Integrating Galaxy Pharma into Vibrant Ltd - Case Study Example

Student’s Name: Instructor’s Name: Course Code & Name: Date of Submission: EXECUTIVE SUMMARY Over years, Vibrant Ltd has experienced steady growth in the pharmaceutical market but due to increase in competition, its market has shrunk. Therefore, reducing sales volume and profitability of the company, to garb above trend management considers to acquire Galaxy Pharma Japan based pharmaceutical company in order to have synergy in economic, financial and managerial thus outshining other competitors in the market. The product line of the target company itself is attractive to Vibrant Ltd since there will be nothing complex in integrating Galaxy Pharma into Vibrant Ltd. The company wishes to increase its average annual growth by 3% and above per year, which enables company maintain stability of the shareholder wealth and maximize corporation profit, which is one of the major goals of the company stakeholders. Therefore, acquisition of Galaxy Pharma will lead to realization of this objective through reduction in cost, increase in market share, and increase in profit and improvement in managerial team. Above objective will be achieved if the company understands impact of the acquisition to the vibrant Ltd business strategy, effective culture transition and merge, development of effective communication channel, appointment of devoted and experienced transition or integration team and lastly, ensure that there are plans for achieving the acquisition goals in place for the employees to focus their energy in achieving those set objectives. We therefore, recommend the procedure below in to be followed carefully in order to have a successful integration and realization of above objectives. TRANSMITTAL LETTER DR. JOHN CARSON, CEO VIBRANT LTD, P.O BOX 30-0001, NEW CANBERRA, FLOOR 6 250 WANDALOO BUILDING. 16TH September 2014 ICHIRO SUZUKI, CEO GALAXY LTD, P.O BOX 400, NIHONMACHI, FLOOR 6 250 GALAXY BUILDING. Dear Ichiro, REF: Acquisition Transmission procedure for Galaxy Pharma I submit herewith a program that will be followed in transition of the operation of Galaxy Pharma upon completion of the Acquisition deal to be finalized at the end of this month. The transmission will be carried under my instruction through help of other management members. We could like to ask for your cooperation in the process and furnish us with important information that will be required for the success of the acquisition process. Your effort is highly required for smooth transmission. For any enquiries relating to the acquisition and transmission, contact me on johncarson@gmail.com while questions on administration can be directed to my deputy on janeandrea@gmail.com Your effort in this exercise will be highly appreciated. Thank you in advance. Sincerely, John Carson, CEO Vibrant Ltd CC: Jane Andrea, Deputy CEO INTRODUCTION Acquisition is a great sign of expansion for any company but a complex exercise to carry out since a company needs to execute an acquisition deal that is beneficial to shareholders of the company. Directors of the company are therefore, required to engage experts in analyzing the suitability of the acquisition in order to avoid destruction of shareholder value but in return maximize their value in the company (James Kristie, 2006). Valuation of the target company is considered mandatory and important due to the fact that Target Company will most likely value its net worth higher in order to get a higher return for the takeover while predators tries to value and negotiate at a lower price in order to get premium from the purchase. Vibrant Ltd is required to have a true value of Galaxy Pharma in order to avoid buying it a higher value which can lead to failure of acquisition leading to lose of shareholder value and inconveniencing suppliers, customers and employees of Galaxy Pharma. Financial performance and position of Galaxy Pharma is ideal for Vibrant Ltd since it has positive operating profit of Yen 4,551 million, operating profit is suitable to gauge financial performance of any company because it is always affected by mandatory expenditure that the company taking over will likely incur upon taking over thus showing a clear performance. Galaxy Pharma has fixed assets of Yen 8,337 million which is contributed to the purchase cost, according to Galaxy Pharma, its fixed assets shows that it is in a stable position since too many assets in a company is sometimes not recommended due to increase in cost of maintenance and underutilization of the same assets (James Kristie, 2006). It is therefore recommended that upon takeover, Vibrant Ltd should analyze demand and capacity in order to make decision either to increase or reduce fixed asset for it to achieve equilibrium between demand and capacity. The current assets of Galaxy Pharma are Yen 30,250 million, 40% of it being cash showing that Galaxy is liquid enough to discharge its liabilities easily when they fall due. The attractiveness of the financial position is not the only factor that needs to be considered in acquisition since they are other important factors to be considered that contributes to success of an acquisition (James Kristie, 2006). Though acquisition of Galaxy Pharma is attractive, management should take due care in studying the reaction of management in order to avoid instances of Galaxy Pharma management developing anti-takeover mechanism which can negatively impact the company thus reducing its attractiveness or even leading to collapse thus lose of shareholder value and products for customers of Galaxy Pharma. Therefore, care should be taken for example, when Galaxy Pharma issue new class of shares to directors, pay dividends using their assets or sell attractive assets of the company is a key indication that directors of Galaxy Pharma are employing anti-takeover mechanisms such as white knight or poison pill in order to makes company unattractive to purchase. On top of above factors, we recommend that management should give additional concern on the following factors before and after acquisition; FACTORS NEED TO BE CONSIDERED The management should understand the impact of acquiring Galaxy Pharma on Vibrant business strategy; this involves trying to analyze the impact on short and long term goals and financial objectives of the company which according to my panel of experts, Galaxy Pharma is a perfect match to Vibrant Ltd due to the same line of business thus fitting perfectly since it has the same business strategy (White, Sondhi, and Fried, 1994). Vibrant Ltd according to its long term goals is aiming at expanding its