Merger of Sanofi-Synthélabo and Aventis

Table of contents

1.  Motives for international acquisitions - 4 -  

  Strategic motives - 4 -  

  Market motives - 5 -  

  Economic motives - 5 -  

  Personal motives - 6 -  

  Particularities in international acquisitions - 6 -  

2.  Efficiency of foreign exchange and stock markets - 8 -  

  Efficiency of foreign exchange markets - 8 -  

  Efficiency of foreign stock markets - 9 -  

3.  Market position of Sanofi-Synthélabo and Aventis prior to the acquisition- 10 -  

  Sanofi-Synthélabo - 10 -  

  Aventis - 11 -  

4.  Motives for the acquisition of Aventis by Sanofi - 13 -  

  Increased market share in the United States - 13 -  

  More power in the whole pharmaceutical market - 13 -  

  Fear of generic drugs - 14 -  

  Cancellation of shares - 14 -  

  Undervaluation of Aventis shares - 15 -  

  Cutting costs - 15 -  

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5.  Attack and defence tactics applied by Sanofi-Synthélabo and Aventis  

  First hostile takeover bid of Sanofi-Synthélabo - 16 -  

  Defence tactics of Aventis and agreement to merge - 16 -  

  Second friendly offer - 18 -  

6.  Methods used to finance the merger or acquisition (15 marks) - 19 -  

  Cash alternative - 19 -  

  Paper offer - 19 -  

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7.  Share price movements immediately before during and after the proposed  

  take-over - 21 -  

  Reactions to rumours of a forthcoming merger - 21 -  

  Responses to the first official offer - 21 -  

  Effects on the acceptance of the second friendly bid - 22 -  

  After the definite finish of the merger - 23 -  

8.  Company performance in the period following the merger - 25 -  

  Effects on the main shareholders - 25 -  

  Reference list - 27 -  

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1. Motives for international acquisitions

According to Buckley and Ghauri (2002, p.90) there are four basic motives for an acquisition: strategic, market, economic and personal motives.

Strategic motives

Acquisitions serve to reach strategic targets like the development of synergy effects. For example Philipp Morris successfully applied its strengths in marketing cigarettes to the acquired Miller Beer company in such an efficient way that Miller could improve its market position from number seven to number two.

An acquisition can also support the strategy to extend a company’s core competences to other branches. By doing this, firms try to gain competitive advantage in other business sectors. For example Honda’s core competence is the construction of internal combustion engines as a power source. They transferred this core competence to various businesses, including cars, motorcycles, outdoor power equipment, generators and lawnmowers.

With every acquisition the market share of a company can be improved significantly. By acquiring new products and brands a company becomes a bigger and more important supplier. It will become able to enhance its reputation and as a result, the market power can be boosted.

Another strategic motive can be to add value to the company by winning new complimentary products, resources or strengths. In 1970, the record label EMI planned to expand on the medical market as they had developed a CT scanner which enabled doctors to see three-dimensional X-rays. They entered the biggest medical market, the USA even if they had no resources, sales network and experience values. As long as they were the only company selling this product they were successful. But soon after that other companies which were used to sell medical equipment pushed them off the market.

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If EMI had acquired another company which was already established in that market they could have had a big chance to enter a new market.

Specifically in international acquisitions certain strengths can be adopted from the acquired company. These strengths are developed due to national differences. People of some countries have extraordinary skills on one field, whereas people of another country are excellent in doing something else. Combining these strengths can result in an overall stronger company.

Another strategic reason is to benefit from another company’s parenting advantage. Often in different markets there exist similar critical success factors. If one company is able to expose and successfully apply these factors it can achieve success by acquiring firms which do not have the knowledge (Buckley and Ghauri, 2002, pp. 90- 92).

