2013

Motives of Merger for:

1. TATA Group and VSNL
2. Pfizer Inc. acquisition of
Pfizer Limited

Submitted By:
Gunjan Nimje
2012130
Section ABC

1. Acquisition of VSNL by TATA Sons

Background: TATA Group
Panatone is making the Offer on behalf of TATA Group. Panatone is a public limited
company incorporated under the name Stormy Investments & Finance Private Limited on
March 30, 1992 under the Companies Act, 1956, whose name was subsequently changed to
Panatone Finvest Limited on July 24, 1998. The present registered office of Panatone is at
Bombay House, 24 Homi Mody Street, Mumbai 400 001. Panatone is registered with the
Reserve Bank of India under Section 45IA of the Reserve Bank of India Act, 1934 vide
Certificate of Registration No. 13.01289 dated August 13, 1999 to carry on the business of a
Non-Banking Financial Company that will not invite or accept public deposits without the
prior approval of Reserve Bank of India. The registration of Panatone is valid as on date. The
equity shares of Panatone are not listed on any stock exchange. As on the date of the Public
Announcement, Tata Sons, Tata Power, Tata Steel and Tata Industries held 50%, 40%, 5%
and 5% respectively of the issued share capital in Panatone. Since then, Panatone has been
further capitalised by infusion of additional equity by Tata Sons and Tata Power. Panatone is
a subsidiary of Tata Sons. For purposes of the Offer, Panatones shareholders Tata Sons,
Tata Power, Tata Steel and Tata Industries are persons acting in concert with Panatone.
All these companies are members of the Tata Group, an Indian conglomerate controlled by
Tata Sons. The Tata Group operates in a variety of industries and has significant
telecommunications operations in India.

TATA Sons: Tata Sons is the principal investment holding company of the Tata Group,
which traces its origin to a trading firm set up by the late Mr. Jamsetji Tata in 1868. It was
incorporated as a company on November 8, 1917 under the Indian Companies Act, VII of
1913. During the last several decades, Tata Sons has promoted the major companies in the
Tata Group in India. Over the years these companies have developed businesses in a wide
spectrum of industries. The principal business of Tata Sons is investment holding and other
businesses are consultancy services in finance, computer software, business operations and
management, economic and market research and quality assurance. Tata Sons has equity
investments in almost all the major companies promoted by it. Tata Sons is an unlisted
company and its two major shareholders are public charitable trusts namely: the Sir Dorab
Tata Trust and Sir Ratan Tata Trust.
Tata Sons has the following four operating divisions:

Tata Consultancy Services (TCS) provides a wide range of information technology

and management consultancy services. It offers system software, communications and
networking, hardware sizing and capacity planning and software project management
solutions. TCS is the largest IT organisation in India in terms of turnover and profits.
Tata Economic Consultancy Services provides macro and micro economic studies
in all sectors, market surveys, techno-economic feasibility studies, project planning
and technology selection services and corporate planning and organisational
development services.

Tata Financial Services provides financial advisory services related to corporate

finance and restructuring, capital markets, project finance and treasury and portfolio
management of operating and investment companies.
Tata Quality Management Services is involved in creating awareness and imparting
training about the Tata Business Excellence Model (TBEM) amongst those Tata
Group companies which desire to adopt and implement the same.

