HOSTILE

TAKEOVERS
1. India Cements Limited - Raasi
Cements Limited (1998)
2. Kraft Cadbury (2010)
3. Sanofi Genzyme (2011)

Takeover of Raasi Cements Limited by

India Cements Limited (1998)

Background as on 1998
India Cements
Limited
India Cements Ltd.,
was one of the largest
cement producers in
south India. Established
in 1946 in Tamil Nadu.
In early 1998, ICL had
six cement plants, three
each in Tamil Nadu and
Andhra Pradesh.

Raasi Cements
Limited
Raasi Cement was a
low cost cement
producer in Andhra
Pradesh.
Raasi owned 39.5%
stake on Sri Vishnu
cement Ltd. (SVCL)
Other than cement, the
group also had interests
in ceramics and paper.

Why the takeover

To capitalize on Raasis low production
costs.
To become the undisputed leader in the
South India.
To benefit from production, marketing
and distribution synergies.
Raasis takeover meant automatically
acquiring of 39.5% equity in the 1 mtpa
Sri Vishnu Cement Ltd. (SVCL).

ICLs Major deals in 199799

Year

Company

Capacity

Promoter

Buyer

Price($million)

1997 Visaka Cement

Visaka Industries

ICL

30

0.9

1998 CCI-Yerraguntla

GoI

ICL

47

0.4

Rajus

ICL

104

1.8

Raasi

ICL

68

1.0

1998 Raasi Cement

1999

Sri Vishnu

Source: Business World, January 22, 1999.

(mtpa)

Timeline

Timeline

Srinivasan negotiated with V.P.

Babaria, a transporter for both ICL
and Raasi, to pick up his 7% stake in
the latter. ICL's stake in Raasi would
go up to 28.56%.

The Deal
Raasi Cements promoter Raju also had the option ofmakinga
counter-offer to his shareholders, and weaning away potential
sellers from Srinivasan. But this wasan expensive option, (Raju
needed approximately 100 crore to make a counter bid) and he
did not seem to have the funds to pull itoff.
In March 1998, realizing his predicament, Raju began to
negotiate with Srinivasan to sell his 33% shares in the company.
Thebattle of takeover sawIndia Cementsend uppaying aprice
that was around 60 percent above the then ruling market price of
Raasis shares at 286 a share
However, thiscost, according tosome estimates was much lower
when compared to the cost required for setting up a greenfield
plant.
The 380-croredeal was one of the biggest everacquisitions in
Indian corporate history, and a successful hostile takeover.

Open Offer details filed

with SEBI

Target Company

RAASI CEMENT LTD

Acquirer/(s)

ICL SECURITIES LIMITED,

INDIA CEMENTS LIMITED,
ICL FINANCIAL SERVICES LIMITED,
TRISHUL INVESTMENTS PRIVATE LIMITED

Offer Opening Date

4-May-98

Offer Closing Date

2-Jun-98

Offer Size: No. of Shares

3,308,600

Offer Size: % of Equity Capital

20.28

Offer Price ()

300

Object of the Offer

CONSOLIDATION OF HOLDINGS

Targeted Post offer stake of Acquirer

(% of equity capital)

70.18

Merchant Banker

DSP MERRILL LYNCH LTD

Registrar

KARVY CONSULTANT LIMITED

Source: SEBI website

White Knights
Raasi approached three sources
Kumar Mangalam Birla (Chairman,
A.V.Birla Group),
Gujarat Ambuja Cements Ltd. (GACL)
and
Switzerland's Holder Bank.

Legal Issues
SVCL (sri vishnu cement limited ) which was the subsidiary
of RCL was transferred by Raju to nine of his associates
after the purchase by ICL of Rajus shares in RCL.
This was violation of 23 of takeover code which prohibits
the target company from transferring its assets after a
public announcement has been made by the acquirer to
make open offers for purchase of shares from public.
Raju tried to increase his stake more than 90%, so only
even after giving to ICL he can manage to have stack more
than 50%.
Finally on Oct. 1999, ICL group paid 115 crore to acquire
the 88.50% of the paid-up capital of SVCL amounting to
23.7 crore, including the disputed 39.56% holding
originally held by Raasi Cement.

