CORPORATE FINANCE

DFA 2002Y (3)

UNIVERSITY OF MAURITIUS

NAME ID
BHOYROO Halima Sadia 1812093
GOURDEALE Priyashna 1811161
JAHALLY Waleed 1813712
JEEBAUN Madhurima 1813510
JOOMUN Muhammad Azhar Ibné Habib 1812265
MUTTHY Bibi Ruwaydah 1812354
PEERBACCUS Bibi Nusayfah 1810707
POORUN Nabil Ahmad 1810888
RUNGHEN Komalum 1814116

SUBIMISSION DATE: 30th April 2020

Tutor: Mrs. Reena BHATTU BABAJEE

BSc(Hons) Management Accounting and Finance

Faculty of Law & Management
Table of Contents
I. List of Figures and Tables ................................................................................................................ 5
II. List of Abbreviations ....................................................................................................................... 6
III. Assignment Title ............................................................................................................................. 7
IV. Introduction .................................................................................................................................... 8
M&A in Least Developed Countries:
V. SSFR AND RAMA- Rwanda ............................................................................................................ 16
VI. AXIATA AND LATELZ- Cambodia .................................................................................................... 23
M&A in Developing Countries:
VII. GMLI and IBL- Mauritius................................................................................................................ 30
VIII. MSCL AND APOLLO BRAMWELL HOSPITAL- Mauritius .................................................................. 39
M&A in Developed Countries:
IX. KRAFT AND HEINZ- United States of America................................................................................ 44
X. ROYAL DUTCH SHELL AND BG GROUP- United Kingdom .............................................................. 51
XI. Conclusion..................................................................................................................................... 60
XII. References .................................................................................................................................... 61

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 Table of Contents
1. INTRODUCTION ......................................................................................................................... 8
1.1 History of Merger and Acquisition (M&A).............................................................................. 8
1.2 Mergers ..................................................................................................................................... 9
1.3 Acquisition ................................................................................................................................ 9
1.4 Types of Integration ................................................................................................................ 10
1.5 Motivation for M&A ............................................................................................................... 10
1.5.1 Financial Motive .................................................................................................................. 10
1.5.2 Strategic Motive .................................................................................................................. 11
1.5.3 Conglomerate Motive .......................................................................................................... 11
1.6 Defensive tactics ...................................................................................................................... 12
1.7 Reasons for mergers and acquisition ...................................................................................... 12
1.8 Problems impacting the success of M&As ............................................................................. 13
1.9 Statistics of failed M&As ........................................................................................................ 14
1.10 Real life examples of Mergers and Acquisitions .................................................................. 15
2. SSFR AND RAMA- Rwanda ....................................................................................................... 16
2.1 Background ............................................................................................................................. 16
2.2 Process ..................................................................................................................................... 16
2.3 Objective of merger ................................................................................................................ 17
2.4 Responsibilities of RSSB ......................................................................................................... 17
2.5 Performance of the merger ..................................................................................................... 17
2.6 Post-Merger Analysis .............................................................................................................. 20
2.6.1 Effect of merger on portfolios performance ................................................................ 20
2.6.2 Impact of the merger (Positive and Negative) ............................................................. 20
2.7 The current situation of the RSSB.......................................................................................... 21
2.7.1 Strategic plan (2015-2020) .................................................................................................. 22
3. AXIATA AND LATELZ- Cambodia .......................................................................................... 23
3.1 Background ............................................................................................................................. 23
3.1.1 About Axiata ....................................................................................................................... 23
3.1.2 About Latelz ........................................................................................................................ 23
3.2 Process of acquisition .............................................................................................................. 24
3.3 Reason for acquisition............................................................................................................. 25
3.4 Synergies from acquisition...................................................................................................... 25

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 3.5 Post-Acquisition Analysis (2013) ............................................................................................ 26
3.6 Current Operation .................................................................................................................. 27
3.6.1 Challenge: ............................................................................................................................ 27
3.6.2 Corporate Social Responsibility: ........................................................................................ 28
3.6.3 Progress: .............................................................................................................................. 28
4. GMLI and IBL- Mauritius .......................................................................................................... 30
4.1 Background ............................................................................................................................. 30
4.1.1 GML Company ................................................................................................................... 30
4.1.2 Ireland Blyth limited (IBL) ................................................................................................. 30
4.2 Process of merger .................................................................................................................... 31
4.3 Objective of merger ................................................................................................................ 32
4.4 Risks, opportunities, benefits and relevance to various stakeholders ................................... 34
4.5 Post-Merger analysis............................................................................................................... 35
4.6 Current situation..................................................................................................................... 36
4.6.1 Challenges ........................................................................................................................... 37
4.6.2 Progress ............................................................................................................................... 37
4.6.3 Corporate Social Responsibility.......................................................................................... 38
4.6.4 Strategic planning ............................................................................................................... 38
5. MSCL AND APOLLO BRAMWELL HOSPITAL- Mauritius ................................................. 39
5.1 Background ............................................................................................................................. 39
5.1.1 Medical & Surgical Centre Limited (MSCL) ..................................................................... 39
5.1.2 Apollo Bramwell Hospital (ABH) ....................................................................................... 39
5.2 Aim of acquisition ................................................................................................................... 39
5.3 Process of acquisition .............................................................................................................. 40
5.4 Post-Acquisition analysis ........................................................................................................ 41
5.4.1 Apollo Bramwell Hospital (Now known as Welkin) ........................................................... 41
Corporate Social Responsibility: ................................................................................................. 41
Steady improvement in performance of Wellkin Hospital ......................................................... 41
5.4.2 MSCL .................................................................................................................................. 42
5.4.3 Financial performance/challenge ........................................................................................ 42
5.5 Current situation..................................................................................................................... 43
6. KRAFT AND HEINZ- United States of America ....................................................................... 44
6.1 Background ............................................................................................................................. 44

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 6.1.1 Heinz Company (Began with ketchup) ............................................................................... 44
6.1.2 Kraft (Started with cheese) ................................................................................................. 44
6.2 Process of Merger ................................................................................................................... 44
6.2.1 Leadership in the change process: ...................................................................................... 45
6.3 Objective of Merger ................................................................................................................ 46
6.4 Merger synergies and problems: ............................................................................................ 46
6.5 Post-Merger Analysis .............................................................................................................. 47
6.5.1 Financial Impact ................................................................................................................. 47
6.6 Current Situation: ................................................................................................................... 49
7. ROYAL DUTCH SHELL AND BG GROUP- United Kingdom ................................................ 51
7.1 Background ............................................................................................................................. 51
7.1.1 Royal Dutch Shell Company ............................................................................................... 51
7.1.2 BG Group ............................................................................................................................ 52
7.2 Process of acquisition .............................................................................................................. 52
7.3 Objective of acquisition .......................................................................................................... 53
7.4 Advantages and problems from acquisition ........................................................................... 54
7.5 Post-Acquisition Analysis ....................................................................................................... 56
7.5.1 Financial Analysis ............................................................................................................... 57
7.5.2 Effect on Economy .............................................................................................................. 58
7.5.3 Current Situation ................................................................................................................ 58
8. Conclusion.................................................................................................................................... 60
9. References .................................................................................................................................... 61

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 List of Figures
Figure 1: Mergers & Acquisition Worldwide...............................................................................8
Figure 2: Defensive Tactics ....................................................................................................... 12
Figure 3:Statistics of failed M&As ............................................................................................ 14
Figure 4: Market Position of Axiata in Cambodia ...................................................................... 24
Figure 5: Axiata Synergies ........................................................................................................ 26
Figure 6: Axiata’s Financial performance Post-Acquisition Analysis ......................................... 26
Figure 7: Axiata's National Contribution ................................................................................... 29
Figure 8: IBL's Post-Merger Analysis........................................................................................ 35
Figure 9: IBL's Current Situation............................................................................................... 36
Figure 10: Kraft-Heinz Merger .................................................................................................. 44
Figure 11: Kraft-Heinz's Net Financial Debt .............................................................................. 47
Figure 12: Shell's Operating Sectors .......................................................................................... 51
Figure 13: Impact of BG on Shell .............................................................................................. 53
Figure 14: Strategic Synergy between BG & Shell .................................................................... 54
Figure 15: BG & Shell Combination ......................................................................................... 55
Figure 16: Financial highlights of Shell after acquisition ........................................................... 57
Figure 17: Number of acquisitions in UK by other UK companies ............................................ 58

List of Tables

Table 1: The Economic History Merger waves- M&A activities ..................................................8

Table 2: Types of Integration .................................................................................................... 10
Table 3: Real Life examples of Mergers & Acquisitions ............................................................ 15
Table 4: RSSB Post-merger benefits payment ........................................................................... 20
Table 5: GMLI"s Financial highlights ....................................................................................... 30
Table 6: IBL Financial highlights .............................................................................................. 31
Table 7: IBL Group's brands in major sectors ............................................................................ 34
Table 8: Wellkin's Occupancy ................................................................................................... 42
Table 9: Financial Performance of C-Care ................................................................................. 43

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 List of Abbreviations
ABH- Apollo Bramwell Hospital
BAI- British American Investment Group
CBHI- Community Based Health Insurance
CSR- Corporate Social Responsibility
EBITDA- Earnings Before Interest, Taxes, Depreciation, and Amortisation
EPS- Earnings Per Share
FCD- Fortis Clinique Darn
FHL- Fortis Healthcare Limited
GCA- Gross Cash Accruals
GMLI- GML Investissement Ltée
GVA- Gross Value Added
IBL- Ireland Blyth Limited
LBOs- Leveraged Buyouts
LNG- Liquefied Natural Gas
M&A- Mergers and Acquisitions
MSCL- Medical & Surgical Centre Limited
NIC- National Insurance Company
NICHL- NIC Healthcare Ltd
PAT- Profit After Tax
PAT- Profit After Tax
RAMA- Rwanda Medical Insurance Company
ROCE- Return On Capital Employed
RSSB- Rwanda Social Security Board
SADIF- Smart Axiata Digital Innovation Fund
SSFR- Social Security Fund of Rwanda
WACC- Weighted Average Cost of Capital

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 ASSIGNMENT TITLE

With the help of relevant examples around the world and also in Mauritius, explain 3
Mergers and 3 Acquisitions that have taken place over the last decade.
Show how the different stakeholders including the government of the host nation gained
or suffered during the process.

