Getting back to them ol' labs
Pfizer shouldn't have gone for an outright sale of its health care division

(column by Karan Mehrishi)

The sale of Pfizer's consumer healthcare product business to Johnson & Johnson (J&J) for an amount exceeding $16.6 billion did not come as a surprise. The deal, to be closed by December this year, is being seen as a business streamlining operation by Pfizer rather than a plain sell off . Pfizer was actually willing to sell-off the business even though the revenues rose to $3.9 billion in 2005 (a rise of almost 10%). The fact is, out of the $51.29 billion of Pfizer's revenues, around $45 billion come from the sales of prescribed drugs. It is believed that the consumer product portfolio does not hold much relevance to Pfizer, even though it has some of the best selling brands like Listerine and Purell.

According to Ekkehart Hansmeyer of KPMG, "Such companies like to concentrate on specific businesses and not on diverse businesses like consumer products." The volume of business is paramount for almost any company and in this respect, Pfizer's consumer brands generate puny amounts when compared to high selling prescription drugs like the cholesterol fighting Lipitor - which contributed $12.2 billion to the company's revenues in 2005. While J&J is positioned as a daily hygiene product manufacturer, Pfizer is seen as a manufacturer of serious life saving pharmacy items.

Therefore, the two companies now want to focus on their core strengths. Though one of the largest contributors to J&J's revenues has been a drug (St. Joseph's Aspirin) and not a hygiene product, the company wants to reinforce its presence in the daily care products. Meanwhile, Pfizer will use the money earned in R&D for new drugs (The company reportedly lost some revenue last year due to expiring patents). Pfizer also plans to purchase over $17 billion of the company's common stock in 2006 and 2007. However, at a time when the global consumer is becoming more brand conscious, product presence in almost all segments is the key. Instead of selling a profit making venture for the sake of its single-minded approach, Pfizer should have retained some of its popular brands, which act as true corporate brands. In that sense, Pfizer's decision is a decision made in haste, especially for a division that gives almost $4 billion profits, and is sold for just four times the amount!

(End of Karan Mehrishi column)

Rumbling of a mining syndicate
Phelps Dodge faces an uphill task in its planned three way merger

(column by Devdeep Singh)

While the world is chanting the steel tunes, it's time to get deeper into mining. Reason? On June 26, the Texasbased Phelps Dodge Corporation (PDC) and Toronto-based Inco Ltd. and Falcon Falconbridge Ltd. agreed to create one of the largest mining companies in the world - Phelps Dodge Inco Corporation - by uniting in a $56 billion transaction. J. Steven Whisler, CEO of PDC, said excitedly, "It is a unique opportunity that gives us the scale and diversification to manage cyclicality, stabilise earnings & increase shareholders return." And why not, for PDC would be able to diversify into Nickel & Molybdenum, apart from its leadership in Copper.

Interestingly, the Swiss mining giant Xstrata has now lined up to spoil this merger fiesta - raising its previous hostile bid of $16 billion for Falconbridge by 12% (all cash deal). Though the merged entity is likely to have combined revenues of $6.3 billion and annual synergies of $900 million by 2008, Robin Bhar of UBS cautions, "The regulatory hassles might prove to be a deterring factor. Also, higher bid from the likes of Xstrata might be a discouraging factor for this three-way merger." If Inco fails to acquire Falconbridge, then PDC might land in deep waters, paying a huge amount to Inco shareholders to repurchase shares (worth $5 billion). But the morose scenario for this merger does not end here. Even if PDC is able to get through the merger, it will have to borrow a whopping $17 billion to finance the deal. This very possibility of higher debt in its balance sheet has given PDC a negative rating by credit rating agency Fitch - a reason that might pull institutional investors away from this Canadian dream! Well, it will be a tough task for PDC's executive to win this cross country race, which is troubled by the investors and the shareholders alike!

(End of Devdeep Singh column)

Ranbxy: family feud 'War-Epidemic' spreads!
After the Singhanias, Lodhi-Birlas, Ambanis, it's now the Singhs' turn...

(column by Angshuman Paul)

Malvinder Singh, CMD, Ranbaxy, his brother Shivender Singh, MD, Fortis Health-Care and their uncle Analjit Singh, founder, Max India Ltd. are leading prestigious healthcare and pharmaceutical companies. Unfortunately, the recent tussle between these three for family property has assumed significant unhealthy proportions. This bitter dispute has now become a routine cause of embarrassment in particular for Ranbaxy, India's largest pharmaceutical company. On July 5, a complaint was launched by Nimmi Singh (former Ranbaxy Chairman Dr. Parvinder Singh's widow) "against Analjit Singh for intimidating, threatening and abusing her, when she tried to stop trespassers in her home," divulges a source close to the family. Well, for the uninitiated, the foundation stone of this rift was laid way back in 1990s. And more than a decade later, after Malvinder Singh became the CMD on January 26, 2006 and Bhai Mohan Singh, the founder of Ranbaxy breathed his last on March 28, 2006; the first half of 2006 will be marked as a bitter season in the calendar of Ranbaxy.

