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International-Business-Dr-R-Chandran-E-book International-Business-Dr-R-Chandran-E-book

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132 International Business- Dr. R. Chandran point Horlicks accounted for 80% of the company’s Rs. 430 crore net sales. Although it paid about Rs.5 crore in 1996, the estimated annual outgoings worked out to about Rs.20 crore, against a net profit of Rs.45.6 crore in the same year. The immediate impact on the SmithKline Beecham Consumer Healthcare stock was drastic, as the stock price fell by almost Rs.100 from Rs.365 in Feb 1997 in just 10 days, reflecting a loss of about 27% or about Rs.275 crore in terms of market capitalization. Here, the main issue for investors was whether royalty payment needed to be paid to the parent company at all. Although the Indian company does not own the brand and is only its licensed user, it has nevertheless spent a huge amount on brand promotion and advertisement expenses for Horlicks, over the last four decades, and approximately Rs, 175 crores over the past 10 years. Critics feel that the company could have used this money to promote a brand of its own, with considerable success. Philips On 1 st December 2001, the parent company of Philips announced that it wanted to buy out the other shareholders of its 51% subsidiary Philips India, and delist it from the stock markets. It offered to pay Rs. 105 for each share. The deadline for accepting the offer was 14 th December. The beauty of the strategy was that Philips did not need to persuade every individual shareholder to sell to achieve its goal. According to the SEBI regulations, Philips needed to increase its shareholding to 90% in Philips India to apply for delisting the latter. Since Philips owned 51% shares, it needed to pick up only 39% more. When the offer opened, three financial institutional – GIC, LIC and UTI – together held 22% of the shares, while another 27% were held by the minority shareholders. Within days of the announcement, most minority shareholders started worrying about what would happen to anyone who did not sell their entire stake, Philips would need to pick up only another 17% of the shares to reach a level of 90%. So, if Philips managed to pick up only 90% of the shares, all those who held out would be trapped. They would agree to buy them after the deadline was over, provided it already had the 90% it needed. Only for Private Circulation

133 International Business- Dr. R. Chandran This fear reportedly led to many minority shareholders selling out, even though the FIs had not announced their decision. Finally the FIs did announce that they too were taking up the offer. A major factor influencing their decision was that, if enough minority shareholders sold out, the liquidity of the Philips India stock would be drastically reduced. In that case, they would find it impossible to sell later because there would not be enough buyers. For a majority of the shareholders, the offer price was not the critical factor in their decision to sell. In fact, many of them thought the price was too low and that Philips had timed its offer cleverly. Royal Philips had strictly followed SEBI guidelines which state that the offer price should not be less than the average price of the past six months, Philips made sure that most shareholders would sell out even if it was not the most attractive option. CRITICISM OF MULTINATIONALS IN DEVELOPING COUNTRIES 1. They do not give enough importance to the society in which they operate. An example in Union Carbide, which did not show concern for the people of Bhopal. In South Africa, HIV medicines are sold at an expensive price irrespective of the cost. When people die out with these dreaded diseases in some region then MNCs consider that place as a huge potential for business prosperity. 2. While many Indian companies, such as the Tatas and Birlas allocate funds for charitable works like hospitals, temples and scholarships for higher studies, not many MNCs do so, though they generate huge revenue. 3. They generate profits when the situation is favourable, but will close their business if any risk is anticipated. E.g., many multinationals pulled out of South East Asia during the currency crisis, especially in Thailand and Indonesia. 4. Active participation is needed in developing countries for infrastructure, especially roads, ports, power plants etc. They enjoy but do not contribute. However, most multinationals in India deal in non-essential products such as soaps, shampoos, lotions and other consumer products. Whether Only for Private Circulation

132<br />

<strong>International</strong> <strong>Business</strong>- <strong>Dr</strong>. R. <strong>Chandran</strong><br />

point Horlicks accounted for 80% of the company’s Rs. 430 crore net sales.<br />

Although it paid about Rs.5 crore in 1996, the estimated annual outgoings<br />

worked out to about Rs.20 crore, against a net profit of Rs.45.6 crore in the<br />

same year.<br />

The immediate impact on the SmithKline Beecham Consumer<br />

Healthcare stock was drastic, as the stock price fell by almost Rs.100 from<br />

Rs.365 in Feb 1997 in just 10 days, reflecting a loss of about 27% or about<br />

Rs.275 crore in terms of market capitalization.<br />

Here, the main issue for investors was whether royalty payment<br />

needed to be paid to the parent company at all. Although the Indian<br />

company does not own the brand and is only its licensed user, it has<br />

nevertheless spent a huge amount on brand promotion and advertisement<br />

expenses for Horlicks, over the last four decades, and approximately Rs, 175<br />

crores over the past 10 years. Critics feel that the company could have used<br />

this money to promote a brand of its own, with considerable success.<br />

Philips<br />

On 1 st December 2001, the parent company of Philips announced that it<br />

wanted to buy out the other shareholders of its 51% subsidiary Philips India,<br />

and delist it from the stock markets. It offered to pay Rs. 105 for each share.<br />

The deadline for accepting the offer was 14 th December. The beauty of the<br />

strategy was that Philips did not need to persuade every individual<br />

shareholder to sell to achieve its goal. According to the SEBI regulations,<br />

Philips needed to increase its shareholding to 90% in Philips India to apply<br />

for delisting the latter. Since Philips owned 51% shares, it needed to pick up<br />

only 39% more.<br />

When the offer opened, three financial institutional – GIC, LIC and<br />

UTI – together held 22% of the shares, while another 27% were held by the<br />

minority shareholders. Within days of the announcement, most minority<br />

shareholders started worrying about what would happen to anyone who did<br />

not sell their entire stake, Philips would need to pick up only another 17% of<br />

the shares to reach a level of 90%. So, if Philips managed to pick up only<br />

90% of the shares, all those who held out would be trapped. They would<br />

agree to buy them after the deadline was over, provided it already had the<br />

90% it needed.<br />

Only for Private Circulation

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