Tata Power: was incorporated on September 18, 1919 under the Indian Companies Act, VII
of 1913. Tata Sons is the promoter of Tata Power. Tata Power is engaged in generation,
transmission and distribution of electrical energy in the licensed area in Mumbai as well as
generating and providing electrical energy in the States of Jharkhand and Karnataka. It is also
engaged in manufacture of sophisticated electronic equipment and in broadband business.
Tata Steel: is a public limited company incorporated on August 26, 1907 under the Indian
Companies Act, VI of 1882. Tata Sons is the promoter of Tata Steel. Tata Steel commenced
commercial operations in 1911 and is an integrated steel producer engaged in the business of
manufacturing and dealing in steel and steel products like wire rods, structural, tubes, bars,
bearings, hot rolled coils, cold rolled coils and sheets and semi-finished products like billets,
blooms and slabs. Today, it is the largest producer of saleable steel in India in the private
sector. Tata Steel also mines chrome ore and produces ferro chrome/ charge chrome. Tata
Steel has a captive power generation capacity of approximately 160 MW. Most of the Tata
Steels manufacturing facilities are located in Jamshedpur (Jharkhand), India, close to iron
ore and coal reserves. Tata Steels Bearing Division, Ferro Manganese Plant, charge Chrome
Plant and Cold Rolling Complex are located at Kharagpur (West Bengal), Joda (Orissa),
Bamnipal (Orissa), and Jamshedpur and Tarapur (Maharashtra), India, respectively. Tata
Steel also has mines, collieries and quarries in the states of Jharkhand, Orissa and Karnataka,
India.
Tata Industries: was incorporated on April 7, 1945 under the Indian Companies Act, 1913
(No. VII of 1913). It has been promoted by Tata Sons. Tata Industries is a non-banking
financial company established with the object of promoting and financing industrial
enterprises and is registered with the Reserve Bank of India. The principal business of Tata
Industries is the promotion of new companies and businesses within the Tata Group, which is
carried out through the acquisition of shares, stocks, debentures and other securities. Tata
Industries is an unlisted company.

Background: VSNL
VSNL had its registered office at Videsh Sanchar Bhavan, Mahatma Gandhi Road, Mumbai,
and was incorporated under the Companies Act, 1956 as a limited liability company on
March 19, 1986 and at that time was wholly owned by the Government of India. On April 1,
1986, VSNL assumed control and management of the international telecommunication
services from the Overseas Communication Service, a department of the Ministry of
Communications of the Government of India. VSNL has since been the exclusive provider of
public international telecommunication services in India, which directly and indirectly link
the domestic telecommunications network to other countries. This monopoly over
international long distance services in India was slated to end on March 31, 2004. However,
as per the Government of India letter No. 37-21/2000-OC dated September 7, 2000, the

monopoly of VSNL is slated to terminate earlier on March 31, 2002 and international long
distance services in India will be open for competition from April 1, 2002.
The aforementioned letter of the Government of India also provided that as interim
compensation for early termination of the monopoly of VSNL over international long
distance services, VSNL would be granted a licence to operate national long distance
telecommunications Services in India; the licence fee in respect of the national long distance
telecommunications services, both by way of entry fee and revenue share, paid by VSNL to
the Government of India, would be repaid net of taxes to VSNL by Government of India for a
period of 5 years from April 2001 and VSNL would be granted a category A licence to
provide Internet services. The Government of India vide its letter no: F.No.40-2/2002-OC
dated: 28/29 January 2002 has informed VSNL that Mahanagar Telephone Nigam Limited
and Bharat Sanchar Nigam Limited have been directed to route their international long
distance traffic through VSNL for a period of 2 years after transfer of management control to
Panatone, its strategic partner, as a Most Favoured Customer at market rates and that this
would be the full and final compensation to VSNL for early termination of its monopoly in
international long distance services by 2 years.
VSNL was at that time, the largest Internet service provider in India. It also provided other
value-added services like international leased lines, Inmarsat mobile services, managed data
network services, gateway electronic data interchange services, video conferencing and
television uplinking.

Rationale of the Merger:

From the Point of View of TATA Sons:
The integrated telecom strategy of the Tata Group envisages a key role for VSNL within its
overall telecom plans. TATA Group would seek to ensure utilisation of VSNLs existing
network, infrastructure and inter-connect agreements to sustain a high percentage of the
international long distance telephony market subsequent to termination of VSNLs monopoly
after April 1, 2002. Tata Group would encourage VSNL to enter new and value-added
services in the voice (including the national long distance telephony market) and data
segment and enter new businesses as and when the technological and regulatory framework
evolves.

From the Point of View of VSNL:

The acquisition of the GOI Shares by Panatone is pursuant to the disinvestment programme
of the Government of India under which control of VSNL has passed to Panatone, as strategic
partner of the Government of India, upon consummation of the Purchase.

