Rhone-Poulenc Rorer, Inc Case-Study

3257 WordsMay 6, 201114 Pages
Summary 1. Almost every aspect of the complexity of the merger can be explained through Rhône-Poulenc’s financial constraints. RP’s motives to acquire Rorer were to create crucial capital for its own strategic entry into pharmaceuticals. RP could not buy Rorer either in cash or shares due to the following factors: First, RP had limited ability to pay with borrowed cash. The company was more levered than other firms in the industry. Rhône-Poulenc didn’t want to borrow all the cash because it would have affected in a negative way to its balance sheet despite the fact that it borrowed for the cash portion of the deal. Second, Rhône-Poulenc couldn’t pay with internally generated cash because, during the announcement time, RP was a net cash…show more content…
In turn, the world population was aging, analysts noted that computers and biotechnology were aiding new-product development and different analysts recommended to buy the RPR’s stock on the long term. 1. The $3.2 billion merger was consummated in a three-stage transaction, by which Rhône-Poulenc obtained 68% of Rorer’s common stock (91.6 shares), which was enough to permit Rhône-Poulenc to consolidate Rorer’s results for financial reporting. First, Rhône-Poulenc would tender for 50.1% (43.2 million shares) of Rorer’s common stock for $36.50 cash per share. Rhône-Poulenc increased its debt/capital ratio to 45% by borrowing the funds to finance the tender offer. The debt/capital ratio was considerably high compared to its competitors ratio of 20-30%. Second, Rorer assumed $265 million of RP debt (guaranteed by RP), made a $20 million cash payment to RP, and issued 48.4 million new common shares to RP in exchange for RP’s HPB division. Analysts believed that Rorer’s bylaws would require at least 85% of all shares be voted in favor of the issuance of new shares and, more generally, of this entire transaction. Third, Rhône-Poulenc issued the 41.8 million CVRs to the remaining minority shareholders in Rorer. A CVR entitled the holder to the right, at the end of three years (July 31, 1993) or four years, at RP’s option, to a cash payment of US$49.13 (or $53.06 if the payment were made at the end of four

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