Deal Structure
This deal is one of the corporate
India's largest-ever acquisition of
3.8 billion in 1998-99.
2.5 billion rights issue to partfinance the Raasi takeover.
Rest of the deal is financed by the
debt.

Growth Journey
Year

1990-91

1997-98

1998-99

2007-08

2012-13

10

Turnover ( in bn)

2.25

9.27

13.93

36.05

52.31

Capacity (in mts.)

2.6

3.5

6.60

8.81

15.5

22276

37195

72814

101549

No. of Plants

No.
Shareholders

of

Source: Table 1 - indiacements.co.in/growth-journey

 Burden of debt due to acquisition is very high seen

from rising interest payments towards debt equity.

 Decrease in EPS is due to the increased number of shares.

(Equity was raised on the financial front for the takeovers).

Post Takeover Synergy

Combined cement capacity of ICL increase up to 8 mtpa.
Operating income of ICL-Raasi combine grew by 55% due
to availability of high cement capacity and steep rise in
income.
Existing distribution infrastructure of Raasi helps ICL to
leverage this to reduce the freight and other costs.
Synergy increase its market share from 15% in 1998 to
25 26% in 1999
Combined synergy to achieve value addition and greater
penetration in southern region.
Combined synergy lead to expansion of plants to enhance
productivity and efficiency to produce nearly 10 million
tones in 2001.

Post Takeover Scenario

The acquisitions in 1997- 98 costed, India Cements
1,600 crore and were predominantly funded by debt.
Capacity as much as 40 per cent of demand was added.
ICL defaulted and lenders began harassing them and this
condition had made to curtail production due to lack of
working capital
ICL sold Vishnu Cements, which they acquired along with
Raasi Cements, hoping it would ease pressure.
ICL opted for a corporate debt restructuring (CDR)
scheme, which came into effect from January 2003. The
CDR bought us time to focus on operations.
ICL shed manpower (about 1,000 employees), cut
production costs, sold our ships and some land.
In September 2005, ICL made an audacious move,
coming out with a Global Depository Receipts issue while
still in the CDR scheme.

Your company information

About Kraft

About Cadbury
British multinational confectionery company.
Second largest confectionery brand in the
world.
Headquartered in London and operates in
more than 50 countries worldwide.
Cadbury is best known for its confectionery
products including the Dairy Milk chocolate,
the Creme Egg, and the Roses selection box.

REASONS FOR ACQUISITION

1. Entering New Markets - Kraft wanted to enter new
markets like Brazil, Mexico and India where Cadbury
had a strong foothold. It could make use of Cadburys
established distribution network.
2. Expansion of Product Range - Cadbury was a
leading manufacturer of candies and gums which Kraft
lacked.
3. Cost Synergies and Savings - Kraft also believed it
could and earn additional revenue of $2 bn and
squeeze savings of at least $675m annually by the end
of the third year.
4. Increase in Market Share -Increased presence in
Gum and confectionary market in tandem with vision of
high growth higher-margin company.

TIMELINE

DEFENCE STRATEGIES FOLLOWED BY

CADBURY

DEAL STRUCTURE

DEAL STRUCTURE
Total Offer Per Share: $13.40
$7.98 Cash
$5.42 Stock
Total Offer: $18.5 billion
$10.9 billion Cash
$7.5 billion Stock
February: 71.73%
$13.1 billion
June: 28.27%
$5.4 bilion

KRAFT FINANCED THIS DEAL PRIMARILY BY:

Issued $9.5 billion of senior unsecured
notes at weighted-average effective rate of
5.364.
Selling off its pizza business to nestle for

AFTER THE ACQUISITION

1. Share Price :

2. Revenues:

3. Assets and Liabilities :

4. Key Ratios:

Post Merger Analysis

Integration issues between the two
companies.
Closure of the Somerdale factory.
Resignation of Key Staff
Global Research Centre
Cultural issues and communication gap