operation in more countries and increasing its competitive hedge among its major competitors in the industry while short term goals is to increase its current operating profit by a 10% or more. Therefore, acquisition of Galaxy will result to accomplishment of these goals for example Galaxy Pharma deals in the same line of business thus acquisition will enable to Vibrant Ltd to offer its products to Japan and other neighboring countries thus expanding its market scope, on competitive hedge, increase in market scope enhance its profits in the industry and increase in economies of scale gives it more advantage over other companies since they will be able to offer their products at a relatively cheaper price thus attracting demand (Rodgers, 2007). Secondly, acquisition will result to increase in company’s profitability since Galaxy Pharma is currently operating on a positive operating profit thus enabling Vibrant to achieve its short term financial goals (Rodgers, 2007). We strongly recommend that the acquisition of Galaxy Pharma will have a positive impact on Vibrant Ltd therefore, we give go a head of acquisition. Second factor to consider is culture fit between the two companies in order to a have a smooth transition without culture clash. Culture shows a clear picture of what company stands which constitute customer, suppliers, employees and shareholders of both companies. It is therefore, our recommendation to Vibrant Ltd to retain culture of Galaxy Pharma since it is the key factor of its success in the industry. But merge the two cultures with time in order to come up new culture which is suitable to both companies. Failure in acquisition is mostly attributed to the reason that predator companies don’t take this factor seriously by imposing their standards on a totally different company with different organization culture thus resulting to strikes and lose of customer loyalty (Palmer, 1983). We recommend that Vibrant Ltd should choose a different taskforce in order to merge the two cultures effectively without considering which company culture should dominates over the other one. Thirdly, the company needs to appoint integration panel who will be responsible for the successful integration between Vibrant Ltd and Galaxy Pharma. The team should have a team leader who will give reports and lead other team members in integration. The team also requires to be availed with enough resources and motivation in order to carry out its objectives efficiently (Diamond and Verrecchia, 1991). More importantly, it should be devoted to company success and nothing less since integration team determines whether the newly acquired firm will integrated into Vibrant Ltd operation effectively. We therefore, recommend that Directors of Vibrant Ltd should take keen interest on whom to appoint to lead integration team. Communication is another key aspect to be taken care of since it determines the success of any company. Research shows that the most successful companies in the world have proved to have effective line of communication between all its stakeholders (Baxter, 1967). We therefore, recommend that Vibrant Ltd directors should meet with creditors, debtors, shareholders and employees of the Galaxy Pharma in order to discuss their way forward since lack of this discussion will result to two organization moving in different directions. On employees, Vibrant Ltd should establish a direct communication with supervisors in Galaxy with employees communicating directly to their supervisors. The aim is to ensure that any fault or dissatisfaction is reported and correctly promptly in order to maintain and improve service delivery upon acquisition of the company (Harrison & Horngren, 2001). It is our recommendation that Vibrant will establish a clear communication channel for its success in integration. Vibrant Ltd will obviously require restructuring on human resource in order to suite the company needs and achieve its objective as per the reason of buying the company. Therefore, it is the role of management to train and develop human resource by ensuring they are knowledgeable on how the new company should run on new policies and objectives merged from the parent company. The management need to take good consideration of abilities of the employees in giving out duties and responsibilities in order to ensure that employees are comfortable and able to deliver up to their maximum abilities since they are doing something that they love doing. The management should also consider doing rotation of workers from Galaxy Pharma to vibrant Ltd and vice versa in order to ensure knowledge is exchanged between the two companies for the achievement of high quality and efficiency. Rotation will also ensure that Galaxy Pharma staff retained can benchmark on Vibrant Ltd and take back new ways of running Galaxy Pharma effectively on the other hand Vibrant Ltd employees taken to Galaxy Pharma will gain the same benefit. Lastly, Vibrant Ltd need to meet its business and financial objectives by having those involved accountable for the achievement of the company. This will be accomplished through setting of acquisition goals and communicating to all the employees concern since there is no need of developing goals and not communicating them to that concern and put in place a way to determine if the set objectives are achieved or not (Pratt & Grabowski, 2008). CONCLUSION In conclusion, we strongly recommend idea of Vibrant Ltd in acquiring Galaxy Pharma since we arrived at this conclusion after in-depth analysis on the impact and process of integrating the two bodies under one directorship of Vibrant Ltd. The acquisition will be nothing but a success to Vibrant Ltd given that you will take keen interest of the above procedure. REFERENCE James Kristie, (2006), “Why Did You Make that Acquisition,” Boardroom Briefing: Mergers & Acquisitions published by Directors and Boards Magazine, Fall White, G. I., Sondhi, A. C. and Fried, D. 1994. The analysis and use of financial statements. Wiley. Rodgers, P. 2007. Financial analysis. Oxford: Elsevie Palmer, J. E. 1983. Financial ratio analysis. New York, N.Y.: American Institute of Certified Public Accountants. Diamond, D. W. and Verrecchia, R. E. 1991. Disclosure, liquidity, and the cost of capital. The journal of Finance, 46 (4), pp. 1325--1359. Baxter, N. D. 1967. LEVERAGE, RISK OF RUIN AND THE COST OF CAPITAL*. the Journal of Finance, 22 (3), pp. 395—40 Harrison, W. T. & Horngren, C. T. 2001. Financial accounting. Upper Saddle River, NJ: Prentice Hall. Pratt, S. P. & Grabowski, R. J. 2008. Cost of capital. Hoboken, N.J.: John Wiley & Sons. Read More