Randomgyaan: Deal Analysis - Emami Acquisition of Zandu in 2008

Background on Emami

The Rs 600 cr Emami Group is one of the leading Indian Groups in personal and healthcare products industry.
Established in 1974 Emami manufactures and markets trusted power brands like Boroplus, Navratna, Fair and Handsome, Sona Chandi, Mentho Plus, and Himani Fast Relief.
Emami’s brands and their extensions occupy leadership in most of the categories like antiseptic creams, cool oils and pain relief ointments and it has been a pioneer in introducing the first fairness cream for men in the world.
Maintaining a CAGR of 25% Emami has footprints in 60 countries across the globe spanning over Middle East, Europe, Africa, CIS and the SAARC.
The plants and production activities of the Group are currently in West Bengal, Pondicherry, Assam, Gujarat, Orissa, Uttaranchal, and Himachal Pradesh.
Today, advancing with increased momentum, Emami is a coveted Rs 1600 crore Group.
In East India Emami occupies leadership in sectors such as newsprint, private hospital, edible oil, bio-diesel and real estate.
Emami also has presence in ball pen tips manufacturing, contemporary art and retail chain with Frank Ross and Starmark The group has signed a memorandum of understanding (MoU) for setting up a cement plant at Chattisgarh.

Future Growth Plans of Emami

Emami is on a look-out for further acquisition opportunities nationally and internationally and ready to walk the path of inorganic growth
It plans to position itself as a “food products and personal care major”. Food products and personal care comprise the biggest slices of India’s Rs 96,000 crore FMCG pie, accounting for 43 per cent and 22 per cent, respectively
It plans to diversify into over the counter herbal herbal and ayurvedic medicine which is an approx INR 7,500 cr market
It wants to become a serious player in the FMCG segment and it cannot become a serious player by merely changing or rearranging the existing product categories

Background on Zandu (Target Company)

Zandu’ more than century old household name in India and leading players in the healthcare system of Ayurveda with products including the popular Zandu balm, general fitness medicine, Kesari Jivan, Zandu Chyavanprash and digestive tonic Zandu Pancharishta.
The net sales for Zandu stood at Rs 168.8 crs for the year ended March 2008, growing at a CAGR of over 11% over the past four years.
The Company has strong research base with slew of products in the pipeline at various stages.
Zandu has a number of world class manufacturing facilities and technologies in the field.

Why Zandu as a Target???

Strong brand name, 100 year old company
Attractive target for domestic and international FMCG players
Zero debt company
Product portfolio consists of more than 300 herbal and ayurvedic products
Zandu has a tremendous business potential which can be exploited with strong marketing, R&D and other operating efficiencies coupled with long term entrepreneurial vision.
Emami with its strong marketing acumen and operational efficiency can help Zandu reap its true potential

Benefits to Emami upon Acquisition

Before Zandu came into the fold, Emami was the market leader in two niche categories: Boroplus cream, with 70 per cent, led the Rs 190 crore antiseptic creams market, and Navratna, with over 50 per cent, headed the Rs 397 crore cooling oil category.
With the Rs 120 crore Zandu Balm in its fold Emami leads the ‘rubificient’ (local pain ointment) category with a combined market share of more than 25%
Zandu’s Special Sona Chandi and Kesari Jeevan Cyawanprash will give Emami a larger market share in the Rs 170 crore Cyawanprash category, which is currently dominated by Dabur having 61% of the market share
Consolidation in the ayurvedic medicine market which currently is led by Dabur with 10% market share
Take advantage of product improvisation, customisation and price variations
Stage to become a serious FMCG player

Valuation of the Deal

Movement in Share Prices

M&A strategies applied in this deal:

1. Shark Repellant strategy by Parikhs:

Increased its stake in zandu by 1.4% between June 13 – 19 , 2008
Did not register stake sale by vaidyas to emami , as he had the right of first refusal in respect of the shares sold by the Vaidyas.
Filed petition against Emami in SEBI hence caused open offer by emami delayed by 3 months

2. Squeeze out Strategy by Emami:

It is a merger tactic which is used to bring the entity opposing the deal on the negotiating table
Emami eventually managed Parikh to come on the negotiating table and sell his stake.

Deal Time Line:

29 June 08:

Emami bought 23.6% stake in Zandu
Deal value : Rs 130 cr
Paid Rs 6900 per share through off market deals with the vadiyas , one of the promoter groups of zandu
Emami Already having 3.7% stake
Total holding in zandu 27.5%

2 June 08:

Open offer was made by emami to acquire upto 20 % stake in zandu
Open offer price : Rs 7315 per share
Dispute initiated with Girish Parikh , one of the promoter who holds 22 pc in the zandu
Zandu’s allegation “The purchase of shares from the Vaidya family in two tranches, indicated that Emami had already decided to acquire more than 15 per cent, hence violating the SEBI Takeover Regulations (1997)
Matter moved to SEBI who transferred it to CLB ( company law board)
CLB held back open offer by emami till further decision

12 Sept 08:

16 Oct 08:

1 Dec 08:

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