The Merger Deal and the Motivations:

On February 1, 2001, the Government of India announced its intention to disinvest 25% of
the shareholding of VSNL held by it to a strategic partner with the intention to transfer
management control to the strategic partner through the competitive bidding route. As per the
announcement made on February 5, 2002 by the Government of India, Panatone was selected

by the Government of India as the strategic partner for the sale of 71,250,000 fully paid-up
Equity Shares representing 25% of the voting capital of VSNL (the "GOI Shares") at a price
of Rs.202 (US$4.15) per share. The aggregate purchase price was Rs.14,392.50 (US$295
millions) million in cash.
In connection with the purchase of the GOI Shares from the Government of India, Panatone
is required by the Regulations to launch a tender offer to acquire an additional 20% of the
Equity Shares from other shareholders of VSNL. A shareholders agreement was entered into
between the Government of India and Panatone and its shareholders on February 13, 2002.
Payment of consideration for the GOI Shares and the transfer of such GOI Shares (the
Purchase) in favour of Panatone as well as the appointment of representatives of Panatone
on the Board of Directors of VSNL, viz., Mr. R.N. Tata, Mr. S.K. Gupta and Mr. N. Srinath,
occurred on the same date (i.e. February 13, 2002). Pursuant to and subject to the terms of
this Letter of Offer, Panatone is offering to purchase up to 57,000,000 fully paid up Equity
Shares (including Equity Shares underlying the ADSs), representing up to 20% of the fully
paid up voting equity share capital of VSNL, at a price of Rs.202 (Rs. two hundred and two
only) (US$4.15) per Equity Share, payable in cash. All Eligible Persons may participate in
the Offer. For purposes of the Offer, Tata Sons, Tata Power, Tata Steel and Tata Industries
are Persons Acting in Concert. Tata Power, Tata Steel and Tata Industries are companies
promoted by Tata Sons. Panatone presently holds 71,250,000 Equity Shares representing
25% of the paid up voting equity share capital of VSNL.

Impacts of the Merger on the Enlarged Entity:

Acquiring VSNL is a win-win situation for Ratan Tata in his strategy to roll out convergence
services under one umbrella. According to Tata group officials, their overall telecom-IT plans
were being revamped and a new strategy was being worked out.
In the process, the group's financial position gets enhanced manifold. Apart from business
synergies which will translate into higher revenues and cost savings, the group's turnover
rises overnight by about 15 per cent. The deal will facilitate the enhancement of the spectrum
of the telecom services provided by TATA Group. The NYSE-listed VSNL is a debt-free
company with a turnover of Rs 7,966 crore in 2001.Even after dividend payouts, it still had
surplus cash of Rs 1,200-1,500 crore. So, the Tatas get tremendous leverage, both in terms of
borrowing and access to the VSNL coffers for NLD, ILD and basic telephony expansion and
their subsequent consolidation.

2. Pfizer Inc. acquisition of Pfizer Limited

Background: Pfizer Inc.
Pfizer, Inc. is an American multinational pharmaceutical corporation headquartered in New

