The time seems ripe for mergers - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

The time seems ripe for mergers

Mar 13, 2009

Mergers zoom in the global pharma space
The global pharma industry in the past few months has been on a consolidation overdrive. The biggest of the biggest deals took place when Pfizer announced that it was acquiring Wyeth for a staggering US$ 60 bn. Just a couple of days back, the US based company Merck acquired Schering Plough and yesterday, Roche was successful in buying out it the remaining stake in the biotech company Genentech. So what has compelled Big Pharma to go in for big ticket acquisitions especially when the global economy is in a downturn and credit is scarce? There are myriad reasons for these moves.One is obviously the pipeline of drugs that the acquiring company will have access to. Thus, the acquisitions will not only enable Pfizer, Merck and Roche to augment their product portfolio and thereby minimize the risk of patent expiration of some of their existing drugs but will also enable them to have a presence in a new field. The latter especially holds true for Pfizer and Roche. By acquiring Wyeth, Pfizer can now boast of a presence in vaccines while Roche will have access to biotech drugs. The second reason is that global pharma companies have strong cash balances as a result of which they have been able to purchase companies even when the global economy is contracting and money is not readily available. But, while these acquisitions have sent out some signals that the health of the pharma industry is not overly affected, these companies will still have a tough task on their hands when it comes to digesting these purchases. At the end of the day, as is the case with any acquisition, successful integration is what will generate strong returns for shareholders.

India's 'inefficient' use of savings
While the global financial crisis has not spared even India in terms of slowdown in growth, the country is still better off than most of its developed peers, which have already plunged into recession. The fact that it is not as heavily reliant on exports as some of its Asian peers has also helped to a great extent. Add to this the fact that the Indian economy is not as overstretched as the Eastern European countries on foreign capital and it certainly seems that India is attracting the envy of many countries. As reported in the Economist, India's gross saving rate was around 38% of GDP in the past fiscal year. This speaks volumes of the country's prudence as compared to the US, where most Americans were heavily leveraged.

But as the magazine further goes on to add, India does not mobilize its savings well. It says, "Households account for almost two-thirds of it. But they put more than half of their spare funds into physical assets, such as homes, rather than the financial system. Of the remainder, 11% is held in cash and 55% is deposited in the banks, which are now lending almost a third of their deposits to the government." Maybe in some sense, that is a blessing in disguise. Leaving aside the fact that the financial crisis has firmly gripped every country in its clasp including India, it is precisely the latter's prudence which has prevented its banking system to fall prey to the ills that have plagued banks in the US and Europe. And the lower investment in the financial system means that India has more headroom to increase investments in this sector especially if they are used to haul up the country's considerably rickety infrastructure.


Equitymaster requests your view! Post a comment on "The time seems ripe for mergers". Click here!

  

More Views on News

It's When You Sell that Counts (Profit Hunter)

Sep 25, 2020

How I alerted readers to the impending crash last week.

Can the Nifty Fall to 10,200? (Fast Profits Daily)

Sep 24, 2020

The Nifty has reached an important support level today. If it breaks then we could see further downside.

How to Save Money by Exiting Stocks Before They Fall podcast (Views On News)

Sep 24, 2020

A penny saved is a penny earned. It doesn't matter where you enter. All that matter is where you exit. Watch this video to identify an opportune time to exit your investments and book profits.

ICICI Prudential ESG Fund: Aims for Sustainability (Outside View)

Sep 24, 2020

PersonalFN briefly explains the newly launched fund : ICICI Prudential ESG Fund.

What to Do if there is a Second Wave of the Stock Market Crash (Profit Hunter)

Sep 24, 2020

Here's what I think investors should do in this selloff.

More Views on News

Most Popular

Why We Picked This Small-cap Stock for Our Hidden Treasure Subscribers (Profit Hunter)

Sep 17, 2020

This leading household brand will profit big time in a post covid world.

My Top Stock to Buy in this Market Selloff (Profit Hunter)

Sep 22, 2020

The recent correction offers a great opportunity to buy this high conviction smallcap stock.

What Do the Charts Say About Buying Smallcaps Now? (Fast Profits Daily)

Sep 18, 2020

Everyone seems to be excited about buying smallcaps now...but is it the right thing to do? What do the charts tell us? Find out in this video...

How Much Money Do You Need to Be a Professional Trader? (Fast Profits Daily)

Sep 17, 2020

In this video I'll answer a question I get asked often: How much capital do I really need to trade the markets for a living? Let's find out...

More

Covid-19 Proof
Multibagger Stocks

Covid19 Proof Multibaggers
Get this special report, authored by Equitymaster's top analysts now!
We will never sell or rent your email id.
Please read our Terms

S&P BSE SENSEX


Sep 25, 2020 11:39 AM

MARKET STATS