novelis takes
Hindalco onto the
b. What challenges does Hindalco face
in integrating the operations of Novelis and achieving its strategic objective
of becoming a leader in the global aluminum industry? Suggest measures to
overcome those challenges.
Answer: The Indian aluminium sector is characterized by large integrated
players like Hindalco and National Aluminium Company (Nalco). The other
producers of primary aluminium include Indian Aluminium (Indal), now merged
with
8. Tata
Motors – Financing the Acquisition of Jaguar and Land Rover
a. Explain how Tata Motors financed the
acquisition of Jaguar and Land Rover. Tata Motors started a new trend in the
Indian markets by opting for shares with differential voting rights. What are
the advantages of such shares for the shareholders and the company?
Answer: The only thing most of us want from stocks is returns . That's why
many companies nowadays offer investors the option to earn a little more from a
stock in exchange for sacrificing a few rights they rarely exercise. These
shares, called differential voting right, or DVR, shares are catching the fancy
of more and more stock investors.
b. In the context of JLR deal, discuss
the rationale for this acquisition. Do you think that acquisition of JLR is a
good example of Tata Motors’ inorganic growth strategy? Justify with lucid
explanations. Also, discuss the impact of macroeconomic factors on the global
automobile industry.
Answer: India’s largest auto maker by sales revenue informed the BSE that
it will go for a postal ballot to seek shareholders’ approval for the plan.
Both ordinary shares and shares with differential voting rights (DVR) will be
issued.
Tata Motors’ DVR
shares, first issued in 2008, carry less voting rights but fetch higher
dividend.
Analysts
attributed the move to insufficient revenues from the company’s domestic
operations in the last three years due to poor car, truck and bus sales.
9. Tata
Steel’s Acquisition of Corus
a. Critically examine Tata Steel’s
acquisition of Corus and comment on the expected synergies between the post-merger.
How would this deal benefit both Tata Steel and Corus in the long term?
Explain. Point out the possible integration related issues that could arise,
going forward.
Answer: Tata Steel Europe Ltd. (formerly Corus Group plc) is a steelmaking
company headquartered in London, United Kingdom, with its main operations in
the United Kingdom and the Netherlands.
Corus Group was
formed through the merger of Koninklijke Hoogovens and British Steel in 1999
and was a constituent of the FTSE 100 Index. It was acquired by Tata of India
in 2007, and renamed Tata Steel Europe in September 2010.
b. Many experts were of the opinion
that the acquisition of Corus was rather expensive for the Tatas. In this
regard, critically analyze the financing of the Corus deal. As an analyst on
mergers and acquisitions, do you think Tata Steel’s decision to enter an
all-cash deal was the right one? Take a stand and justify your answer.
Answer: Tata Steel’s stated argument, however, is rooted in its captive
iron ore and coal resources. The distribution of the world’s iron ore resources
strengthens that case. The world’s top five iron ore producers control an
overwhelming 90% of the market, according to a Tata Steel presentation. In
contrast, the top five steel producers command less than 20% of the world
market. What’s clear in those numbers is the relatively low
10. The
Delta and Northwest Airlines Merger
a. The merger between Delta and
Northwest took place in the background of severe financial problems faced by
both the firms. In this context, examine the pros and cons of the use of merger
as a strategy to deal with financial problems. Also, comment on the synergies
derived by Delta after the merger integration process.
Answer: In 2008 this Subcommittee also held a hearing on the merger of
Delta Airlines and Northwest Airlines. At that time there was speculation that
other carriers within the industry would merge to create a U.S. airline
industry dominated by just a few mega-carriers. Just 2 years later, as many
predicted, we are meeting here again today to discuss another proposed
combination that would surpass Delta as the world's
b. Some analysts believed that
Delta-Northwest merger may not benefit the consumers and employees of the
merged entity. Critically discuss.
Answer: I am very concerned about how this merger, if approved, will affect
ticket prices for passengers, how the merger will affect pilots, flight
attendants, mechanics and employees of both airlines, how many employees will
lose their jobs or receive reduced benefits and wages, and what will happen
with existing union contracts.
11. HP-Compaq
– A Failed Merger?
a. HP and Compaq merger deal was worth
US$ 24 billion, the biggest ever deal in the history of computer industry
during that time. Why was the HP-Compaq merger termed by many analysts as a bad
deal? Do you think it was a failure? Explain.