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 1. INTRODUCTION
1.1 History of Merger and Acquisition (M&A)
The history of M&A began mostly in the late 19th century United States but mergers coincide with
the existence of companies. However, the panic of 1893 provoked the Great Merger Movement.
The Great Merger Movement took place between 1896 and 1905 and during this period, firms with
small market shares integrated with similar firms to form large, powerful and dominant companies
in their respective markets. Since, mergers and acquisitions have become an uncommon strategy
for expansion worldwide. The economic history has been classified into Merger Waves in terms
of the M&A activities in the business world as follows (Anastasia, 2016):

Table 1: The Economic History Merger waves- M&A activities

Since 2000, there have been more than 790,000 M&A transactions worldwide estimated at over
57 trillion USD. In 2018, the number M&A has fallen by 8% accounting for 49,000 transactions,
while their worth has risen by 4% to USD 3.8 trillion (Institute for Mergers, Acquisitions and
Alliances (IMAA), 2016):

Figure 1: Mergers & Acquisition Worldwide

Actually, such merger wave phenomenon can be observed in emerging markets with Asian
economies undergoing an outsized growth in M&A transactions where deals by companies in
emerging markets accounts for 30% of world M&A activity.

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Mergers and acquisitions are becoming increasingly a strategic option for organizational growth,
achievement of business goals including profit, empire building, market dominance and long-term
survival (Shodhganga,2013). Takeover, merger and acquisition are often used interchangeably,
even though the economic implications of takeover and a merger are distinct (Singh, 1971).

1.2 Mergers
According to Hart and Sherman (2006), a merger is “a combination of two or more companies in
which the assets and liabilities of the selling firm(s) are absorbed by the buying firm. Although the
buying firm may be a considerably different organization after the merger, it retains its original
identity.” The shareholders of both the merging firms will be allotted shares in the combined entity
in exchange of their shares held in their respective prior merger company. This will be in
accordance with the share exchange ratio integrated in the scheme of merger as approved by
relevant parties and sanctioned by the court (Shodhganga, 2013).
The characteristics of ‘true’ mergers are as follows:
 The parties are approximately equal in size.
 Management of the two entities is combined or unified after the combination.
 The shareholders of the two merging companies remain shareholders after the combination.

1.3 Acquisition
Krishnamurti and Vishwanath (2008) defined an acquisition as the purchase of a significant part
of the assets or securities of one company (target) by another (the acquirer) whereby the purchase
may be a division of the target or a substantial or all of the target company's voting shares.
Acquisition is a company's growth strategy where it is better to acquire an existing firm's
operations and niche rather than expanding on its own. These can be settled in cash, the acquiring
company's shares or a combination of both. Furthermore, an acquisition may be friendly or hostile.
In a friendly acquisition the companies cooperate in negotiations while in a hostile one, the
takeover’s target disapproves to be sold or the target's board was not aware of the offer.

Acquisition generally refers to the purchase of a smaller firm by a larger one. However, a reverse
takeover occurs when smaller firm may acquire management control of a larger/longer established
company and retain its name for the combined entity (Shodhganga, 2013). Acquisitions are often
referred to as merger as it conveys a better message to the clients of the target and to appease

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employees of the target company as the achievements and loyalty of the target`s employees are
assets prized by the predator.

1.4 Types of Integration

Table 2: Types of Integration

1.5 Motivation for M&A

According to Grinblatt and Titman (2002), mergers and takeover activity can be categorised as:

 Financial Motive,
 Strategic Motive, and
 Conglomerate Motive.

1.5.1 Financial Motive

Financial Acquisition is one which does not include operating synergies and where the acquirer
deems the target firm’s assets are undervalued due to bad management. This type of acquisition is
often referred as a disciplinary takeover (Grinblatt and Titman,2002). Financial mergers generate
value by eradicating corporate inefficiencies induced by poor management. These are generally

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structured as leveraged buyouts (LBOs) as these transactions are mainly debt financed. The
acquirers in LBOs possess no other assets therefore no potential synergies arise. Hence, operating
improvements arise from improved management and better incentives to maximise firm’s value.
The merger waves of the 1980s consisted mainly of this activity. The best example is Kohlberg
Kravis and Roberts’s LBO of RJR Nabisco (Grinblatt and Titman, 2002).

1.5.2 Strategic Motive

Strategic mergers are often viewed as horizontal mergers and most of the mergers during the turn
of the 20th century (1893–1904) would be classified as horizontal mergers. A strategic acquisition
involves operating synergies in terms of economies of scale and scope in production, purchasing
and marketing, meaning that the combined entity is more profitable than operating separately
(Grinblatt and Titman,2002). These synergies occur because the merged firms were erstwhile
competitors and have products or talents that integrate well with the other firm (Grinblatt and
Titman,2002). Strategic acquisitions grew popular in the 1990’s and are currently the dominant
form of acquisition. For example, IBM’s acquisition of Lotus in 1995 whereby IBM believed that
Lotus’s software products integrated well with the overall strategy of its software business
(Grinblatt and Titman,2002).

1.5.3 Conglomerate Motive

A conglomerate (or diversifying) acquisition, involves firms with no operating synergies
possibilities which makes it similar to financial acquisition. These acquisitions are mostly
motivated by financial synergies, which reduce a firm’s cost of capital, thereby creating value even
though the operations of the amalgamated firms are not complementary. Several large U.S.
corporations were established through conglomerate acquisitions in the 1960s. However, many of
the conglomerate acquisitions of the 1960s and 1970s were unsuccessful and many of the
disciplinary takeovers were initiated to split in the 1980s. For example, the RJR Nabisco leveraged
buyout, was proposed as a bust-up takeover to separate the food and tobacco businesses. But only
some of the food businesses were sold after the RJR Nabisco LBO.

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1.6 Defensive tactics
A target company in practice adopts a number of tactics to defend itself from hostile takeover
through a tender offer. These tactics include:

Divestiture

Golden
Poison pill
parachutes

Defensive
Tactics

Crown
Green Mail
Jewels

White
Knight

Figure 2: Defensive Tactics

1.7 Reasons for mergers and acquisition

Mergers and acquisitions occur for various strategic business reasons, but mostly for economic
reasons.

 Increasing capabilities: this may result from extensive research opportunities or more
efficient manufacturing process. Businesses may also want to merge to leverage costly
operations, as was intended for the case of “Volvo by Ford”.
 Gaining a competitive edge or larger market share: businesses may indulge in a merger
to enjoy benefits from a more robust logistics distribution or marketing network. They may
aim to expand into different markets to have a more diversified brand portfolio and prefer
to merge with an existing company in the new market rather than starting from ground
zero. One such acquisition was Japan-based Takeda Pharmaceutical Company’s purchase
of Nycomed, a Switzerland-based pharma.
 Diversifying products or services: this helps concerned parties of a merger or acquisition
to enhance existing products or services or to just create new ones. In doing so, they can

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 realize a competitive advantage over other firms in the industry. As such was the case of
HP which brought EDS in 2008.
 Cutting costs: a merger can become a cost-cutting exercise which benefits the merging
businesses since a larger company enjoys economies of scale, which in turn, impacts
positively on returns and thus, profitability.
 Survival: sometimes, companies are presented with no choice but to willingly surrender
its identity to other ones for the simple cause of survival. Such was the case especially
following the financial crisis period from 2008 to 2012, where many corporates found
mergers and acquisitions as the only way for survival.
 Synergies: these are benefits that can only arise when two entities merge and their future
earnings are more or equal to the cost of acquisition. Synergies can be categorized as
commercial, financial and asset synergies.
 Commercial Synergies occur when benefits are sourced from improvements in the
business operations like increased sales volumes, more efficiencies and higher
profit margins.
 Financial synergies are benefits gained from better use of capital such as lower
cost of borrowing, reduction in company’s tax charge or improvement of mix of
equity and borrowing which generally result in lower WACC and better EPS.
 Asset synergies regroup benefits arising from more efficient use of the acquirer’s
assets like for example, combining administration functions and distribution
networks and these are mostly reflected in ROCE.

1.8 Problems impacting the success of M&As

 Insufficient Owner Involvement
 Inaccurate Data and Valuation Mistakes
Most companies provide overly idealistic valuation and lofty projections for the M&A but
the numbers and assets that look good on paper may not be the realistic for implementation.
 Poor Integration Process
The absence of detailed plan and design for the process such a design cause many negative
impacts and the uncertainty of the M&A erodes morale of employees thus disrupting
productivity and efficiency.

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  Large Required Capacity
In order to achieve integration success, there must be sufficient resources available to
overcome the post-integration challenges that may crop up.
 Unexpected Economic Factors
A negative economic climate can cause sudden drastic changes affecting stock prices and
interest rates thus causing failure of M&As.
 Lack of Planning and Strategy
A good plan and a well-discussed integration strategy that assess and discuss all the possible
problems expected post-integration and back-up plans should be established beforehand to
prevent failure of deal.
1.9 Statistics of failed M&As
 Research has shown that only 50% of mergers and acquisitions succeed (or 50% fail).
 There are regional differences, with a highest failure rate of 7.1% during the 25-year study
period for announced acquisitions in the Asia-Pacific region, compared with a low of 4.0%
in Latin America. The North America rate is 6.4%.
 By country, China and Australia have the greatest proportion of failures (12.9% and 11.9%),
while Russia and Japan (1.4% and 2.2%) have the lowest.
 There are industry-by-industry differences, with failures highest in the materials and real
estate sectors (7.7% and 6.8%) and lowest in the consumer/retail and health-care sectors
(4.8% and 5.1%).
 By far the starkest differential, though, shows up in the 11.1% failure rate for deals involving
public-company targets, triple the 3.7% rate when private companies are targets.

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Figure 3:Statistics of failed M&As
1.10 Real life examples of Mergers and Acquisitions
In order to better understand the concept of Mergers and Acquisitions, we have studied three
mergers and three acquisitions in least developed countries, developing countries and developed
countries as follows:

MERGERS ACQUISITIONS
Least Developed Rwanda: Cambodia:
Countries Rwanda Social Security Board Smart Axiata
Developing Mauritius: Mauritius:
Countries IBL LTD Welkin Hospital
Developed United States: United Kingdom:
Countries Kraft Heinz Company Royal Dutch Shell
Table 3: Real Life examples of Mergers & Acquisitions

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 Least Developed Countries- Merger

2. SSFR AND RAMA- Rwanda

2.1 Background
In 2010, an all-inclusive social security system was set-up in Rwanda, when Social Security Fund
of Rwanda (SSFR) merged with Rwanda Medical Insurance (RAMA) to form the Rwanda Social
Security Board (RSSB), (Hope Magazine, 2015). Initially, SSFR was an organization of social
security which was established in 1962 and maintained under the Decree Law of August 22, 1974.
In accordance with Article 3 of law no. 60/2008, the responsibilities of SSFR was to assess and
collect pensions contributions from employers as well from employees, distribute benefits to
pensioners and other beneficiaries and invest the excess revenue in an optimal way (Guide of
insurers, 2002, p.8).
On the other hand, the RAMA, being a social health insurance scheme, was created in 2001 to
cover civil servants and other government agents as well as private sector workers involved in the
formal economy.

