The betapharm Acquisition: DRL's Inorganic Growth Strategy in Europe


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Please note:

This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

This case won the second prize in the John Molson Case Writing Competition 2006, organized by the John Molson School of Business, Concordia University, Montreal, Canada.

Case Details:

Price:
Case Code : BSTR249 For delivery in electronic format: Rs. 500;
For delivery through courier (within India): Rs. 500 + Rs. 25 for Shipping & Handling Charges

Themes

Business Strategy, Strategic Management, Mergers and Acquisitions
Case Length : 19 Pages
Period : 2002 - 2006
Pub Date : 2007
Teaching Note : Available
Organization : Dr. Reddy's Laboratories Ltd.
Industry : Pharmaceutical
Countries : Germany, Europe, India

Abstract:

In February 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 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. The acquisition gave DRL access to the German generic drugs market, the second-largest generic drugs market in the world, as well as help DRL leverage the strong marketing and distribution channels of betapharm in Germany. betapharm was expected to benefit from the addition of more products to its portfolio and utilize DRL's low cost manufacturing and product development infrastructure.

DRL's commitment to corporate social responsibility was also a factor that clinched the deal in its favor, despite not being the highest bidder. However, some analysts opined that DRL had paid too much for the acquisition of betapharm. There were also doubts if DRL could get enough leverage from the acquisition as betapharm was reportedly emerging from a lean period. They felt that if the deal did not produce results, it would significantly impact DRL's financial performance. Another problem was that the German government modified its policy regarding generic drugs shortly after the acquisition. This impacted the margins of most generic drug companies, including betapharm. On account of this change, DRL shelved its plans for further acquisitions in the European market.

Issues:

» Understand the issues and challenges faced by an Indian pharmaceutical company in growing its business in the international market.

» Understand and appreciate the role of mergers and acquisitions as a growth strategy.

» Understand and discuss the rationale behind the acquisition of betapharm by Dr. Reddy's Laboratories.

» Understand the impact of business and regulatory environment (domestic and international) on mergers and acquisitions.

Contents:

  Page No.
DRL Gains a Foothold in Europe 1
Background Note 2
DRL's Acquisition of betapharm 5
Benefits of the Acquisition 7
A Risky Acquisition? 9
Exhibits 11

Keywords:

betapharm Arzneimittel GmbH, Dr. Reddy's Laboratories Ltd., Mergers and Acquisitions, Strategic Management, German Pharmaceutical Generic Market, Value Creation, Drug Discovery and Development, Low-Cost Manufacturing Outsourcing, Corporate Social Responsibility, Ranbaxy Laboratories Limited, Political and Regulatory Environment, Economic Optimisation of Pharmaceutical Care Act, International Market Expansion, Globalization, Post-merger Integration Plan

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