York City and with its research headquarters in Groton, Connecticut, United States. It is one
of the world's largest pharmaceutical company by revenues.
Pfizer Inc. is the largest manufacturer of antibiotics in the world. Pfizer is interested in
antibiotics, fermentation chemistry, pharmaceuticals and chemicals for medicine, agriculture
and industry, cosmetics and many household articles.
One of the features of the operations of Pfizer has been the phenomenal growth of its
international activities during the last 10 years or so. Even as recently as early 1951 there was
not a single Pfizer product being produced or packaged outside the United Statts. Today
Pfizer products are being manufactured in 67 plants in 27 countries.
Pfizer develops and produces medicines and vaccines for a wide range of conditions
including in the areas of immunology and inflammation, oncology, cardiovascular and
metabolic diseases, neuroscience and pain. Pfizer's products include Lipitor (atorvastatin,
used to lower LDL blood cholesterol); Lyrica (pregabalin, for neuropathic
pain/fibromyalgia); Diflucan (fluconazole, an oral antifungal medication); Zithromax
(azithromycin, an antibiotic); Viagra (sildenafil, for erectile dysfunction); and
Celebrex/Celebra (celecoxib, an anti-inflammatory drug).
Pfizer was founded by cousins Charles Pfizer and Charles Erhart in New York City in 1849
as a manufacturer of fine chemicals. Pfizer's discovery of Terramycin (oxytetracycline) in
1950 put it on a path towards becoming a research-based pharmaceutical company. Pfizer has
made numerous acquisitions, including of WarnerLambert in 2000, Pharmacia in 2003
and Wyeth in 2009, the latter acquired for US$68 billion. Pfizer is listed on the New York
Stock Exchange and its shares have been a component of the Dow Jones Industrial
Average since April 8, 2004.

Background: Pfizer Limited

In India, Pfizer acquired Dumex, in 1958. Dumex, then the Pharmaceutical Division of the
East Asiatic Company, was the pioneer in the development of insulins, anti-TB drugs,
nutritional preparations and antibiotics. At present, Dumex products are manufactured by
Pfizer and marketed under the Dumex label.

In 1959, Pfizer Inc. USA, acquired control of Dumex and changed its name to Pfizer India
Ltd. Later in the year 1992, Dumex was amalgamated with Pfizer. Pfizer India is a 40 per
cent owned subsidiary of Pfizer Inc., USA. Pfizer India has revenues of US$ 216 million and
employee strength of over 2,000. It has a manufacturing unit in the state of Maharashtra.

Pfizer in India has three business divisions:

Pharmaceutical Division: This division markets both prescription and OTC

products. The key brands of Pfizer are Corex, Becosules, Gelusil and Benadryl
Animal Health Division: This division caters to animal pharmaceuticals and is
amongst the top four players in the Indian market with revenues of US$ 12 million
Research and Development Division: This division includes Pfizers clinical
research operations as well as the biometrics division. Over the years, Pfizer India has
participated in Phase II, III and IV global trials and has contributed significantly to
advancing standards and the research culture in India. The biometrics group also
performs statistical and data management activities on behalf of Pfizer Global
Research and Development centres in the United States, Europe and Japan.
Pfizer claims to manufacture in India more than 60 products and their numerous dosage
forms. Broad-and narrow-spectrum antibiotics, nutritional preparations, anti TB drugs,
decongestants, anti-depressants, diuretics and anti-hypertensives, sulphonamides, antidiabetic
products and steroid and hormone preparations cover the range of Pfizer pharmaceuticals. In
April 1962, Pfizer introduced a range of animal health products. These are classified in two
groups: animal and poultry feed supplements and drugs for veterinary practice. Pfizer also
has a Home Products Division. It has introduced two products on the market: a cold treat
meat, Sardilan, and sore-throat tablets called Galamint.
Pfizer India operates two plants at present one at Chandigarh and the other at Darukhana
in Bombay. The Chandigarh Plant manufactures oxytetracycline and tetracycline. Pfizer
claims to be the first pharmaceutical company in India to manufacture tetracycline basically.
A new packaging plant at Thana is now proposed.
In 1959, Pfizer Inc. USA, acquired control of Dumex and changed its name to Pfizer India
Ltd. Pfizer India is a 40 per cent owned subsidiary of Pfizer Inc., USA. Pfizer India has
revenues of US$ 216 million and employee strength of over 2,000. It has a manufacturing
unit in the state of Maharashtra.
Pfizer India is recognised for its marketing strength. Pfizer was awarded the prestigious
Express Pharmaceutical Pulse 2002 award for overall excellence in the Indian
pharmaceutical industry.

Rationale of the Merger:

From the Point of View of Pfizer Inc.:
Indian provides easy facility for clinical studies. Pfizer plan to do trials worth US $ 12.5
million in India. Pfizer is also planning to invest US$ 0.1 million to start diploma courses for

pharmacists in various modules of clinical research with the Bombay College of Pharmacy.
This will help increase the number of quality professionals.