2.2 Process
RSSB was established by the law No.45/2010 of 14/12/2010 that determines its mission,
organization and functioning. This institution was established after the merger of SSFR with
RAMA. The above Law was modified and completed by the law No 04/2015 of 11/03/2015 and
gave RSSB the responsibility to manage Community Based Health Insurance (CBHI). The
mandate of the institution is to administer social security in the country.

According to the Minister of Finance, John Rwangombwa, instead of having two institutions doing
the same thing, it is much wiser to bring them together under one fund to make it easy for the
government to manage and to cut off costs. Therefore, the main objective of the merger was to
ensure efficiency and quality service. In agreement to the Acting Director General of SSFR, Africa
Ramba, RSSB will carry on the tasks that were being carried out by the two institutions, but now
it will be done under one institution. By law, all the assets and liabilities of SFFR and RAMA are
going to be taken on by RSSB. The new merger is all about “social protection” and under RSSB,
people will continue to receive the same services and products (The New Times, 2011).

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2.3 Objective of merger
The aim of RSSB is to provide high quality social security services through collection of
contributions, savings, efficient benefits provision and prudent investment of members’ funds (The
New Times, 2011). Evenly, the public was assured that the transition will not any disruption, but
rather will ensure efficiency.

2.4 Responsibilities of RSSB

According to Article 18 of the above Law, RSSB merged in 2011 with the following
responsibilities to:

1. Monitor and promote pension, the insurance on occupational hazards, the insurance on
maternity leave and the anticipated old age pension.
2. Register employee beneficiaries and persons to whom subscription was made in various
branches of the social security.
3. Collect and manage contributions as provided by laws.
4. Pay social security benefits to beneficiaries.
5. Guarantee health insurance service to beneficiaries.
6. Manage the contributions fund.
7. Engage in investments as provided for by laws.
8. Contribute to the elaboration of social security policy.
9. Advise the Government on matters relating to social security
(RSSB, 2014)

2.5 Performance of the merger

The merger had a great impact on RSSB performance through increase in profitability, customer’s
satisfaction, management quality, organisational assets and equity and the positive contribution on
portfolio performance (European Journal of Business and social science, Vol. 4, No 1, 2015).

 RSSB before the merger

 RSSB after the merger

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 RSSB before the merger
 Capital investment
Year Rwandan Franc (RWF)
2007 113,005,067
2008 128,115,585
2009 184,763,775
2010 227,791,034

Capital Investment rises which implies that the institutions investment was increasing steadily with
the fact that the institution was acquiring equity to invest for investment in order to boast the
performance of the institution.

 Return on investment and return on assets

Return on investment and equity increased by 7.90% in 2007 and decreased to 5.91% in 2008,
5.45% in 2009 and 2010 respectively. This shows that the institution performances inform of
equity and return on investment was not encouraging and this could be the one reason as to why
the institution merged.
 Profit
Year Rwandan Franc (RWF)
2007 8,929,268
2008 7,127,129
2009 10,073,040
2010 12,420,767

Although the institution is making profit, it is not as per the institution expectations compared to
the investment the institution is making hence inefficiencies in institution’s management and there
is need for merging.

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 RSSB after merger
 Capital investment
Year Rwandan Franc (RWF)
2011 278,921,618
2012 371,365,292
2013 447,893,427
2014 487,112,072

RSSB increases its investment compared to the investment trend before merging, means that
merging improved the institutions investment capacity.

 Return on investment and assets

Return on investment and asset reduced by 4.64% in 2011 but however sharply increased by 7.54%
in 2012 implying good management that promoted efficiency under merger. It again slightly
reduced to 6.60% in 2013 and by 5.9% in 2014. This was due to fact that the company invested in
start-up projects like Soyco Ltd and many other Projects but still the return was considered to be
progressive as compared to the premerger investments.
 Profit
Year Rwandan Franc (RWF)
2011 12,145,186
2012 24,277,647
2013 25,837,634
2014 27,534,753

As compared to premerger profit return, merger has increased the profit of the institution hence is
considered instrumental for the survival of the institution.

Investment performance
The RSSB investment portfolio stood at 960Bn at the end of March 2019. It has grown by an
average annual growth of 18% over the last 5 years. The growth is explained by continued capital
injections into existing as well as new investments, this is also reflected by continued growth in
investment return. RSSB recorded a net return on investments amounting to 36.6Bn in 9 months
for the financial year 2018-2019.
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2.6 Post-Merger Analysis
It can be observed that more people benefited from the payment benefits after the merger of the
institutions (RSSB, 2014)

Table 4: RSSB Post-merger benefits payment

2.6.1 Effect of merger on portfolios performance

- Customers’ satisfaction was improved after merger because of the good service delivery.
- The merger improved management quality of RSSB in the form of efficiency and
effectiveness through time and cost of operations.
- The merger improved both the return of investment and equity respectively.

2.6.2 Impact of the merger (Positive and Negative)

Concerning RSSB’s journey, over the last 20 years it has contribution to Rwanda’s socio-economic
development, over Rwf400 billion and had invested in various sectors including banking,
Insurance, Industry, Telecommunication, construction (both office and residential), Tourism,
agriculture, and infrastructure.
Positive impacts:
 In terms of assets due to capital accumulation between the two companies, RSSB managed
to generate more capital for investment.
 Job creation

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  Creating office space in order to cover the gap for convenient offices that existed especially
in Kigali city
 Economic contributions through Taxes through both its direct and indirect investments.
 Construction of modern office buildings
 Constructions of numerous modern estates like Umucyo estate, 2020 estate, Batsinda estate
and other upcoming estates such as vision city (located in Kagugu sector, Kinyinya and
Batsinda estates).

Negative impacts:
However, some challenges still remain and are as follows:

 In terms of pension and occupational hazards, only formal sector is covered by the publicly
managed scheme, while all other workers are excluded.
 Certain groups of people still face financial constraints in obtaining access to medical care,
despite the existence of mutual health care insurances.
 For maternity and sickness leave employees are obliged to shorten their leave in order not
lose their jobs, and evenly most employers in private sector will practice discrimination
against young women.
 Social security system is costly and not coordinated. There are weaknesses including
improvements in information technologies, contribution remittance methods, no coherent
legal texts, investment management, and enforcement.
(European Journal of Business and Social Science, 2015)

2.7 The current situation of the RSSB

RSSB envisions a comprehensive social security system that addresses all social security needs of
all Rwandans.

 Contribution Collections

Contributions was collected through Pension scheme of around Rwf 78.1Bn. Medical scheme of
Rwf 39.1Bn and Maternity of Rwf 6.1Bn. The overall annual contribution target was Rwf 163.1Bn
and roughly Rwf 142.6Bn has been collected in April 2019. This shows an achievement of 87.4%
with two months away from the end of the period.

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  Payment of benefit

Benefit were paid through pension scheme of Rwf 22.1Bn, Medical scheme of Rwf 20.7Bn,
Maternity of Rwf 1.4Bn and CBHI of 41.4 bn. A total benefit pay-out of Rwf 95.4Bn was
anticipated and on April 2019 benefits worth Rwf 85.6Bn (89.7%) has been paid.

2.7.1 Strategic plan (2015-2020)

In order to further increase their competencies, a five-year (2015-2020) strategic plan was
designed.

1. Strengthening long term financial sustainability of RSSB through the investment of

members funds, ensure effective collection of contribution from all scheme and increase
the number of new members.
2. Providing quality service to customers to ensure timely and quality service, improve
customer satisfaction level and to ease communication between RSSB and its stakeholders.
3. Developing a capable efficient and responsive organization to modernize IT, ensure
accuracy of statistical data, improve efficiency in internal control and to update and
develop legal instruments.
4. Attraction, developing and motivating competent staff through the recruitment and
training.
5. Enhancing RSSB corporate image to increase public awareness and corporate social
responsibility and evenly to promote corporation with nation, regional and international
partners.
Moreover, it is believed that good corporate image promotes good relationship within the
community a business operates. It has a positive impact on stakeholders and establishes
corporate goodwill. Hence, in order to achieve these objectives, RSSB does not only
provide pension and medical benefits but also provide funding and/or sponsorships and
other resources for social events to promote Corporate Social Responsibility.
(RSSB, 2015)

22
 Least Developed Countries- Acquisition

3. AXIATA AND LATELZ- Cambodia

3.1 Background
3.1.1 About Axiata
Axiata is one of the largest Asian telecommunication companies. Axiata has controlling interests
in mobile operators in Malaysia, Indonesia, Sri Lanka, Bangladesh and Cambodia with significant
strategic stakes in India and Singapore. The Group, including its subsidiaries and associates, has
over 210 million mobile subscribers in Asia. The Group provides employment to over 20,000
people across Asia.

Hello, a subsidiary of Axiata Group Berhad (Axiata), is one of Cambodia’s largest mobile
telecommunications network. Hello has been at the forefront of innovation in the mobile industry
in Cambodia since the late 90’s, propelling it to a level of technology on par with the developed
world. The Company operates 2G, 2.5G, 3G, 3.75G mobile services, supporting the very latest in
multimedia and mobile internet services as well as international roaming across more than 147
countries. The company has extensive network coverage in all cities, provinces and main trunk
roads of Cambodia.

3.1.2 About Latelz

Latelz is owned by international telecom holding firm Timeturns Holdings Limited based in
Cyprus, which owns several telecommunication operators and licenses within Asia and Africa.
Latelz owns licenses to act as mobile telecommunication operator and internet provider in the
Kingdom of Cambodia. Latelz operates its mobile telecommunication network using
GSM/GPRS/EDGE technology on both GSM900 and GSM1800 frequency bands as well as 3.75G
UMTS/HSPA+ under the brand name Smart Mobile. Smart Mobile’s 2G network coverage
stretches out nationwide to all 24 provinces, the 3.75G network is available in all 24 provinces of
Cambodia too, serving more than 3 million subscribers at present. Smart Mobile employs presently
more than 450 people including local and foreign experts.