In 1987, Mohan Singh had turned down the proposal of Parvinder Singh, of setting up a similar plant as that of Max India (built by Mohan Singh for his younger son Analjit) for making the 6APA compound. That was the beginning of the end of the father-son relationship! The milieu became worse in the early 1990s, when Parvinder differed from Mohan in his attempts to make Ranbaxy a global corporation. The saga of Parvinder Singh becoming the patriarch and his split with the founder became more lucid in the boardroom battle of 1993, and Mohan Singh was ousted from Ranbaxy, thereby appointing younger son Analjit as the sole legal representative for his 2.4 million shares in the company. With Mohan Singh's death, a legal tussle started between Analjit and his nephews Malvinder and Shivender - sons of Parvinder Singh - the latter duo claiming that their late father had owned the shares directly.

To fan the fire, Mohan Singh's youngest son, Manjit Singh is also claiming his share in the golden geese. When it comes to legacy issues, India has seen enormous conflicts where brothers-in-arms are set to strangle each other. So the Singhs are no exception! But the million dollar question is: Can disputes centred around succession be avoided? The answer is a resounding yes! The solution lies in strategic succession planning, just as in the Bajaj and Jindal family. The many Nimmi Singhs filing any number of complaints will not disturb shareholders (as in Ranbaxy, the disputed shares are short of 1% of the total shares). But, without proper succession planning, even the best of Indian corporations can run into serious rough weather.

(End of Angshuman Paul column)

It's a wrong call!
HTIL's investments are Myopic!

(column by Steven Philip Warner)

Ever heard of the smart & early bird catching the rotten worm? If you have not, here's to Hutchison Telecommunications International Limited (HTIL) for being the first to take advantage of the relaxed FDI norms to amplify its control in Hutchison Essar and increase its chances of extinction! HTIL bought-off Hindujas' 5.11% stake in Hutchison Essar for $450 million on June 30, 2006, thus increasing their total control to 66.4%. HTIL's current state in becoming the second-largest GSM operator in India (with 18.06 million customers), and the sector's terrific performance (101 million customers), has motivated it to buy the stake, just as Dennis Lui, CEO HTIL proudly asserts, "We considered it a great opportunity to increase our commitment and the deal better positions us for future growth..." With more than 74.4% of new mobile additions being GSM, this deal may seem all positive for even cynical analysts! But in reality, the management seems ignorant of the fact that the potential lies elsewhere!

With a head count of 1.11 billion and a tele-density of just 13.54%, India definitely means a land of opportunities, but what should not be forgotten is that while tele-density of urban India is 36%, ailing rural India (consisting 74% of total population) enjoys a tele-density of mere 0.4%! And as Romal Shetty, an analyst with KPMG says, "Operators have to shift their focus to non-saturated rural areas, and increasing rural tele-density to just 4% by 2010 will involve investments of $6.5 billion annually!" And with CDMA being the more efficient technology for providing cellular services in wide expansive rural areas, Hutch's expenditure on rural telephony and CDMA should have been on top of the strategic priority list, and not GSM! For once, Hutch is "missing the trees for the woods..."

(End of Steven Philip Warner column)

Does it make 'Civic' sense?
Honda must ramp up capacity & move towards a small car launch

(column by Siddharth Nahata)

Honda Siel may have boasted of having the best suspension technology, but that may not be enough to ensure a smooth ride in India for Honda's Civic. The company launched the 'Civic' in India on July 4, 2006 and has set a target of selling more than 10,000 units of Civic in financial year 2006-07. That is quite ambitious, considering that Civic is positioned in the A4 segment, which clocked sales of 23,326 units in 2005-06, a drop of 9% from the previous year. This launch will certainly increase competition in the A4 segment and fire up strategic think-tanks among players like Toyota, Skoda, GM. Mohit Arora, Director-India, J. D. Power Asia Pacific explains "Some players may employ promotion tactics, while others may look at launching new models or upgrades. Hyundai is likely to launch the new Elantra shortly." Besides competition, Honda has a major, potentially debilitating challenge, and that is the capacity crunch it faces in India.

Masahiro Take da - gawa, CEO of Honda Siel says "We have plans for expansion and we are on a fast track." By the end of 2007, Honda plans to double its annual capacity to 100,000 units. But those are just 'plans'! Moreover, Honda needs to revamp its dealer facility & delivery process as it has even been rated poorly on JD Power Sales Satisfaction Index 2005. More importantly, Honda has to invade more segments, especially compact cars. But even that isn't as straightforward as it seems. States Arora, "The key challenge that manufacturers face while planning to bring a global model to India is in terms of the initial cost as well as the cost of operation of that model." The road map for Honda is simple - aggressively ramp up capacity & unleash the ultimate killer strategy for India - launch of a small car. GM has already planned its small car launch by 2007; so the more Honda delays its entry, the worse it will be for the giant.

(End of Siddharth Nahata column)