From the Point of View of Pfizer Limited:

Pfizer is acclaimed for regularly creating successful brands. Corex and Becosules are leaders
in their respective segments. Within a short span of its launch Minipress XL, is now ranked
among the top ten brands in the competitive anti-hypertensive market. A key reason for
Pfizers successful brand-building has been the strong training given to its field-force. To
train its first line managers, Pfizer started the Leaders Academy, a comprehensive
management development programme. In the OTC segment, brand-building has been
supported by good advertisements. In fact, the advertising campaign for Gelusil tablets won
an award for Creative Excellence at the 36th ABBY - The All India Awards for Creative
Excellence.
Pfizer is using technology to minimise sales force administration. A sales force automation
tool Optima was successfully implemented across the entire sales organisation. This helps
the sales force plan its customer contacts and implement marketing programmes in an
effective manner.

The Merger Deal and the Motivations:

Indias pharmaceutical industry is the third largest in the world in terms of volume and stands
14th in terms of value. The domestic pharma sector continued its strong show and recorded a
16.5 per cent growth during January-December. India will join the league of top 10 global
pharmaceuticals markets in terms of sales by 2020 with the total value reaching USD 50
billion by then, according to a report by PricewaterhouseCoopers (PwC). The pharmaceutical
industry of India also ranks very high in terms of technology, quality and range of medicines
manufactured. The pharmaceutical industry in India also full-fills around 70% of the
country's demand for bulk drugs, drug intermediates, pharmaceutical formulations,
chemicals, tablets, capsules, orals and injectable. Sector Structure/Market size Indias
pharmaceutical industry is the third largest in the world in terms of volume and stands 14th in
terms of value. The domestic pharma sector continued its strong show in 2010 and recorded a
16.5 per cent growth during January-December. The Indian pharmaceutical industry forms
around 8 per cent of world pharmaceutical production. The trend of Indian companies being
increasingly targeted by multinationals (MNCs) for both collaborative agreements and
acquisitions has been picking up over a couple of years.
The Indian Pharmaceutical market is poised to grow to US$ 55 billion by 2020 from the
levels of US$ 12.6 billion, as per a report by McKinsey & Company India Pharma 2020:
Propelling access and acceptance realising true potential. The industry further holds potential
to reach US$ 70 billion, at a compound annual growth rate (CAGR) of 17 per cent.
Exports India's exports in drugs, pharmaceuticals and fine chemicals in November 2010 was
recorded at US$ 763.62 million, with a growth rate of 9 per cent, according to DGCIS,
Pharmexcil Research data. Growth The Indian pharma companies on back of a strong and
growing domestic market, robust pipeline of generic drugs (cheaper versions of patented
drugs) and an ability to service, developed markets abroad, has invariably become the most
sought-after in the mergers and acquisitions (M&A) space Indian pharmaceutical market is