23
3.2 Process of acquisition
On 13th December 2012 in Kuala Lumpur, Axiata Group Berhad (‘Axiata’) today announced the
strategic merger of Hello Axiata Company Limited (‘Hello’) and a long-time rival, Latelz
Company Limited (‘Latelz’) which since then has been operating under its main Smart Mobile
(‘Smart’) brand name. For this merger, there was a cash consideration of approximately USD155
million, subject to adjustments for the actual net debt and working capital positions as of the date
of completion. The transaction has been funded by a combination of internal cash and debt from
existing financial facilities, with an implied enterprise value of USD180 million. Upon completion,
Axiata has been holding a 90% stake in the combined entity and emerge as one of the substantial
operators in Cambodia in terms of subscribers and revenue (Axiata, 2012).

The new entity legally operates as Latelz Company and function under the Smart brand. It is
headed by Thomas Hundt, former CEO of Smart Mobile, while Simon Perkins, Hello’s
former CEO, has been appointed as the executive director on the board of directors. Smart’s
primary focus is on the youth and data user segments. The company also aims to expand in the
corporate sector. Meanwhile, all services and promotions are harmonised which enabled customers
to benefit from more attractive call and data packages with an extended portfolio of value-added
services and range of new products (Axiata, 2012).

Figure 4: Market Position of Axiata in Cambodia

24
3.3 Reason for acquisition
Despite the fast penetration growth rate, the mobile telecom service market in Cambodia faces a
number of key challenges namely: unfair competition, interconnection issues, and lacking of
overarching framework but with appropriate regulations Mergers and Acquisitions can ensure a
sustainable environment of competition and sector-friendly growth. This allows operators to
increase investment on infrastructure and market power, and eliminate interconnection cost
between companies (Vong et al, 2012).

Axiata has always communicated that in-country consolidation was a key focus for the Group and
this strategic move is very much in line with that. After experiencing intense competition over the
past three years with nine mobile players in a country with a population of approximately 15
million, the Cambodian market is primed for consolidation. Axiata is leading the Cambodian
market consolidation, which is likely to evolve into a 3-5 player market. Unique subscriber
penetration in Cambodia is currently below 40% with an expected double-digit growth of around
10% over the next 3 years. As such, the headroom for growth is now and with this merger, Axiata
will have a head start with a significantly strengthened entity and clear market leadership (Axiata,
2012).

Commenting on the completion of the merger, Hundt said: ‘Together we are much stronger. This
transaction has brought together Axiata Group’s strength and scale, both Hello and Smart Mobile’s
loyal customers, sizeable assets and extensive network coverage’ (CommsUpdate, 2013).

3.4 Synergies from acquisition

The merger will provide Axiata with improved economies of scale, remove duplicative costs and
enhance revenue potential, amongst other benefits. The merged entity will also facilitate synergies
and the sharing of best practices between the two companies. This will include increased spectrum
and significant synergies across network coverage and infrastructure. In a highly competitive
market, the merger will give Axiata the benefit of scale with a quicker and more cost-effective
time to market than via organic growth. Smart operates on a cost-efficient model with its strong
“Smart” brand, nationwide reach and customer service focus. Smart and Hello were amongst the
top performers in the market over the last year, with both players more than doubling their
respective subscriber market shares and the average quarterly EBITDA in 2012 more than
25
quadrupling for each company as compared to that in 2011. The new entity will, therefore, emerge
as one of the largest players in the market, with a strong balance sheet, the highest number of retail
outlets to serve customers and stronger network coverage with the largest 3G network in Phnom
Penh. The latter augurs well for the company as Cambodia moves into the next technology wave
(Axiata, 2012).

Figure 5: Axiata Synergies

3.5 Post-Acquisition Analysis (2013)

Figure 6: Axiata’s Financial performance Post-Acquisition Analysis

26
After the completion of the merger between Latelz Co. Ltd. and Hello in February, Smart emerged
as the second largest telecommunication operator in Cambodia with a customer base of over 5
million. The period following the completion of the transaction had an intense integration of the
two companies and its networks to operational efficiencies with a firm focus on competing in the
market. Smart closed the year with a strong 201% revenue expansion, despite operating in a
crowded and highly competitive eight player market with all operators targeting the same mass
segments. With significant growth in revenue together with synergy costs savings from the merger
and tightened cost management, Cambodia’s EBITDA (Earnings before interest, taxes,
depreciation, and amortisation) and PAT (Profit after tax) both grew more than 100% during the
year, another outstanding performance and proof of the Group’s successful plans in expanding its
footprint and influence in the region (Axiata Annual report, 2013). Beside the consolidation effect
of the merger, Smart’s growth was largely powered by expansions in the prepaid, mobile data,
interconnect and international business fields. Despite the significantly enlarged network and
scale, Smart’s direct cost and operational costs as percentage of revenue improved from 86% in
2012 to 64% in 2013. Similarly, EBITDA considerably improved from USD6.0 million in 2012 to
USD45.8 million. As a result, net income of the company also grew by more than 100% (Axiata,
2013).

3.6 Current Operation

3.6.1 Challenge:
Since Smart Axiata is expanding rapidly, the company’s IT teams found that its existing data
infrastructure is unsuited to handle the increasing load. Their services include cell phone service
to entertainment and lifestyle content, all of which has increased massively the use of data.
Customer service suffered as they struggled to troubleshoot outages and performance issues.
Hence, there was a need for an AI analytics solution in order to scale monitoring and proactive
incident management.
However, a potential solution to these problems has been identified. Smart Axiata can easily and
efficiently analyse huge amounts of data by using Anodot software and without having to rely
heavily on manual tools such as dashboards and static thresholds which can ensure seamless
telecommunications to millions of users while freeing up their team to focus its energies on its
many future plans (Anodot, 2018).

27
Smart Axiata Co. Ltd. is Cambodia’s leading mobile telecommunications operator, serving 8
million subscribers under the ‘Smart’ brand. Smart is at the forefront of mobile technology
advancement in Cambodia with an extensive nationwide network coverage that stretches to more
than 98% of the Cambodian population. Smart is also rapidly transforming itself into a digital
lifestyle brand, having introduced many innovative offerings, entertainment value propositions as
well as digital services. Smart Axiata Digital Innovation Fund (SADIF) is a 5 million USD venture
capital fund which aims to spur the digital ecosystem in Cambodia. SADIF invests in Cambodian-
based, digital companies and start-ups.

3.6.2 Corporate Social Responsibility:

At Smart, besides contributing to national development funds and government income, more than
1% of Smart’s annual revenue is allocated for CSR programs.in education, sports, technology and
the environment. One of the key milestones of 2018 was the 1.5 million USD distributed among
the Ministry of Education, Youth and Sport and the Ministry of Posts and Telecommunications to
develop digital talents for the Kingdom. Moreover, technopreneurship initiatives to drive start-ups
were also expanded while launching a program linked to the UN’s Sustainable Development
Goals, which targets social enterprises.

3.6.3 Progress:
Smart was the first network to introduce 4G LTE in 2014, 4G+ in 2016 and 4G+ with HD Voice
(VoLTE) in early 2017. In mid-2017, Smart introduced cutting-edge 4.5G, manifesting its data
leadership position in Cambodia. Smart aspires to become Cambodia’s Digital Champion, while
playing an active role in socioeconomic growth (Axiata, 2018).

 The Gross Value Added (GVA) contribution to Cambodia’s economy was estimated at
USD374 million in 2018, accounting for 1.5% of national GDP. Smart’s operations directly
contributed USD146 million in 2018, accounting for 39% of total GVA contribution. It
also indirectly contributed USD73 million to economic activity in 2018. For every USD1
Smart contributed directly to Cambodia’s economy, another USD0.5 was generated
indirectly through local suppliers, higher than the general industry average of USD0.4.1
Capital investment contributed USD63 million in 2018, representing 17% of total GVA. A

28
 further USD92 million which was generated from productivity improvement due to the
rising mobile data growth and penetration rates, accounted for 25% of total GVA
 Smart directly provided 838 jobs in 2018. Cambodian citizens accounted for 97% of total
employees of the company. Around 38% of Smart employees were women. Smart also
engaged 315 interns to provide young people with the specialist skills required in the ICT
and digital economy. Smart’s operations indirectly supported an additional 26,782 jobs and
a further 23,415 jobs were supported by Smart’s capital investments in 2018.
 Total tax and fee contributions by Smart over the last five years reached USD319 million.
Annual contributions expanded from USD32 million in 2014 to USD86 million in 2018.
Smart’s tax contribution alone accounted for 2.6% of national tax income.

Figure 7: Axiata's National Contribution

29
 Developing Countries- Merger

4. GMLI and IBL- Mauritius

4.1 Background
4.1.1 GML Company
GML Investissement Ltée (GMLI) is a public limited liability company incorporated and
domiciled in Mauritius. The registered office of the Company is 4 th Floor IBL House, Caudan
Waterfront, Port Louis.
GMLI holds substantial investments in several industries such as real estate, commerce and retail,
tourism, financial and nonfinancial services, communication and biotechnologies. GMLI has
investments in private companies as well as companies listed on the Official Market and the
Development and Enterprise Market of the SEM, and has been ranked number 1 in the “Mauritius
Top 100 Companies” for several consecutive years.
Financial highlight of GMLI before merger

Table 5: GMLI"s Financial highlights

4.1.2 Ireland Blyth limited (IBL)
IBL is a public limited liability company incorporated and domiciled in Mauritius. Its registered
address is 5th Floor, IBL House, Caudan Waterfront, Port Louis.
IBL is Mauritius’ largest group in size, both in terms of turn over, market cap (excluding the
banking sector) and number of employees (more than 22,000). The Group is a major player in the
nine sectors in which we operate: Agro, Hospitality, Building and Engineering, Manufacturing and
30
Processing, Property, Life, Commerce, Logistics and Financial Services. Visionary founders built
our Group and we inherited their bold entrepreneurial spirit that drives the bottom up approach to
our businesses today.
IBL was ranked number 2 in the “Mauritius Top 100 Companies” in 2014. IBL is engaged in a
wide range of activities organized into six main sectors namely:

 Commerce, including healthcare and distribution of consumer goods,

 Engineering,
 Logistics, Aviation & Shipping,
 Financial Services,
 Retail, and
 Seafood & Marine.
Financial highlight of IBL before merger

Table 6: IBL Financial highlights

4.2 Process of merger

The global economic context remains a challenge. Yet growth opportunities remain, underpinned
by the emergence of new markets and new industries, rapidly changing consumption patterns, and
changes driven by technology to established industries. It is now vital for companies to equip
themselves in order to harness these opportunities for development. It is in this context that Ireland
Blyth and GMLI, two of the largest and most prominent groups in Mauritius and the Indian Ocean

31
region, decided to amalgamate and that effective as from 1 July 2016, GMLI, the surviving
Company, was then renamed IBL Ltd (IBL, 2016).

