Though Mergers are done with a viewpoint of having benefit but there are very limited cases were actually this is possible. Due to lack of Coordination, disputes, technological clashes, difference in strategies and cultural background of company and management competency, unsuccessful merger could take place.For understanding the status of companies after merger we study the different indicators of corporate success and check the variability before and after merger.
P&G and GilletteThe descriptive analysis of Gillette Company gives following information
Average Sales 9084.25 Average Income 1294
Standard deviation in sales 1072.360752
Standard Deviation in
Income 327.3693123
Coefficient of Variation 11.80461516 Coefficient of Variation 25.2990195 Correlation between R&D and
Sales 0.959765064
Source: Author‘s own calculation using data of Table 1
This shows high degree or almost perfect correlation between R&D expenditure and sales of Gillette. Thus as sale of company increases, their expenditure on R&D also increases showing the growing perspective of company. As the sales increases company try to do new innovations and improvements in their products so as to satisfy their consumers. Continuoususe of same product lead a company lose its customers due to diminishing marginal utility and prevailing competition.Graphical representation of sales shows variation and the growing pattern of company.This variation in sales and income could be due to R&D, customer satisfaction, improvement in product quality, more demand, etc. which would have lead increasing sales and hence income.
FIGURE 3: RELATIONS BETWEEN SALES AND R&D OF GILLETTE FROM 2001 TO 2004
66 KES Shroff College of Arts and Commerce, Kandivali, Mumbai Source: Author‘s own Compilation using data from Table 1
The Descriptive analysis of P&G Company gives following information
Source: Author‘s own calculation using data of Table 2
The data shows moderate rate of correlation between R&D and sales and hence though company invests money in R&D with increase in sale but the proportion is less. Due to dealing with wide no. of varieties they focus less on innovation and more on increasing sales. However the rate of variation in sales is comparatively less than in income thus showing high degree of possible fluctuations in income. The changing demand pattern or increasing investment in market strategies, could influence consumers and thus lead to increase in sales and much higher level of income.
FIGURE 4: RELATIONS BETWEEN SALES AND R&D OF P&G FROM 2001 TO 2004 (Value in million $‘s)
Source: Author‘s own Compilation using data from Table 2
FIGURE 5: SALES TRENDS OF P&G AND GILLETTE FROM 2001 TO 2010 (Value in million $‘s) 187 185 201 209 8084 8453 9300 10500 0 5000 10000 15000 2001 2002 2003 2004 R&D Sales 1769 1601 1665 1802 39244 40238 43377 51407 0 20000 40000 60000 2001 2002 2003 2004 R&D Sales
Average Sales 43566.5 Average Income 4735.25
Standard deviation in sales 5515.803628 Standard Deviation in Income 1492.824476 Coefficient of Variation in
Sales 12.66065355
Coefficient of Variation in
Income 31.52577955
Correlation between R&D
67 KES Shroff College of Arts and Commerce, Kandivali, Mumbai Source: Author‘s own Compilation using data from Table 1, 2 and 3
The Descriptive analysis of P&G and Gillette after merger gives following information Average Sales 73429 Average Income 10754.66667 Standard deviation in sales 9564.321032 Standard Deviation in Income 2431.122841 Coefficient of Variation in Sales 13.0252639 Coefficient of Variation in Income 22.60528305 Correlation between
R&D and Sales 0.392862273 Ratio of Average sale after merger to Gillette
average Sale 8.083110879
Ratio of Average sale after merger to P&G
average Sale 1.685446387
Ratio of Average income after merger to
Gillette average income 8.311179804
Ratio of Average income after merger to P&G
average income 2.271193003
Ratio of CV after merger and Gillette For sales 1.103404366 Ratio of CV after merger and Gillette For
income 0.893524077
Ratio of CV after merger and P&G For Sales 1.028798699 Ratio of CV after merger and P&G For income 0.717041208 Source: Author‘s own calculation using data of Table 3
After merger we can see total revenue by selling of products increased as sales increases and hence merger led to improvement in average scale. Average income also increased for both companies. This shows that merger didn‘t curb our market and instead for Gillette there is large share than compared to earlier. Variability rate is low as there is less variability in income and sales even after merger and thus providing a less risky and growth focused environment to companies. As after merger there is no as such loss due to merger thus it‘s a growth focused decision and proved to be successful. Though correlation between R&D and sales fell after merger but this could be due to availability of wide variety of goods currently which need proper management in production and supply of adequate product as per need of consumer.