About Sanofi

About Genzyme

Founded in 1981 in Boston, Massachusetts

Market Value = $19 billion
No. of employess > 11,000
Present in 65 countries
Products are sold in 90 countries
Leader in rare disease treatment for 30 years
In 2005, Genzyme was awarded the National Medal of Technology

Need for Acquisition

Patent cliff for several products

considered as blockbusters, putting
revenues under pressure and
increasing competition of me-too drugs,
Decrease in New Molecular Entities
approvals by Health Authorities (a 50%
drop when compared to the 1990s),
Increasing regulatory requirements and
payers demands for demonstrated
medical and economic value impacting
the costs of development
Increased complexity of science leading
to a decrease in the success rate for
research projects.
Genzymes medicines are made using
biological processes and cant be
readily copied by generic-drug makers.
Genzyme garners premium prices from
insurers and government payers
because the therapies provide lifesaving benefits.

Takeover Battle
Sanofi Bid:
Announced a $69-a-share, $18.5 billion
cash bid on Aug. 29 + Hostile tender offer
on Oct.4
Raises the deal price to $20.1 billion
Sanofi exercised a top-up option,
resulting in ownership of more than 90
percent of Genzyme's shares.
Sanofi then effected, without a vote or
meeting of Genzyme stockholders, a
short-form merger on April 8, 2011 to
complete the acquisition.

Genzyme Response:
Genzyme board rejects the offer &
appeals to the major share holders not to
take the offer
More than 237 million Genzyme shares
were tendered in the transaction,
representing 89.4 percent of outstanding
shares.
Remaining Genzymes common stock
were converted into the right to receive the
same $74.00 in cash per share and one
CVR that was paid in the exchange offer

CVR

The contingent value right enabled

Genzyme and Sanofi to overcome
disagreements on whether Lemtrada
will be a blockbuster drug.
Genzyme holders will receive one
contingent value right per share.
The Genzyme stockholders have an
opportunity to participate in the future
upside of their investment that they
would not have had in a straightforward
cash merger.

Funding

Following the financing of the Genzyme

acquisition, the Group manages its net
debt in two currencies, the euro and the
US dollar. The variable portion of this
debt exposes the Group to an increase
in interest rates, on the one hand on the
Eonia and Euribor benchmarks and on
the other hand on the US Libor and
Federal Fund Effective.
BNP Paribas SA, JPMorgan Chase &
Co. and Societe Generale SA agreed to
provide loans of $15 billion to help
finance the takeover bid.

Post Merger
Cons:
Increased debt levels of Sanofi due to
the acquisition It is implementing a cost
savings program.
Took on the debt already incurred by
Genzyme due to the Allston facility
incident where they paid $175 million to
the U.S. Federal Government
The inability to quickly or efficiently
integrate newly acquired activities or
businesses, such as Genzyme, the loss
of key employees or integration costs
that are higher than anticipated, could
delay growth objectives and prevent
from achieving expected synergies.
Cerezyme and Fabrazyme did not
achieve the required production levels.

Pros:
Genzyme R&D, which has strong
expertise in rare diseases, is now fully
integrated into Sanofi Pharma
2012 full-year results were affected by
the loss of exclusivity for Plavix and
Avapro. However, the erosion in the net
sales and profitability was cushioned by
the growth platforms & the contribution
from Genzyme (65%)
Sanofi has diversified its offering from
purely pharmacuetical drugs to that of
rare diseases & animal drugs