Throughout their existence, both companies contributed to the country’s development by breaking
new ground in a number of economic sectors, including shipping, insurance and banking in the
1830s, and the seafood and the biotechnology industries more recently. GMLI was also closely
involved in Ireland Blyth’s own development, having played an active role since. Finally, the new
IBL will be divided into three distinct clusters: Investment, Financial Services and Operations. The
amalgamation between GMLI and Ireland Blyth took place over a five-month period between end
of January and July 2016. It was the end result of a careful, thorough process led by the
management team and supported by both Groups’ Boards of Directors, and by the analysis of
external and independent experts including EY Mauritius, EY Advisory France, ENSafrica
and BDO Mauritius, who were appointed for this purpose (Afrasia Bank, 2016).

After the amalgamation, a complete revamp of the governance model was started and the team had
to be restructured to cater for this new governance to be implemented across the various companies
since Ireland Blyth and GML both had completely different IT governance models. According to
Laurent Fayolle, Group Information Technology Executive of the new entity, each step had to be
carefully taken into consideration in order to reduce disturbance to the business and its teams. Each
operation had to be granted more autonomy to heighten focus on the core business. Solutions had
to be tailor-made for each challenge, to allow for the diversity of IBL’s various operations, while
maintaining a stable work process (BDO, 2016).

4.3 Objective of merger

This amalgamation will allow these companies to fully take advantage of their business units
through common vision on the local, regional and international fronts. And as a result, they will
benefit from future synergies and economies of scale.

GMLI and IBL believe that the Amalgamation, in line with their common corporate strategies,
will not only help achieve the desired financial flexibility and long term sustainable financial
results, but also help to maximize shareholders’ value and revenues.

32
The Boards of Directors of GMLI and IBL believe that the Amalgamation is in the best interest of
all their stakeholders as it will result in:
● The creation of a market leader with a strong capital structure, while being backed up by
strong brand portfolio.
● Efficient risk management
● A leader having the capability to attract and retain the talents needed for further expansion
● Added benefits in terms of the exploration of new business opportunities and
rationalization of existing ones.
● A presence in all major economic sector
● An added striking power in the international arena
(Swan, 2016)

The amalgamation emerged out of a strategic vision to position the Group for substantial growth
both in Mauritius and internationally. The intention was to merge the operational and financial
strengths, professional expertise and reputation of the two previous entities within a single Group,
active in nine key sectors: Agro, Building & Engineering, Commercial, Financial & Other
Services, Hospitality, Innovation (including life science), Logistics, Manufacturing & Processing
(including seafood) and Properties. The businesses are leaders in their respective sectors and bring
together a comprehensive range of strong brands. These include Alteo, Manser Saxon, UBP,
Chantier Naval de l’Océan Indien, BrandActiv, Winner’s, AfrAsia Bank, ABAX, DTOS,
Mauritian Eagle Insurance, LUX* Resorts, Logidis and PhoenixBev, to name but a few.

As a diverse Group, present in 25 countries across four continents, IBL is more resilient, better
able to make the case for itself internationally, and better equipped to adapt to fluctuating market
conditions in which demographic changes along with technological and regulatory changes have
become a regular phenomenon. By pooling GMLI and Ireland Blyth’s human talents, assets,
operations and cash flows, the new IBL will have the financial clout to capitalise on these assets
and achieve its growth (IBL, 2016).

33
 Table 7: IBL Group's brands in major sectors

4.4 Risks, opportunities, benefits and relevance to various stakeholders

This amalgamation aimed at being advantageous to all stakeholders, including the Mauritian
economy. Both groups worked together to provide updated, timely and transparent information so
as to ensure that all the stakeholders had a clear understanding of the process.

Shareholders: During the voting process, 100% of both groups’ shareholders voted for the
amalgamation as they considered this to be a positive development and expressed their satisfaction
and support. The strengthened position of the new entity aimed at generating positive, sustainable
financial results on a long-term basis which will in turn increase shareholder value and yield higher
dividends.
Employees: This amalgamation was not a cost cutting exercise and hence, it was undertaken with
zero job cuts. As a result, all members retained their existing benefits but, there was a major
redeployment of human resources across the new Group. New challenging goals were set and
employees had to adapt to the new working conditions.
Clients: To retain and build better clientele, the new Group defined a great value proposition for
all its products and services, resulting in a positive response from customers.

34
Suppliers: All existing contracts with suppliers were transferred to the new entity, but operations
remained most likely the same.
Mauritius Economy: It is known that the group plays a major role in the economic, social and
environmental development of the country. It is now the largest tax contributor and one of the
biggest employers following this amalgamation. Also, it enhanced ability for exports and
international expansion is a positive development for Mauritius. Due to this expansion, it also has
the potential to make more substantial inroads for education improvement, medical and
environmental development.
(IBL, 2016)

4.5 Post-Merger analysis

From a performance perspective, IBL had a fruitful year with top line growth rate at 8%, operating
profit increasing by 14% and underlying profit going up by 26% compared to 2015. The group is
intentionally monitoring the underlying profit as it believes that it represents a strong measure of
the overall performance of the business. Profit before tax fell by 9% due to the swing effect of
exceptional items. This year, these included the adverse effect of impairing some of the Group’s
investments compared against the positive impact of profits from disposals made in the previous
year. Most sectors recorded improved performance results, in line with long term trend of growth.
The Group’s revenue has increased by a 3% Compounded Annual Growth Rate (CAGR) over the
past five years underpinned by businesses that have responded to market opportunities as well as
numerous challenges. Likewise, profit from operations has sustained a longer term growth
trajectory, increasing by a CAGR of 12% over the last five years (IBL, 2016)

35 Figure 8: IBL's Post-Merger Analysis

4.6 Current situation
(At a Glance)

Figure 9: IBL's Current Situation

36
 4.6.1 Challenges
At present time, IBL’s Agro cluster has serious impacts by plummeting sugar prices on the world
market, as well as a weak alignment between the private sector and local authorities on improving
the situation. While Alteo performed well in Africa, it recorded unfavourable results in Mauritius.
Hence, the advancement of the company’s sugar-related activities will be reviewed.
Our Building & Engineering cluster showed mixed results, with profitability reducing by a drop
in performance at Manser Saxon Contracting. The latter received fewer contracts which resulted
in a 18% drop in turnover. In parallel, our Dubai operations remain challenging. However, the
prospect for this cluster remains positive, particularly with the future acquisition of General
Construction and the involvement of UBP in a number of public infrastructure and property
development projects (IBL, 2019).

4.6.2 Progress
IBL is a world-class diversified group based in Mauritius and active in 22 countries worldwide. It
works and invests in over 280 companies in 9 industries globally. After the adoption of its strategic
plan, IBL has continued to progress on a path of sustained growth through the reinforcement of its
footprint locally, regionally, and globally. Its portfolio of subsidiaries and associated companies
achieved strong performance, underpinned by operational excellence and sound strategic priorities
(IBL, 2019).

37
 4.6.3 Corporate Social Responsibility
Moreover, Corporate Social Responsibility forms an integral part of IBL’s sustainability
commitment. IBL contributes to the development of society through several entities:

 Fondation Joseph Lagesse (FJL), the main vehicle through which IBL delivers its
CSR programmes
 Small Step Matters (SSM), a crowdfunding platform
 Les Cuisines Solidaires, a non-profit organisation that prepares and delivers daily
meals to NGOs in the region of Curepipe
 Nou Zenfan Bois Marchand, the new entity for FJL’s early childhood educational
programmes in Bois Marchand
 IBL’s CSR committees who carry out various local initiatives including Projets
Sourire, and
 IBL On The Move, IBL’s major fundraising sport event that channels participants’
registration fees to one selected beneficiary NGO.

4.6.4 Strategic planning

IBL continues to deliver on the three-year strategic plan defined during the 2016-2017 financial
year:
The strategy seeks to position the Group as a regional leader able to pursue strong international
growth, drawing on a strong Mauritian core, a culture of excellence and world-class professional
expertise in the industries of the future. The ultimate aim is to ‘Sustainably create value for our
stakeholders.’

38
 Developing Countries- Acquisition

5. MSCL AND APOLLO BRAMWELL HOSPITAL- Mauritius

5.1 Background
5.1.1 Medical & Surgical Centre Limited (MSCL)
Incorporated in July 1972, the MSCL was created to take over Clinique Darné, one of the oldest
private hospital of Mauritius founded by Dr. François Darné. With the Clinique’s success and
fame, MSCL’s performance was remarkable thus attracting investors. Subsequently, in January
2009, CIEL Group and Fortis Healthcare Limited (FHL) jointly acquired 57.8% stake in MSCL,
after which MSCL signed a 10-year operational and maintenance contract of the Clinique Darné,
then renamed as ‘Fortis Clinique Darné’(FCD), with FHL. Being in a strategic location in the
centre of Mauritius for more than four decades, FCD built its reputation to be leading the specialist
healthcare services in Mauritius given its expansion in services and provision of medical and
paramedical services across a wide range of specialties (CARE Ratings (Africa) Private Limited).

5.1.2 Apollo Bramwell Hospital (ABH)

It started operating in 2009, and soon became a prominent entity reputed for its medical excellence,
given the fact that it was well-equipped with cutting edge technology, coupled with the
distinguished expertise it offered in 40 key specialities in the medical and paramedical practice.

Apollo was originally part of the British American Investment (BAI) Group; its founder, Mr.
Rawat struck a deal with the New Delhi-based Apollo Hospitals Group to build a hi-tech hospital
in Mauritius which would be considered a pioneer for its excellent medical. However, the BAI
group encountered dire and unprecedented political and financial situations in April 2015, and was
therefore forced to be administered and managed by the National Insurance Company (NIC), a
state-owned company which subsequently endeavoured to sell the hospital since June 2015.

5.2 Aim of acquisition

Mauritius is continuously improving its level of health care through various methods. One method
to achieve better healthcare was the creation of a modern hospital such as ABH, providing state of
the art medical facilities with highly specialty care and in-house specialists. The population

39
benefitted from this high-level healthcare service and closing down ABH would have only
contradict the aim of the medical sector of Mauritius and would have deprived people of these
benefits.