FIGURE 6: RELATION BETWEEN SALES AND R&D AFTER MERGER FROM 2005 TO 2010 (Value in million $‘s) 0 50000 100000 Sal e s Years Sales Gillette
68 KES Shroff College of Arts and Commerce, Kandivali, Mumbai Source: Author‘s own Compilation using data from Table 3
Sun Pharma and Ranbaxy
The Descriptive analysis of Sun Pharma gives following details
Average Total Revenue 34428.0667 Average net profit 24853 Standard deviation in Total
Revenue 8538.40044
Standard Deviation in Net
Profit 6020.844791
Coefficient of Variation in
Total Revenue 24.8006968
Coefficient of Variation in
Net Profit 24.22582703
Correlation between R&D and Total Revenue
-
0.56617213 Source: Author‘s own calculation using data of Table 4
This shows that there exists negative moderate correlation between Sun Pharma total Revenue and R&D i.e. despite the fact that total revenue was decreasing but still R&D expenditure was increasing. It could be due tomore focused attitude of company on new innovations, as fall in sale is a temporary effect and new research work of company could be an incentive for future.The variability in total revenue and net profit is high and thus shows that there is high degree of fluctuations in Sun Pharma. However more variability creates a dicey kind of risky environment.
FIGURE 7: RELATIONSHIP BETWEEN TOTAL REVENUE AND R&D OF SUN PHARMA FROM 2011 TO 2013
(Value in million $‘s)
Source: Author‘s own Compilation using data from Table 4 The Descriptive analysis of Ranbaxy gives following details.
Average Total Revenue 114127.203 Average net profit -8438.063333 Standard deviation in Total
Revenue 29449.1836
Standard Deviation in Net
Profit 16590.76852
Coefficient of Variation in
Total Revenue 25.8038248
Coefficient of Variation in
Net Profit -196.6182033
Correlation between R&D and
Total Revenue 0 56741 68222 76476 83503 76694 78938 1940 2075 2112 2226 1864 1950 0 50000 100000 2005 2006 2007 2008 2009 2010 Sales R&D 33017 43584.1 26683.1 3313 4449 7042 0 10000 20000 30000 40000 50000 2011 2012 2013
69 KES Shroff College of Arts and Commerce, Kandivali, Mumbai Source: Author‘s own calculation using data of Table 5
Above analysis shows that company was suffering from huge losses, even the average of past 3 years shows a negative value. There was high rate of variability in Total Revenue and extremely high in profits. These analyses draw an outlook of poor financial position of Ranbaxy. This shows that there is no correlation between R&D and Total Revenue in Ranbaxy. They have stopped spending in R&D and no new research and inventions were taking place even with increase in Total Revenue. As company was going through rough patch during which it was suffering losses and sales were also not happening thus it prevented extra spending on research and improvements work.
FIGURE 8: RELATIONSHIP BETWEEN TOTAL REVENUE AND R&D OF RANBAXY FROM 2011 TO 2013
(Value in million $‘s)
Source: Author‘s own Compilation using data from Table 5
The Descriptive analysis of study after merger of Ranbaxy and Sun Pharma
Source: Author‘s own calculation using data of Table 6
Even after merger the production didn‘t fell and there was sound management of all activities which lead to further increase in total revenue. Sun Pharma merger with Ranbaxy increased profits of Sun Pharma but as Ranbaxy was having losses thus it had negative average ratio. There exists little variability for total revenue and net profits showing that merger didn‘t hamper the environment of both companies and in fact provided a way to gain adequate amount of sale and timely management of work for which R&D expenditure are incurred. After merger the environment shows perfect
80363.82 127504.63 134513.16 0 0 0 0 50000 100000 150000 2011 2012 2013
Total Revenue R&D
Average Total Revenue 181455.475 Average net profit 47977.45 Standard deviation in Total
Revenue 146753.5539
Standard Deviation in Net
Profit 15882.56399
Coefficient of Variation in Total
Revenue 80.87579273
Coefficient of Variation in
Net Profit 33.10422708
Correlation between R&D and
Total Revenue 0.86087032
Ratio of Average total revenue after merger to sun Pharma average total revenue 5.270568248 Ratio of Average total revenue after merger to Ranbaxy average total revenue 1.589940607 Ratio of Average net profit after merger to Sun Pharma average net profit 1.93044904 Ratio of Average net profit after merger to Ranbaxy average net profit -5.68583668 Ratio of CV after merger and Sun Pharma For total revenues 3.261029045 Ratio of CV after merger and Ranbaxy For total revenues 3.134256013 Ratio of CV after merger and Sun Pharma For net profit 1.366484911 Ratio of CV after merger and Ranbaxy For net profit -0.16836807
70 KES Shroff College of Arts and Commerce, Kandivali, Mumbai
correlation between total revenue and R&D. Merged companies are basically trying to attract more and more customers and provide appropriate quality to consumer‘s in order to win their trust and satisfy them with their need by having proper R&D.
FIGURE 9: TOTAL REVENUE TRENDS OF SUN PHARMA AND RANBAXY FROM 2011