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An ideal case of a Global Acquisition which explains you the meaning of a real "SYNERGY"!! Unfortunately, after some years, the Venture went un-successful; but it was one of the most appropriate example of "strategic alliance" in corporate history. One more attempt to contribute corporate learners by "3 smiles" group of ITM Batch 2008-10. ;-) have fun!(Download PPT, Press F5 and see)-ANKIT RUPDA
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Dr. Reddy - BetapharmDr. Reddy - Betapharm
Deal Ya No Deal – Group 4
DealDeal
Other BiddersOther Bidders
BetapharmBetapharm
Dr. Reddy LabsDr. Reddy Labs
Perfect Pharma AcquisitionPerfect Pharma Acquisition
Limitations in IndiaLimitations in India
Access to the German GenericsAccess to the German Generics
Strategic presence in the Strategic presence in the EuropeEurope
DRL - M&ADRL - M&A
The motiveThe motive
MiscellaneousMiscellaneous
Betapharm – Ideal AcquisitionBetapharm – Ideal Acquisition
ValuationValuation
Valuation - SummaryValuation - Summary
Case Value ($ Million)
Base $333
Optimistic $640
Pessimistic $205
Worst Scenario $138
Post DealPost Deal
FinancingFinancing
AmountWeighte
dCOC
Cost*(1-t)
Wt. COC
Internal 200 35% 13.7% 13.7% 4.8%Debt 370 65% 2.1% 1.4% 0.9%Total 570 5.7%
SynergySynergy
• Distribution– Highly fragmented market and Unorganized sector– Reduce the efforts needed to establish (Identification,
Promotion, Incentives) – Reduce General & Administrative cost
• Manufacturing– The manufacturing cost in India is 50% less than the
global average– Source Betapharm’s business from India to reduce
the COGS• Pipeline
– R&D costs can be reduced considerably (around 35%)– Number of products launched per year would increase
SynergySynergy
• Branding– Brand Beta– Global Presence
• Presence– Entry into Germany – Central & Eastern Europe
• Size– DRL was able to reach the $1Billion size due to
this acquisition– Leverage its generic business to grow in Drug
discovery
What Went WrongWhat Went Wrong
• The Economic Optimisation of Pharmaceutical Care Act (Germany, May 2006)
• Price caps in place - affected the margins of betapharm
• Reduced prices by 15-25%• Longer than expected payback -
other plans shelved
What Went WrongWhat Went Wrong
• Betapharm revenues grew by 3% over the last 2 years
• Patients use medicines endorsed by their Sick Funds (Regulation)
• Supply Chain problems• Salutas (Contract manufacturer,
Germany) terminates contract
What Went WrongWhat Went Wrong
• Lack of demand in Germany• Strict regulations against outsourcing• Currency Fluctuations• Delay in approval of Betapharm
products in pipeline• No product approval for DRL's
product manufactured in India
Write - DownWrite - Down
Year Amount (INR)
2006-2007 177 crore
2007-2008 236.1 crore
The Road AheadThe Road Ahead
• Planned shift of production to India• Good pipeline of FTF opportunities• Continuous strengthening of buying
power of Insurance companies• EBIT margin expansion not going to
be visible over short to medium term
ConclusionConclusion
• As of now, the deal seems to be a failure and DRL would have been better of without Betapharm– Premium paid– Excessive misplaced optimism– Inadequate due diligence– Failure to account for External environment
risks– Shelving of other plans
Thank YouThank You