On top of this, a closure would also imply an immediate stop on existing patients’ healthcare
treatments which may also include those patients who need critical care services causing a huge
blow to the Mauritian population.

Economically, a closure would have also been viewed as increasing the unemployment rate in
Mauritius, which goes against one of the main macro-economic aims of an economy. Closing ABH
would have made 686 persons unemployed thus causing economic distress in Mauritius. NIC
Healthcare Ltd (NICHL) had raised public benefit considerations in this matter and has submitted
that CIEL Group agreed to preserve those 686 jobs, thus motivating workers and improving the
healthcare level of Mauritius (Road, S. and St, H. (2017). Competition Commission of Mauritius).

Hence, this acquisition is based on improving the level of healthcare in Mauritius by partnering
with Fortis Healthcare.

5.3 Process of acquisition

The deal to sell ABH to the CIEL Group has been thoroughly discussed since the BAI scandal and
the monthly cash shortfall of ABH when its management was handed over to NICHL. With several
buying offers coming from various companies, the real criteria to sell ABH was its business
continuity and the improvement of the medical sector of Mauritius. After having critically analysed
all the conditions of each offer, the best suited buyer was CIEL Group which could ensure financial
and technical flow of the hospital (Business Mega, 2017).

The approval of the acquisition by CIEL Group’s subsidiary, MSCL, happened on 19 December
2016 followed by a communique published in 2 widespread local newspapers, addressed to the
shareholder and the public at large about the final transaction process of acquiring ABH’s business
operations, on 20 January 2017. This deal comprised of the purchase of all commercial assets
including medical equipment, hardware and software and medicines of ABH at MUR 700 million
with an annual rent of MUR 60 million to be paid for land and building tax inclusive. The deal
also includes the safeguarding of all jobs, under the existing working conditions, alongside the
40
time of service based on seniority. As per agreement with Mauritius Government, MSCL will be
benefit from the past losses of ABH which amounted to nearly MUR 400 million and will be
exempted from tax payments till June 2021. On 8 May 2017, Apollo was re-branded as Wellkin
Hospital, a new name with a new purpose having as motto “All for Life”. (Vanessa, 2016).

MSCL has financed the acquisition of ABH in December 2016 as under:

5.4 Post-Acquisition analysis

5.4.1 Apollo Bramwell Hospital (Now known as Welkin)
In the aftermath of the acquisition of ABH by the CIEL Group in January 2017, a considerate
increase in the occupancy level of the 150-bed hospital could be noticed in February 2017. The
management wishes to keep this progress ongoing and plans on further sustainable improvements
to be achieved. As for the cost control measures, the management earmarked some of the main
cost leakage points and plans on controlling them in order to reduce the operational costs by around
10% (CARE Ratings (Africa) Private Limited).
Corporate Social Responsibility:
Over several years, C-Care has been involved in different community development projects
throughout the island. It includes focusing on children in distress, sponsoring of various
patient/community initiatives, launching of the ‘One Life One Tree’ project, whereby an endemic
tree is planted at Ferney as the Official Medical Partner (C-Care, 2019).

Steady improvement in performance of Wellkin Hospital

After the acquisition, Welkin’s occupancy level rose from 45% in January 2017 to 70% in
September 2019. This has motivated the management to work sustainably and efficiently by
cutting down costs and enhancing optimal synergies between Clinique Darné and Welkin.
Moreover, the level of specialised healthcare services offered by both Clinique Darné & Welkin
and the involvement of qualified and renowned doctors has driven the inflow of patients.

41
Wellkin has started posting positive monthly PAT in FY19 (CARE Ratings (Africa) Private
Limited).

Table 8: Wellkin's Occupancy

5.4.2 MSCL
Following the acquisition of Welkin Hospital by MSCL, the company reinforced its medical
facility in Moka in January 2017. This strategy was very important for MSCL to improve its
healthcare services and thus it now manages 265 operational beds with 9 operating theatres, and
medical and paramedical services across 40 specialties.

The acquisition of Welkin Hospital created some short-term cons but offered so many long-term
pros for all the stakeholders of the hospital, initially the patients. The vision of MSCL has been ‘to
nurture excellence within both their operations, Fortis Clinique Darné and Welkin Hospital and
together create a regional medical hub. (MSCL, 2017)

5.4.3 Financial performance/challenge

There has been a dip in financial performance of MSCL in FY17 & H1FY18 due to acquisition of
lossmaking Wellkin Hospital.
In April 2015, the BAI Group was declared to be involved in a big scandal affecting Mauritius.
Amidst all of this financial and political distress, BAI closed down and was declared bankrupt
which hence had a direct impact on the hospital given that its management was handed over to
NICHL. It was noted that since the inception of ABH in 2009, the hospital was unable to generate
profits and thus already prompted to its future downfall. (Executive Director, CCM, 2017).

Following a powerful bid, CIEL Healthcare Africa Limited, the management company of the CIEL
Healthcare cluster, acquired the hospital in December 2016. However, the exceptional acquisition
costs of Welkin Hospital and the operational losses incurred during this period caused a dip in EBITDA
and thus losses in FY17 & H1FY18. Nevertheless, Fortis Clinique Darné showed a satisfactory performance
during that period with Gross Cash Accruals (GCA) being MUR 55 million in FY17. Higher debt, due to
Welkin acquisition, has led to higher gearing.

42
 Table 9: Financial Performance of C-Care
5.5 Current situation
Improvement in financial performance in FY19
Over the FY18 to FY19, MSCL’s revenue increased significantly by 10%. This increase in revenue
can be explained by the coalition of Welkin ad Clinique Darné, thus reducing costs, increasing
occupancy level from 58% in FY18 to 68% in FY19 and stabilising the average revenue of MUR
10.5 Million in FY19 per bed in both hospitals. This motivated MSCL to post a higher EBITDA
and a positive PAT in FY19. A considerate improvement in interest coverage and debt coverage
indicators can also be noticed as well as an improvement in the overall gearing ratio due to lower
working capital borrowings. In Q1FY20, MSCL has achieved a turnover of Mur 482 million and
PAT of Mur 28 million vis-à-vis turnover of Mur 451 million and loss of Mur 1.8 million in
Q1FY19 (CARE Ratings (Africa) Private Limited).

43
 Developed Countries- Merger

6. KRAFT AND HEINZ- United States of America

6.1 Background
6.1.1 Heinz Company (Began with ketchup)
Henry John Heinz, an American entrepreneur founded the H.J. Heinz Company. He started the
Heinz Tomato Ketchup with his brother and cousin, in 1876 and in 1888, Heinz finally commenced
the H.J Heinz company. That company was thus incorporated in 1905 starting with Heinz serving
as the first president (Kraft Heinz, 2020). In the following decades, Heinz continued to grow with
brand acquisitions like Starkist Tuna and Ore-Ida up to when Berkshire Hathaway and 3G Capital
bought the company for $23 billion in 2013. Two years later, the investors followed the massive
merger with Kraft Foods Group.

6.1.2 Kraft (Started with cheese)

Kraft’s origin was founded by James L. Kraft, a Canadian immigrant who commenced a
wholesaler door to door cheese business in Chicago along with his brothers. In 1914, they were
trading 31 varieties of cheese. Multiple of small dairy products companies was acquired by the
National Dairy Products Corporation throughout the U.S. Finally, Kraft was snapped up in 1930
and changed its name to Kraftco Corp. in 1969. For nearly 4 years before merging, Kraft company
was a public company listed on the Nasdaq exchange hence, becoming the third-largest U.S. foods
company. Today's Kraft Heinz Co. holds more than 200 iconic brands that together draw in about
$26.5 billion in annual net sales (Miller, 2009).

6.2 Process of Merger

Figure 10: Kraft-Heinz Merger

44
H.J Heinz Company introduced its determined plan to come into a merger agreement with Kraft
foods company. Kraft and Heinz are two major brands in the American food and beverage industry.
The consolidation will lead to create a new business entity, which will operate under the name The
Kraft Heinz Company. Under the M&A deals, Heinz will have 51% stake, hence, earning power
of the new entity. It is anticipated that the merger will escalate the sales revenue of the two firms
to $28 billion (Market Watch, 2015). Likewise, the entity will maximise its profits, hence creating
high value to the shareholders.

Moreover, the merger of Kraft and Heinz was one of the biggest mergers approved and finalized
by the shareholders (Kraft Heinz, 2020). This merger took place on the 2nd July 2015 and is
therefore the 3rd largest in North America food and beverage industry and fifth in terms of turnover
(I. Chaboud, 2016). Kraft Heinz is occupied in both Pittsburgh and Chicago (Miller, 2009).

6.2.1 Leadership in the change process:

Lussier (2008) declare that the leadership strategy is important in determining employees’ loyalty
during the change process. The Heinz’s management team should consolidate a leadership style.
By adopting this style, Heinz Company will be able to deal with arising issues such as employee
resistance to organisational processes, improve profitability, leading to the development of loyalty
amongst followers (Czovek, 2006). Moreover, the organisation will be able to nurture a strong
connection with the top management (Lopez, 2020).

This aspect shows that employees will be capable to offer crucial insight on issues that they
consider utmost within the organization. Consequently, the firms’ management teams will derive
sufficient insight that they can consider in managing the M&A (Lopez, 2020).

45
6.3 Objective of Merger
Both companies have been striving a lot before being largely recognized, in USA. Warren Buffet
and 3G capital are considering Heinz’ international distribution to increase Kraft’s international
sales. As Heinz trades more than 60 per cent of its products across North America with 650 million
bottles of Heinz ketchup being sold over 140 countries each year, Kraft only supplies its products
in the USA (Miller, 2009). As their products differs in different market segments, for instance
Kraft’s consist of convenience foods, desserts and cheese while Heinz provides ketchup and other
sauces represent 10 % of turnover. In 2017, the company reported a decreased revenue of US
$26.232 billion and it currently occupies an approximate number of 39000 employees (Miller,
2009). By merging, the new group will also have bargaining power with distributors and thus,
escalating profitability.

