The betapharm Acquisition: DRL's Inorganic Growth Strategy in Europe
|
Case Code: BSTR249 Case Length: 19 Pages Period: 2002 - 2006 Pub Date: 2007 Teaching Note: Available |
Price: Rs.500 Organization: Dr. Reddy's Laboratories Ltd. Industry: Pharmaceutical Countries: Germany, Europe, India Themes: Business Strategy, Strategic Management, Mergers and Acquisitions |
Abstract Case Intro 1 Case Intro 2 Excerpts
DRL Gains a Foothold in Europe
On February 15, 2006, Dr. Reddy's Laboratories Limited (DRL), a leading Indian pharmaceutical company, acquired the fourth-largest generic pharmaceutical company in Germany, betapharm Arzneimittel GmbH (betapharm) from the 3i Group PLC (3i) for US$570 million (€480 million). The sale deal also included the 'beta institut for sociomedical research GmbH' (beta Institut), a non-profit research institute founded and funded by betapharm to conduct research on issues related to social aspects of medicine and health management. The acquisition was hailed as the biggest overseas acquisition made by an Indian pharmaceutical company. The synergies from the acquisition were expected to benefit both DRL and betapharm.
Through this acquisition DRL could get immediate access to the German generic market, the second-largest generic market in the world after the US. Germany also accounted for 66 percent of the generic market in Europe. The acquisition was expected to help DRL gain a strategic presence in the European market as the generic drug market in Europe was expected to show strong growth due to rising public healthcare costs.
It was also expected to help DRL realize its ambition of becoming a US$1 billion mid-size global pharmaceutical company by 2008. betapharm was expected to benefit from the acquisition as it would be able to add more products to its portfolio and grow at a much faster rate in Germany. Besides, the acquisition would help it to utilize DRL's global product development and marketing infrastructure to expand its presence in the European market in the long run. Dr. Wolfgang Niedermaier (Niedermaier), CEO of betapharm, commented, "Dr. Reddy's impressive pipeline of generic and innovative products and its high quality standards combined with competitive manufacturing costs will help further develop our position in the German market and offer an entry platform for the European market.
Its extensive and well-recognized corporate social responsibility activities perfectly fit with our successful corporate philosophy and business model. We see Dr. Reddy's as our partner of choice to build a successful joint future and continue betapharm's growth and success story."6 Though DRL was not the highest bidder, it clinched the deal largely due to the perceived synergies between the two companies. DRL's strong commitment to corporate social responsibility (CSR) initiatives too helped swing the deal in its favor as betapharm identified with such initiatives through the activities conducted by beta Institut.
However, some analysts were of the opinion that DRL had paid too much to 3i for the acquisition as the value of the acquisition was estimated to be more than three times the annual sales of betapharm. Their argument was strengthened by the fact that another Indian pharmaceutical major, Ranbaxy Laboratories Limited (Ranbaxy), which had also aggressively competed for the acquisition and was a pre-sale favorite to bag the betapharm deal, pulled out at the last minute quoting the high price. DRL, however, justified the premium price saying that the advantages from the acquisition were manifold. A few also expressed their doubts as to whether DRL could leverage any benefits in the short term as betapharm was reportedly emerging from a lean period....
Buy this case study (Please select any one of the payment options)
| Price: Rs.500 |
Price: Rs.500 | PayPal (11 USD) |