Answer:
b. What were the post-merger
contributions of Fiorina? Did she fail as a leader in managing the merger? Take
a stance and justify.
Answer:
12. Oracle’s
Acquisition of PeopleSoft
a. Examine the various attempts made by
Oracle to acquire PeopleSoft. What were the key factors that were preventing
Oracle from acquiring PeopleSoft? And what factors helped Oracle? Explain.
Answer:
b. Analyze the role played by
PeopleSoft’s board in the takeover battle. Was the board justified in using the
poison pill defense strategy to thwart the hostile takeover? Explain. Why do
you think the board acquiesced to being taken over later?
Answer:
13. SABMiller
vs. Anheuser-Busch: The Takeover Battle for Harbin Brewery
a. Examine the circumstances that led
SABMiller to launch a hostile takeover bid for control of Harbin. What
strategies could the board have adopted to avoid the hostile takeover launched
by SABMiller?
Answer:
b. How did the acquisition of Harbin by
AB affect the different parties involved in the takeover battle, including AB,
SABMiller, the Harbin board and its shareholders? Who do you think benefited
the most from the deal? Give reasons to justify your answer.
Answer:
14. The
Aventis-Sanofi Merger: Role of French Government?
a. Compare and contrast the potential
synergies in the Sanofi-Aventis merger and the Novartis-Aventis (assuming that
it had been approved) merger. Do you think Aventis lost a lucrative opportunity
by not merging with Novartis? Given a choice, which merger deal would you have
favored, and why?
Answer:
b. Discuss the role of the French
Government in preventing the possible merger of Novartis and Aventis, and
ensuring a Sanofi-Aventis merger. Do you think the government was right in
interfering in the merger processes? Justify your stand giving reasons.
Answer:
15. The
Gucci – LVMH Battle
a. Why was LVMH interested in acquiring
Gucci? Was Gucci justified in claiming that there would be no synergies from
the Gucci-LVMH alliance? Discuss.
Answer:
b. Comment on the defense strategies
adopted by Gucci. Wasn’t the PPR stake acquisition also a form of takeover,
even if it had Gucci’s approval?
Answer:
16. Citigroup’s
Sale of Phibro: Ending the US$ 100 Million Pay Controversy
a. What were the reasons that prompted
Citigroup to sell-off Phibro, its profit-making unit?
Answer:
b. Explain the consequences of this
sell-off on Citigroup and on the other US-based financial services companies.
Answer:
17. Tata
Motors and Fiat Auto: Joining Forces
a. What, in your opinion, were the key
reasons for Fiat’s poor performance in India? What are the factors that made TM
an attractive alliance partner for Fiat?
Answer:
b. What could be the possible
disadvantages from the alliance? What can the partners do to minimize the
potential impact of these threats?
Answer:
18. Disney’s
Acquisition of Pixar
a. Critically examine the events that
happened during the partnership between Disney and Pixar.
Answer:
b. Do you think partnership mode was
the only option available to Disney? Justify.
Answer:
19. TCL-Thomson
Electronics Corporation: A Failed Joint Venture?
a. Comment on the reasons that could
have prompted TCL to expand globally. Do you agree with the approach adopted by
TCL for its global expansion? Why or why not?
Answer:
b. TTE was a joint venture formed in
late 2003 between TCL Corporation (TCL) and France based Thomson SA. What
factors led to the failure of TTE? Discuss.
Answer:
20. Orange
and T-Mobile Merger in the UK
a. The merger between Orange UK and
T-Mobile UK is considered by experts to be a bid to combat the increasing
competition in the crowded telecom market in the UK. In this regard, analyze
the use of merger to deal with competition, especially in the telecom industry.
Answer:
b. Identify the challenges faced by the
merged entity. How can these challenges be overcome?
Answer:
21. Comcast-NBC
Universal Joint Venture Deal
a. Examine the proposed joint venture
deal between Comcast and NBCU and comment on its rationale. Do you think the
potential synergies derived from the deal will help the new company emerge as a
leading media and entertainment company in the US? Substantiate.
Answer:
b. In the light of the criticisms
regarding the proposed joint venture deal, do you think the deal would be
approved by the concerned regulatory authorities? Elaborate. Assuming that the
joint venture deal gets the regulatory approvals, what challenges will the New
NBCU face in the near future?
Answer:
Dear students get fully solved
assignments
Send your semester &
Specialization name to our mail id :
help.mbaassignments@gmail.com
or
call us at : 08263069601
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