6.4 Merger synergies and problems:

Merger synergies
 Heinz had a global footprint and thus, generated around 60% of revenues, and Kraft
generated only 13% of revenues outside North America. By combining Kraft’s brands with
Heinz’s international brands provides a strong setting for organic growth in North America.
Heinz’s liquidity could improve by merging with Kraft’s free cash flow generation. The
consolidation was also aimed to diversify Heinz’s category exposure across a variety of
new growing and stable product categories like cheese and meats (Kumar, 2018). The
merger was expected to realize cost synergies of $1.5 billion in annual cost savings. This
would be due to economies of scale from the North American market, could drive better
bargains with clients and specialty food stores leading to improved operating margins and
it was expected to replace the high-risk debt of Heinz with investment grade debt which
would lower the cost of capital for the new merged company (Miller, 2009).

Problems with Heinz and Kraft

 Accounting issues and delayed earning are obstacles for Kraft and Heinz.
 The resignation of the CEO Bernando Hees, create havoc for the consumer-packaged food
company and thus, the market share of about $40.2 billion has fallen more than 43% as
they were struggling in keeping up with consumer taste and competition from new brands.

46
  They are trying to find healthier methods of mayonnaise, salad dressing and avocado oil,
by buying primal nutrition. However, these agreements may not help financially Kraft
Heinz and as quickly as expected for investors.
 Kraft Heinz lies in a difficult situation and reports from Forbes and Financial Times
commending on its employees’ dissatisfaction burden the company and its reputation.

As a result, Kraft Heinz has been bringing up a number of divestitures, such as Maxwell House
coffee business and Breakstone’s sour cream and cottage cheese brand (Lucas, 2020).

6.5 Post-Merger Analysis

6.5.1 Financial Impact
By June 2016, Heinz preferred stocks became callable and were replaced with low yield
investment grade debt. The company was able to reduce the total cost of capital of the combined
company (Trefis Team, 2015). Shutting down less efficient manufacturing facilities and
implementing zero-based budgeting were part of the strategy to have cost savings. The merger led
to the closure of seven plants in North America and consolidation of production in other locations
which resulted in the elimination of approximately 2600 jobs. The merged company has adequate
portfolios in both sectors (Miller, 2009).

Figure 11: Kraft-Heinz's Net Financial Debt

47
Total outstanding net debt of around $30 billion was made by Kraft Heinz. The business pumps
out EBITDA, $6.5 billion per annum range, and net profit is currently running around $3-$3.5
billion. Between cash from its day-to-day operations and of non-core brand divestments there will
be meaningful inroads in getting leverage down to a lower level (The Compound Investor, 2020).

Revenue
Financial analysts depict that recently Kraft Heinz made a surprise US$ 143 billion offer for
Unilever in a bid to establish a consumer foods giant. According to Thomson Reuter data, this deal
would have been one of the largest in a global scale and the largest of a UK-based company.

2014 2015 2016 2017

Kraft 18.218 - - -
Heinz 10.92 - - -
Kraft Heinz - 18.338 26.487 26.232

There is a short-term performance increase. Unfortunately for Kraft Heinz, theory also indicates
that in most of the cases that initial peak is followed by a period of recession that is depicted in the
table above. Although it may seem that revenue has not been decreased by a big percentage, in
fact Kraft Heinz has witnessed a great reduction in sales. However, ‘’repricing’’ is what helped
the company not depict that recession in its annual revenue (Badkar, 2018).

Price Earnings ratio (P/E Ratio) is the ratio for valuing a company that measures its current
share price relative to its per-share earnings.
𝑃𝑟𝑖𝑐𝑒 𝑡𝑜 𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 = 𝑀𝑎𝑟𝑘𝑒𝑡 𝑉𝑎𝑙𝑢𝑒 𝑝𝑒𝑟 𝑆ℎ𝑎𝑟𝑒/𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝑝𝑒𝑟 𝑆ℎ𝑎𝑟e
Year 2014 2016 2017 2018
P/E 19.52 26.3 21.9 16.4

From the above table, we can notice from both matrixes that the P/E ratio has increased after the
year of the merger, in 2016 and then depressed later on. Recently, the company has been
underperforming as aforementioned.

48
Market capitalisation refers to the total dollar market value of a company’s outstanding shares.
𝑀𝑎𝑟𝑘𝑒𝑡 𝐶𝑎𝑝𝑖𝑡𝑎𝑙𝑖s𝑎𝑡𝑖𝑜𝑛 = 𝑆ℎ𝑎𝑟𝑒𝑠 𝑂𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔 ∗ 𝑆𝑡𝑜𝑐𝑘 𝑃𝑟𝑖𝑐e
Year 2015 2016 2017 Current
Market 88.29 bn 106.29bn 94.75bn 74.25 bn
Capitalisation

Return on Equity (ROE) also known as ‘’return on net worth’’, is a measure of profitability
which calculates how many dollars of profit a company generates with the money that shareholders
have invested. ROE shows the ability of a company to convert capital into profit.

Year 2014 2016 2017

ROE 21.73 6.00 17.83
(Source: Morningstar.com)
The ROE has been reducing for Kraft Heinz and shows Kraft Heinz’s decreasing ability to generate
profit without needing as much capital. It also indicates how well or bad an organization deploys
the shareholder’s capital.

Return on Assets (ROA) is an indicator of how profitable a company is respective to its total
assets. It reflects the level of an organization’s efficiency as to how it leverages management in
order to generate earnings from its assets.

Year 2014 2016 2017

ROA 4.5 2.84 9.14

The noticeable decrease in the general figures of ROA before and after the merger indicate that
the company is not making enough income form the use of its assets. However, in some cases, a
low percentage return may be acceptable.

6.6 Current Situation:

In order to promote Corporate Social Responsibility, they implemented the process of reducing
gas emissions, energy consumption, water consumption, and solid waste sent to landfill by 15%.

49
Kraft Heinz also work with experts in the energy field, in order to enhance energy efficiency (Kraft
Heinz company, 2020).

However, Kraft Heinz faces a more existential challenge beyond its accounting woes: How can it
thrive at a time when many consumers are shunning heavily processed foods in favour of more
natural and organic food? Analysts have argued that the company has been too busy cutting costs
and dealing with the accounting issues and has not focused enough on launching innovative new
products.

Kraft Heinz is a company in crisis. The first half of 2019 involved in an accounting scandal and
the resignation of its CEO. Kraft Heinz said sales are in massive slump and fell nearly 5% from a
year ago as people search for healthier, less-processed foods and profit was down more than half.
“While our 2019 results were disappointing, we closed the year with performance consistent with
our expectations, and driven by factors we anticipated,” said Kraft Heinz CEO Miguel Patricio.
"We have taken critical actions over the past six months to re-establish visibility and control over
the business. And we remain convinced Kraft Heinz has the potential to achieve best-in-class
financial performance as we begin transforming our capabilities and making necessary investments
in our brands based on deep consumer insights. Our turnaround will take time, but we expect to
make significant progress in 2020, laying a strong foundation for future growth.”

50
 Developed Countries- Acquisition

7. ROYAL DUTCH SHELL AND BG GROUP- United Kingdom

7.1 Background
7.1.1 Royal Dutch Shell Company

Royal Dutch Shell was established in 1907 through the merger of the Royal Dutch Petroleum
Company of the Netherlands and the Shell Transport and Trading Company of the United
Kingdom (Royal Dutch Shell, 2020) but started operating as a single entity since 2005. In 2019,
Royal Dutch Shell was ranked as the ninth largest company in the world by Forbes Global 2000
based on sales, profits, assets and market value (Forbes Global 2000, 2020) and is one of the largest
independent oil and gas companies in the world in terms of market capitalisation, production and
operating cash flow. Shell operates in over 70 countries worldwide. Gas exploration and
production has become a crucial part of Shell's business in the last decades. The acquisition of BG
Group by shell in 2016 made it the third largest producer of liquefied natural gas (LNG) in the
world. (Girling, 2020)

Shell is present in the following areas (Royal Dutch Shell, 2020):

Figure 12: Shell's Operating Sectors

51
 7.1.2 BG Group
British Gas PLC divested Centrica and formed BG PLC in the year 1997. The company was split
further into Lattice Group and BG Group during October 2000. BG Group obtained the
proprietorship of gas fields and related assets. BG Group PLC was a British multinational oil and
gas company which was headquartered in Reading, United Kingdom. It had operations in 25
countries across Africa, Asia, Australasia, Europe, North America, and South America. (Kumar,
2018)
The company’s production was around 680,000 barrels of oil equivalent per day and had proven
commercial reserves of 2.6 billion barrels. Also, it was the largest supplier of LNG to the United
States (Kumar, 2018).
The company was primarily involved in the exploration and extraction of natural gas and oil as
well as the production of liquefied natural gas. BG Group sold its products to wholesalers such as
retail gas suppliers and electricity-generating firms (Kumar, 2018).

7.2 Process of acquisition

On 8th April 2015, Royal Dutch Shell made public announcement of its intention to takeover BG
Group in United Kingdom for £47 billion (US$70 billion) (Offshore EnergyToday.com Business
Guide, 2015). Among BG shareholders, approximately 99.5 per cent of voted in favour of the
acquisition deal. It is estimated that approximately 83 per cent of Shell’s shareholders approved
the deal in the general shareholder meeting (Report, 2005). On the 28 th of January 2016, the day
BG shareholders’ approved deal, the stock price of BG increased by 3.4 per cent, while that of
Shell’s B shares rose by 5.4 per cent, and the sector index increased by 4.2 per cent. The acquisition
was concluded in February 2016.
This acquisition would make Shell the world’s second largest non-state oil company after Exxon
Mobil in terms of market capitalization surpassing Chevron Corporation. The consolidation of
Shell and BG Group combined two world class portfolios involving productive oil and gas projects
as well as expertise in deep water and liquefied natural gas (LNG) (Bomey, 2016).
Shell planned to cut thousands of jobs from the combined group and sell $30 billion of assets over
the period 2017–2020 to finance the deal, buy back shares, and strengthen dividends. (shell, 2016)
Shell is concentrating on fast-growth of the LNG market in the future decade as the world shifts
to cleaner sources of energy. This acquisition was anticipated to surge Shell’s oil and gas

52
production to approximately 4.7 million barrels of oil equivalent by 2020. The deal reinforced the
company’s position in liquefied natural gas, Brazilian oil business, and deep-water assets (Kumar,
2018).

Figure 13: Impact of BG on Shell

7.3 Objective of acquisition

Shell’s rationale behind the acquisition of BG was to be one of the world’s largest integrated gas
producer in the foreseeable future as natural gas becomes a crucial energy resource in the
forthcoming years as gas utilisation technologies develop.