predicted to grow to US$ 55 billion by 2020 from US$ 12.6 billion, as per a McKinsey
report. In addition, India will join the league of top 10 global pharmaceuticals markets in
terms of sales by 2020 with the total value reaching US$ 50 billion, according to a report by
PricewaterhouseCoopers (PwC).
Benefitting from a high middle-class population base, improvements in medical infrastructure
and the establishment of intellectual property rights, India pharma industry is estimated to
grow manifolds. The Indian pharmaceutical sector has registered an outstanding growth
during the last few years and has become the hub of pharmaceutical companies owing to low
cost manufacturing, large population, and high demand, as per new research report
Global Contract Manufacturing Market Analysis. Generics India tops the world in exporting
generic medicines worth US$ 11 billion and currently, the Indian pharmaceutical industry is
one of the worlds largest and most developed, according to Mr Srikant Kumar Jena, Union
Minister of State for Chemicals and Fertilisers. The Indian generic drug market is expected to
grow at a CAGR of around 17 per cent between 2010-11 and 2012-13.
Generics will continue to dominate the market while patent-protected products are likely to
constitute 10 per cent of the pie till 2015, according to McKinsey report India Pharma 2015 Unlocking the potential of Indian Pharmaceuticals market. Moreover, as per a press release
by research firm RNCOS, the report titled Booming Generics Drug Market in India' projects
the Indian generic drug market to grow at a CAGR of around 17 per cent. Diagnostics
Outsourcing/Clinical Trials. The Indian diagnostic market is projected to grow at a CAGR of
around 16 per cent, as per a new research report Indian Diagnostic Market Analysis.
The deal information couldnt be found on the internet.
Government Initiative
The need for overseas investors to get a no-objection from their joint venture (JV) partner
before venturing out on their own or roping in another local firm has been removed by the
Pharmaceuticals Export Promotion Council. It is expected that this measure will promote the
competitiveness of India as an investment destination and be instrumental in attracting higher
levels of FDI and technology inflows into the country100 per cent foreign direct investment
(FDI) is permitted under the automatic route in the drugs and pharmaceuticals sector
including those involving use of recombinant technology. The Department of
Pharmaceuticals has prepared a "Pharma Vision 2020" for making India one of the leading
destinations for end-to-end drug discovery and innovation and for that purpose provides
required support by way of world class infrastructure, internationally competitive scientific
manpower for pharma research and development (R&D), venture fund for research in the
public and private domain and such other measures. The potential of the rural pharmaceutical
market in India has encouraged many MNCs to enhance their focus on this market.
Globally, the new-look Pfizer Inc will command 14% of the US prescription market and
commits $7 bn towards R&D. About 12 products will have annual sales of over $1 bn. This
new entity will also possess blockbuster drugs such as Viagra (anti-impotence), Lipitor
(cholesterol fighter) and Zoloft (anti-depressant). Thus, notwithstanding the stay, as a result
of the various initiatives taken by the company in the near past, Pfizer will gain about Rs 8
crore per annum. These initiatives include closure of the Hyderabad plant, consolidation of

the head offices and distribution network and voluntary retirement scheme (VRS) offered to
employees.
There are plans to consolidate the company's manufacturing as well as research and
development (R&D) activity.

Impacts of the Merger on the Enlarged Entity:

The Indian pharmaceutical market is extremely competitive with a large number of domestic
and MNC companies all competing for share of voice, presence and market-share. In
addition, there is government-regulated price control in some areas.
With the product-patent regime in place from Jan 1, 2005, Pfizer India is planning to
introduce 10 to 12 new drugs by 2006, all of which originate from its parents R&D and
alliance efforts.
The merger has practically been put to effect and should lend greater strength to the
company. One way out could be a relook at the swap ratio, for that is the bone of contention.
Pfizer India is expected to grow in-line or slightly above the market growth on the back of
merger benefits.
One of the highest spenders in pharmaceutical R&D globally, Pfizer has made clinical
research investments of US$ 6.05 million (November 2009) in India. In the year 1960, the
company set up one more plant at Thane, near Mumbai for manufacturing and conducting
product research. The companys manufacturing plant was ISO 14001 certified for its
Environment Management System awarded by DNV Certification B.V, Netherlands. Two of
Pfizer India's brands -- Corex (Cough Formulation) and Becosules (Multivitamin) continue
to rank among the Top 10 pharmaceutical drug brands.
In a bid to harness and increase market share in India, the global drugmakers have launched
generic or low-priced version of popular medicines and have also decreased prices of their
existing products. Global firms who traditionally banked on sales of their original high-priced
medicines have now come into direct competition with Indian drugmakers. The Indian
makers business model is built around selling large volume of cheap generic medicines at
lower margins in the country, to add to twin purpose of affordability and popularity. On back
of product patent regime and a string of large acquisitions, multinational drug companies are
making a strong comeback in India. Ten multinational companies (MNCs) - accounted for
25.4 per cent, or US$ 2.6 billion, of the US$ 10.6 billion domestic pharmaceutical market in
2010, according to IMS India.