X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
To acquire or not to acquire - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Jan 27, 2009

    To acquire or not to acquire

    Pfizer's big gamble

    'Acquisitions' seem to be on the agenda of the global pharma industry; especially big ticket ones. The world's largest drugmaker Pfizer is said to be in talks with Wyeth to acquire the latter at a deal size pegged to be worth more than US$ 60 bn. While there is no confirmation of the same as yet, the reasons why Pfizer would go in for it are manifold. It is now a well established fact that global pharma majors are finding it increasingly difficult to replenish their pipelines with new path breaking drugs while the R&D costs are mounting. As a result, many of them had already started looking to acquire either a portfolio of products or acquire smaller companies which had a few promising drugs in their pipelines but did not have the requisite funding. Biotech companies especially got classified in the latter category. But with the credit crisis now afflicting the global economy, many biotech companies seem to be shutting shop and are no longer a viable option.

    Secondly, Pfizer's major drug, which is the largest drug in the world with global revenues of US$ 12 bn is set to lose its patent in 2011. And the company does not have another blockbuster to fill Lipitor's shoes. If the deal with Wyeth goes through, once the patent of Lipitor expires in 2011, Pfizer will suffer a 10% fall in earnings as compared to 23% (if it does not go through). Thirdly, Wyeth has some strong drugs in its pipeline such as Enbrel and the vaccine Prevnar, which are blockbusters. If the deal goes through, it will most likely trigger a wave of consolidation in the industry as rival companies also look to grow in size to compete. The real problem for Pfizer of course could be the funding of the deal. US$ 60 bn is by no means a small amount especially in an environment where credit has dried up and the recession has deepened. It would be interesting to see how Pfizer makes this feasible without loading its balance sheet with too much debt.

    Forex woes continue
    Forex losses have continued to afflict major Indian companies during the December ended quarter. With the volatile moves of the rupee baffling everybody, forex losses this quarter have only mounted. As reported in a leading business daily, around 30 companies so far have reported a combined forex loss of Rs 37 bn for this quarter. These losses are generally due to cancellation of forward contracts at unrenumerative rates and the revaluation of their foreign currency loans. While more than two thirds of the same are due to hedging practices, the remaining are due to revaluation of dollar liabilities. Not surprisingly, IT and pharma majors have borne the maximum brunt of forex losses given that these sectors are highly export oriented.

    Those who have been relying on Foreign Currency Convertible Bonds (FCCBs) especially are paying a heavy price. A couple of years back when the stockmarkets were buoyant, FCCBs were being announced by the dozen, some with exorbitant premiums promised at the time of redemption. The reversal in the fortunes of the stockmarkets has put all these companies in a tight spot. Given the meltdown, conversion of these bonds into equity shares looks highly unlikely. Moreover, the spectre of redemption is hanging like a Damocles sword over these companies as funding the same has become an issue. And the sharp fall in the value of the rupee has only exacerbated forex losses on these loans thereby impacting profitability. Thus, those companies without adequate cash flows are in for some troubled times.

    A dull lustre indeed
    Looks like paint companies will have to brace themselves for a tough quarter. India's leading paint company Asian Paints reported an unenthusing set of numbers on Friday, wherein sales grew by a tepid 12% YoY and operating margins nearly halved. This is not surprisingly given that the growth of the paint industry is correlated to the GDP growth. With the growth of the latter having slowed down, the growth of the paint sector has been restricted as well. Mr. Ashwin Dani, the MD of Asian Paints said, "We could see demand conditions slowing down. We view these as short term challenges and we are hopeful that the situation will improve in the next financial year". We hope so too, but with 2009 also predicted to be a tough year for the global economy, it remains to be seen how Indian companies are able to cope with the same.

     

     

    Equitymaster requests your view! Post a comment on "To acquire or not to acquire". Click here!

      
     

    More Views on News

    How to Ride Alongside India's Best Fund Managers (The 5 Minute Wrapup)

    Jun 10, 2017

    Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.

    Dear PM Modi, India is Already Land of Self-Employed, and It Ain't Working (Vivek Kaul's Diary)

    Aug 21, 2017

    Most Indians who cannot find jobs, look at becoming self-employed.

    The Key Factor Pushing Gold Up These Days (Outside View)

    Aug 21, 2017

    PersonalFN explains the chief factor pushing gold prices up of late.

    How Unique Are the Companies You Invest In? (The 5 Minute Wrapup)

    Aug 21, 2017

    One of the hallmarks of successful investing is to look out for companies that have a unique and enduring moat.

    You've Heard of Timeless Books... Ever Heard of Timeless Stocks? (The 5 Minute Wrapup)

    Aug 19, 2017

    Ever heard of Lindy Effect? Find out how you can use it to pick timeless stocks.

    More Views on News

    Most Popular

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    The Most Profitable Investment in the History of the World(Vivek Kaul's Diary)

    Aug 8, 2017

    'Yes, it looks like a bubble. And, yes, it's like buying a lottery ticket. But there's something happening that has never happened before. It's an evolutionary leap in money itself.'

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    S&P BSE SENSEX


    Aug 21, 2017 (Close)

    MARKET STATS