The motives for the acquisition of shell by BG Group are Strategic and Financial (Scholes et al,
2014):
Strategic Motive:
• Strategic motives of the deal include extension, consolidation and capabilities (Scholes et
al, 2014).
• The extension aspect is in line with shell’s plan to achieve unprecedented levels of natural
gas operation conforming with their corporate strategy for growth and shareholder profit
maximisation.
• The consolidation aspect focuses on Shell’s plan to increase market power by eliminating
competition through the acquisition of BG which will increase the bargaining power of
shell against demand for their products and services and other suppliers through synergies.
• The capabilities aspect of the deal will enable Shell to retain its leadership as the petroleum
industry’s largest net LNG producer since BG’s LNG capabilities can be defined as a set
of dynamic capabilities (Garcia et al, 2014).
Financial Motive
• Financial motives of the deal involve asset stripping (Scholes et al. 2014).
• Apart from BG’s proven future potential capacity, it also has a significant presence in
Santos Basin off the South Atlantic coast of Brazil and recent discovery of massive natural
gas reserves off the South Indian Ocean coast of Tanzania.

53
 • Moreover, the $20 billion Australian plant producing gas from coal and other assets in
Trinidad and Tobago and Kazakhstan (A Vote for Gas, 2015) explains shell’s interest in
BG. Shell paid a premium of 52% for BG shareholders (Recommended Combination with
BG Group, 2015) as BG’s assets have more potential compared to this premium.

Source: Royal Dutch Shell, ‘Recommended Combination with BG Group’ (2015)

Figure 14: Strategic Synergy between BG & Shell

Moreover, the synergy between shell and BG are expected to entail in cost cuts and revenue
improvements (Kumar, 2018).

7.4 Advantages and problems from acquisition

Benefits of the acquisition
1) Synergies

Durden (2015) argues that the most important reason behind the acquisition of BG by shell is
because of the potential operating synergies. Figure 2 below illustrates, Shell’s and BG’s massive
regions of operational overlap in their upstream operations. Ben Van Beurden, Shell’s CEO
announced an expected 40% increase in synergies from the amalgamation (Farrell, 2015).

54
 Source: Royal Dutch Shell, ‘Recommended Combination with BG Group’ (2015)
Figure 15: BG & Shell Combination

Furthermore, Shell (2015) claimed that in monetary terms, the presumed pre-tax synergies to be
approximately $2.5 billion by 2018 that is $1 billion in operating cost savings and $1.5 billion
reduction in exploration expenditure. The potential synergies are detailed as follows
(‘Recommended Combination with BG Group’, 2015):

• Selling, general and administrative expenses: Corporate, administrative, organization and

information technology operational efficiencies
• Jointly operated procurement spending efficiencies
• Reduced marketing and shipping costs
• Reducing exploration activities

The amalgamation with BG should also lead to (recommended cash and share offer for BG Group
plc by Royal Dutch shell plc, 2015):

2) Enhanced free cash flow – The pre-tax synergies of $3.5 billion would enhance shell’s
free cash flow thereby increasing shell’s dividend potential in any oil price environment
and gives a positive signal towards the company’s intention to pay a dividend of
$1.88/share in 2015 and at least $1.88/share in 2016, and redemption of shares plan in the
period 2017-2020.
3) Acceleration of liquefied natural gas (LNG) and deep-water leader – The combination
with BG complements Shell’s strategy to grow in world-wide LNG and deep water and
this integration would accelerate and de-risk their strategy.

55
 4) Springboard to reshape Shell- Anticipated asset sales of $30 billion between 2016-18
and refocused spending would entail in focus around the three pillars: upstream and
downstream cash engines, deep water and LNG.

Problems arising from Acquisition

The following are the potential challenges associated with the shell-BG deal (Magueri, 2015):

1. Gas to oil transformation threatens profitability of petroleum majors.

2. Natural gas is worth less than oil and is difficult to market.
3. Explorations in regions like East Africa would need higher investments than other regions
due to constraints.
4. Massive gas discoveries in the United States led the price of gas to drop to a point whereby
gas projects are barely profitable.
5. Petroleum majors have weakened the capabilities that made countries turn to them if they
wanted to develop their oil and gas reserves.
6. Cutting back on specialized people and on R&D while continuing to invest billions a year
can eventually become a recipe for bad decisions and poor performance.

7.5 Post-Acquisition Analysis

a. Value Creation
The BG acquisition should add value to Shell to be profitable for Shareholders. Shell settled
BG acquisition in cash and stocks entailing to a total value of around £47 billion or $70
billion at 8th of April 2015 closing price which would represent 52% premium to the 90-
day volume-weighted average trading price for BG’s stock (Team, 2015).
After adjustments for post-tax operating cash flows and the dilutive effect of the deal,
annual cash inflows would be approximately $1.25 billion for Shell’s current shareholders
from 2018.This would translate to a value addition of around $8.75 billion for its
shareholders at the time of the deal which was a small percentage (36.5%) of the total
premium paid by the Shell. (Team, 2015).

b. Forbes Magazine analysts (2015) states that Shell being the market leader in net LNG
production could be positive about global LNG demand. Shell’s LNG capacity was about
11% of total LNG worldwide at 26 million tonnes per annum (mtpa) in 2015 and with BG’s

56
 acquisition, the combined entity would hold 14% share in global LNG market. By 2018, it
was expected that the capacity of the combined entity would increase to around 45 mtpa
with the new liquefaction facilities under construction which would be more than the
Exxon Mobil, second largest company in the industry (Team, 2015).

c. The acquisition granted Royal Dutch Shell a dominant footprint in offshore Brazil region.
BG’s takeover strengthened Shell’s position in the rapid-growing liquefied natural gas
market and transformed it into the largest foreign oil company in Brazil. (Kumar, 2018)

d. The acquisition would enhance Shell’s production by 20 per cent and surge its reserves by
25 per cent (Kent, 2016).

7.5.1 Financial Analysis

Return on average capital employed (ROACE) 2015 2016
1.9% 3.0%

ROACE is defined as annual income, adjusted for after-tax interest expense, as a percentage of
average capital employed during the year. ROACE measures the efficiency of our utilisation of
the capital that we employ and is a common measure of business performance. Since BG
acquisition, ROACE increased from 1.9% to 3.0% in 2016 which shows that the shell used its
resources more efficiently (Shell, 2016).
The diagram below reflects a summary of Shell’s Financial performance for the 4th quarter of 2019:

Figure 16: Financial highlights of Shell after acquisition

57
 7.5.2 Effect on Economy
• Unemployment
• Royal Dutch Shell had planned around 2800 job-cuts in order to reduce its overhead costs
by $3.5 billion after its takeover of oil and gas firm BG Group. This was decided to
consolidate offices of the two firms as overlap between the offices of the two exists in
several countries, including Australia, Brazil and the U.K. However, the CEO announced
job-cuts of 10,000 staff and direct contractor positions in 2015-16 across both companies
to the press afterwards due to falling crude oil prices.
• The highest quarterly value of domestic M&A in UK was observed in Quarter 1 (Jan to
Mar) 2016, at £11.9 billion, a small number of successful acquisitions with values over
£100 million including Shell’s acquisition of BG Group contributed to this (Mergers and
acquisitions involving UK companies- Office for National Statistics, 2017).

Figure 17: Number of acquisitions in UK by other UK companies

• Economic/Global Growth

The oil and natural gas they produce and supply:

- Generate taxes, royalties and levies transferred to Government.

- Support industrialisation and power generation (Mostly in Nigeria)
- Create employment by promoting local content and through extensive supply chains.

7.5.3 Current Situation

Since the acquisition of BG Group by Shell, four years have elapsed. Shell has been able to prove
the claims it made at the time of the acquisition and to upgrade its performance as well.

58
  Shell has been able to maintain a minimum dividend of $1.88 per share for both its class A
and class B shares in years 2016,2017,2018 and 2019 respectively.
 As of January 2020, Shell has already delivered $15.5 billion of the $25 billion buyback
programme, which commenced in July 2018 as decided during the BG acquisition.
 For the year 2019, the ROACE has decreased from 8.7% in 2018 to 6.9% due to a fall in
earnings and adoption of IFRS 16.

Corporate Social Responsibility (CSR)

Shell foundation was established in 2000 with an initial contribution of $250 million From Shell
and annual donations are $15 million. Moreover, Shell contributes to the achievement of each of
the UN SDGs (UN Sustainable Development Goals, n.d.). Shell’s CSR / ESG Ranking is 64%
compared with 19184 Companies (CSR information for Royal Dutch Shell, 2020). Shell reports
on their environmental and social performance since 1997 through their sustainability reports
(Sustainability, 2020) which are in accordance to Global Reporting Initiatives Standards.

Some of Shell’s CSR are GACC (Global Alliance For clean Cookstoves-2010), partnership with
Earthwatch for sustainable development projects, HIV/AIDS Programmes in collaboration with
UNAIDS and GBC Health (Global Business Coalition on Health), and Livewire (Since 1982) and
Global Road Safety Partnership (Baid, 2012).

59
 8. Conclusion
It is acknowledged that mergers and acquisitions will continue to happen even if it is debatable
whether mergers and acquisitions are ‘good’ or ‘bad’. 60-70 percent of synergy realization in
M&As is explained by high strategic potential, high Organisational integration and low employee
resistance (Pablo et al, 2009).

From the cases studied above, it was noted that all the companies went forward with mergers and
acquisitions due to financial and strategic motives except for IBL Ltd, Rwanda Social Security
Board and Welkin Hospital that merged also due to conglomerate motives. These motives included
better leadership positions, to eliminate rising competition, growth opportunity, cost effectiveness
and better profitability and hence improved efficiency.

The impact of the mergers and acquisitions did not only create thousands of new jobs, increase
contribution to tax and GDPs but also promoted Corporate Social Responsibilities practices which
contributes to achievement of the UN SDGs.

A good relationship with stakeholders does play a significant role in the success of the merged
companies. It decreases firm-specific risk as they build goodwill that reduces cash-flow shocks
when negative events materialize (Godfrey et al, 2009). The CSR performance of M&A targets is
of particular importance (Godfrey et al, 2009) which in turn helps in increasing opportunity for
value-added organisational synergy rather than value-destroying disaster.

Alliances, joint ventures, licensing, investments change organisations structures and business
relationships while split-ups, rollups, consolidation, downsizing, reorganisations modify the size,
focus, growth rates and vertical structures of firms. All of these which seeks to improve businesses
environments and competitive developments. The business environment is one which ever
changing and need constant adjustments by businesses. Mergers and acquisitions represent one of
the strategies that businesses adopt to cope with these adjustments (Weston, 2001).

60
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