Market motives

Acquiring already established companies in other countries is a very effective and the fastest way to enter new markets. Especially if a company wants to enter a saturated market it makes sense to acquire a brand and the company behind instead of trying to grow up a new one. So an acquisition can help to expand the current market position of a company in a very easy way, as the acquiring company does not have to start from zero. It will receive support in many ways from the target company. But before deciding for an acquisition the organisation should compare various possibilities to enter a new market like for example franchising, joint ventures or licensing (Buckley and Ghauri, 2002, pp. 92-93).

Economic motives

From the economic point of view an acquisition makes sense if the profits of the merged company exceed the profits of the independent companies. So after the acquisition the new built company should have a stronger market power than the former independent companies. Sometimes merged firms are even able to form an international oligopoly or monopoly (Buckley and Ghauri, 2002, p.165).

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Another very important economic reason for an acquisition is the creation of economies of scale or other cost saving possibilities which are created when two companies are operating in the same industry due to redundant resources. For example when Daimler acquired Chrysler there was forecasted a $1.3 million cost saving possibility due to combined purchasing.

A third motive from the economic point of view is that sometimes the stock of a specific country is underestimated. So during 1981 and 1990 US companies were more often acquired by firms of other countries than the other way around. A reason for this might be found mostly in the differences in valuation.

Furthermore macroeconomic differences between several countries can be an economic reason for an acquisition. This refers to different economic conditions of two countries like for example distinct growth rates. Due to this, acquiring companies are very often situated in a slower growth country than the target firms (Buckley and Ghauri, 2002, pp. 93-94).

Personal motives

Managers and stakeholders usually have different views concerning the targets for the organisation. Managers are interested in possibilities that give them more power. Stakeholders in turn want to achieve increases in stock prices. As a result managers are rather interested in acquisitions than the owners of the organisation (Buckley and Ghauri, 2002, p.94).

Particularities in international acquisitions

International acquisitions can provide the opportunity to a company to displace operations to the lowest cost country, to manage with governmental policy shifting, and to learn from the distinct ways of organising and managing of the different countries.

According to Johnson (1999, p.129) there are some special benefits that can only come up with an international acquisition. Companies can profit from the acquired

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firm of the other country by capitalise on a better sales potential. They can for example raise their price and sales levels if they are operating within a country that has a faster growing economy. Another motive for an international acquisition can be the existence of raw materials which are not available in the national market. Furthermore companies of other countries sometimes may be able to offer more favourable production options like for example lower labour costs (Johnson, 1999, p.129).

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2. Efficiency of foreign exchange and stock markets

According to Pilbeam (2005, p.248) the market efficiency hypothesis was formulated by Eugene Fama in 1970. This hypothesis says that a market is efficient if ‘prices always fully reflect available information’ (Pilbeam, 2005, p.248).

Efficiency of foreign exchange markets

By applying this hypothesis to the exchange market it can be found that speculators who make exchange-rate forecasts according to an identical information set cannot make uncommon gaining. Two major questions can be derived from this fact. First of all if the new information is mirrored in the exchange rate and second of all if the information is important or not important.

Many tests were developed to forecast the efficiency of foreign exchange markets. The most common one is to look at the forward exchange rate and evaluate if it over- or under-predicts the future spot exchange rate. If speculators are able to predict the forward exchange rate with these kinds of tests it would argue for foreign exchange market inefficiency. For instance if a forward exchange rate was always under- predicted in the past a speculator could possibly gain huge profits by buying the currency that day and selling it in the future at a higher price. Granted that in three months the rate of the pound against the dollar is forecasted to be £0.60/$1 but all speculators would know from their experience that this forecast usually under- predicts the future rate by at least 5%. So they could buy dollars today for a lower price in order to make profit by selling them to a 5% higher than expected price of £0.63 in the future.

According to the efficient market hypothesis this example can not be realised in the real life market. All speculators would be aware of this chance to make high profits. Thus everybody would buy dollars forward that day. As a result this process would enhance the forward rate and all irregular profits could not be realised.

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