Post Merger
Sep-14

2013

2012

2011

2010

2009

Earnings/Share

3.4

3.42

4.13

4.36

4.81

4.45

Profit Margin, %

12.38

11.63

14.28

16.93

17.86

18.51

Return on Equity,
%

12.42

6.8

8.94

10.52

10.74

11.75

0.11

Return on Assets,
%

7.23

4.03

5.12

5.92

6.71

7.11

10.37B

N/A

Price/Sales

3.11

2.88

2.11

1.73

1.74

1.61

1.84

1.62

0.13

17.29

32.49

18.69

24.32

Price/Earnings

14.22

14.42

8.93

7.24

5.87

5.89

1.82

5.02

3.03

6.19

1.68

2.91

3.01

3.93

3.83

3.67

Price/Book

1.8

1.73

1.32

1.08

1.05

1.02

Interest Coverage

11.68

8.52

11.63

10.64

12.99

19.72

Dividend Payout, %

63.6

64.57

57.38

44.36

37.93

37.04

SNY

GSK

MRK

PFE

Industry

Market Cap:

123.29B

111.40B

170.15B

190.91B

1.32B

Employees:

112,128

99,451

77,300

77,700

461

Qtrly Rev Growth (yoy):

0.01

-0.13

-0.01

-0.02

0.11

Revenue (ttm):

41.91B

38.02B

43.55B

50.33B

526.05M

Gross Margin (ttm):

0.67

0.69

0.63

0.82

0.52

EBITDA (ttm):

12.90B

10.01B

15.95B

21.83B

30.64M

Operating Margin (ttm):

0.2

0.23

0.22

0.32

Net Income (ttm):

5.24B

6.71B

5.61B

EPS (ttm):

1.92

2.68

P/E (ttm):

24.44

PEG (5 yr expected):
P/S (ttm):

In January 2012, the European Medicines

Agency (EMA) and the Food and Drug
Administration (FDA) approved the Genzyme
manufacturing plant in Framingham, for the
production of Fabrazyme
Lemtrada drug was approved by FDA on Nov
15, 2014. Sales of $437 million by 2018
Aubagio drug expected to hit peak sales of
$1.2 billion by 2018
New Gaucher fighting pill priced at $310,250
The research and development process
typically takes from 10 to 15 years from
discovery to commercial product launch

THANK YOU!

References
India Cements:
http://www.sebi.gov.in/cms/sebi_data/takeover/takeoverrep9899.html
http://profit.ndtv.com/stock/the-india-cements-ltd_indiacem/reports
http://www.telegraphindia.com/991028/business.htm
http://www.indiacements.co.in/milestones.html#1998
http://www.indiacements.co.in/growth-journey.html
http://www.indianotes.com/research-analysis/company/company-financia
l.php?cc=MTE1MTAwMDYuMDA=&companyname=India-Cements-Ltd&i=capital-st
ructure
http://archives.digitaltoday.in/businesstoday/22091998/cf.html
http://www.business-standard.com/article/specials/india-cements-chancelesscoup-198041101081_1.html
http://www.moneycontrol.com/financials/indiacements/results/yearly/IC#IC
Kraft:
http://www.mondelezinternational.com/~/media/MondelezCorporate/uploads/i
nvestors/annual-reports/KraftFoods_10K_20110228.pdf
http://www.bbc.com/news/business-27258143
http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/853102
3/Cadbury-Kraft-takeover-timeline.html

References
Sanofi:
http://en.sanofi.com/investors/news/financial_publications/financial_publication
s.aspx
http://www.sanofi.com.pk/l/pk/en/layout.jsp?scat=0733BE62-47C2-4589-B02A5FBB0E0DDD52
http://dividata.com/stock/SNY
http://en.sanofi.com/our_company/key_facts_and_figures/key_facts_and_figures
.aspx
http://www.bloomberg.com/news/2011-02-16/sanofi-aventis-agrees-to-buygenzyme-for-74-a-share-in-19-2-billion-deal.html
http://www.b-dreyfus.com/download_file/Genzyme%20s%20Defense
%20Against%20Hostile%20Sanofi%20Takeover%20is%20Time
%2007102010.pdf
http://www.businesstoday-eg.com/business/europe/avantis-begins-hostiletakeover-of-genzyme.html
http://news.genzyme.com/press-release/genzyme-details-financial-recoveryand-other-factors-driving-companys-value