Johnson & Johnson to Acquire Actelion for $30 Billion With Spin-Out of New R&D Company

Johnson & Johnson to Acquire Actelion for $30 Billion With Spin-Out of New R&D Company

Johnson & Johnson (NYSE:JNJ), the world’s largest healthcare holding company, with total registered worldwide sales of $71.89bn in 2016, has unveiled its intention to acquire the Swiss drug-maker Actelion Ltd (SIX:ATLN) with a move that will cost $30bn to the US company.

Johnson & Johnson

Johnson & Johnson is an American multinational medical devices, pharmaceutical and consumer packaged goods manufacturer founded in 1886. It has more than 250 companies located in 60 countries around the world while their products are sold in over 175 countries. Their companies are broken down into several business segments: consumer healthcare, medical devices and pharmaceuticals. Johnson & Johnson’s consumer healthcare segment produces a variety of consumer care products in the areas of baby care, skin and hair care, wound care, oral health, OTC medicines and nutritionals.
Johnson & Johnson’s brands include numerous household names of medications and first aid supplies.
Among its well-known consumer products are the Band-Aid Brand line of bandages, Tylenol medications, Johnson’s baby products, Neutrogena skin and beauty products, Clean & Clear facial wash and Acuvue contact lenses. Its common stock is a component of the Dow Jones Industrial Average and the company is listed among the Fortune 500. Johnson & Johnson had worldwide sales of $71.8 billion during calendar year 2016.

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Source: Bloomberg

It’s easy to say that J&J is particularly active in the mergers sector: In July 2016, J&J announced its intention to acquire the privately held company, Vogue International LLC, boosting Johnson & Johnson Consumer Inc. In September of the same year, J&J announced it would acquire Abbott Medical Optics from Abbott Laboratories for $4.325 billion, adding the new division into Johnson & Johnson Vision Care, Inc.

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In January 2017, J&J subsidiary Ethicon announced it would acquire Megadyne Medical Products, Inc., a medical device company that develops, manufactures and markets electrosurgical tools.


Actelion Ltd. is a leading biopharmaceutical company focused on the discovery, development and commercialization of innovative drugs for diseases with significant unmet medical needs. The company has its corporate headquarters in Allschwil/ Basel, Switzerland where it was founded in 1997. Its shares have been listed on the SIX Swiss Exchange (ticker symbol ALTN) since 2000. In September 2008, Actelion shares began trading as part of the blue-chip SMI® (Swiss Market Index). Since its founding more than fifteen years ago, Actelion has become a new kind of biopharmaceutical company: one that blends biotech‘s innovation, speed and flexibility with big pharma’s operating discipline and excellence in execution. With the intrinsic belief that innovation in all domains is the key to growth, Actelion has built a promising pipeline, seven approved products, and commercial operations in over 30 countries while employing more than 2,600 employees.

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Source: Bloomberg

Healthcare Sector – Overview

The value of M&A deals in the healthcare sector reached $546 billion in 2015, seeing a 2.5 times increase over the previous decade’s average annual value. During the year, 5 deals were announced over $20 billion, excluding the Pfizer-Allergan deal which was called off in April 2016. The value of this single deal would have been $160 billion and the merger was terminated after the U.S. government proposed regulations to crack down on corporate tax inversions.

Since in 2015 the global M&A deal value was nearly $5 trillion, it is possible to say that the healthcare sector accounted approximately for 10% of the total value. From 2012 to 2015, overall M&A grew at a CAGR of 24% while healthcare M&A grew more than twice as fast, at a 50% CAGR. By most measures, deal activity in the US health services industry declined in Q3 when compared quarter-over-quarter and year-over-year. The total number of deals decreased to 214, versus 252 in Q2 2016 and 262 in Q3 2015. Total deal value was recorded at $20.0 billion, increasing 23.8% when compared quarter-over-quarter. Although value decreased by 82.0% year-over-year, Q3 2015 is considered to be an exception compared to other quarters in terms of total deal value.

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Mergers by value and count in the Healthcare sector – Source: Bain Report

The factors that drove this sector to keep growing could be explained through:

  1. Economic strength: the combination of a low interest rate world with the continuing strength of the economic led to an outstanding scenario of M&A deals.
  2. Obamacare: this project along with the Affordable Care Act has deeply changed the health care insurance landscape. There was not only an improvement in affordability and availability of insurance coverage but also a reduction of uninsured people. These innovations might have influenced M&A activities both on a quantitative way, by increasing the number of deals, as well as on a qualitative way, by increasing complexity of deals in aspects related to the due diligence process.
  3. Health Insurance Mergers: there was a significant boost in this sub-sector. Despite the big growth rate, the governments are trying to stop the biggest mergers in the insurance sector. Two examples are provided: The justice department and several states sued Aetna and Humana in July to block their $37 billion merger deal, alleging that the acquisition would limit insurance choices for seniors in many parts of the USA and significantly boost prices. Moreover, the Anthem Inc. and Cigna Corp a Justice Department lawyer said at the beginning of November that the biggest merger in the history of the American health-insurance industry should be blocked because it will increase the companies’ dominance and cut consumer choice. An attorney for Anthem responded that the combined company will be able to lower rates paid to health-care providers and that those savings will be passed on to employers.
  4. Drug company consolidation and acquisitions: it is estimated that there were $221 billion in deals in the pharmaceutical sector during the first half of 2015. This is three times the amount than in the first part of 2014. In one of the largest deals of the year, Actavis bought Allergan in a stock and equity transaction valued at around $70.5 billion. In another deal, generic drug maker Teva Pharmaceuticals said it will buy the generics business in a spin-off from Allergan in a deal valued at $40.5 billion.
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CAGR of the mergers in the overall market and in the healthcare sector- Source: Bain Report

Deal structure

J&J will launch an all-cash tender offer in Switzerland to acquire all of the outstanding shares of Actelion for $280 per share, representing the biggest European drugs takeover in 13 years. French drug-maker Sanofi (SNYNF)had also been interested but was sidelined after J&J returned, and began exclusive negotiations in December. J&J said it expected the transaction to be immediately accretive to its adjusted earnings per share and accelerate its revenue and earnings growth rates. It will fund the transaction with cash held outside the United States. Now, following the merger J&J-Actelion, Actelion will spin out its research and development unit into a standalone company based and listed in Switzerland, under the name of R&D NewCo and led by Actelion founder and current CEO Jean-Paul Clozel. The shares of R&D NewCo will be distributed to Actelion’s shareholders as a stock dividend upon closing of the tender. The arrangements will result in R&D NewCo launching with cash of CHF 1 billion to be made available at the closing of the transactions. J&J will also receive an option on ACT-132577, a product within R&D NewCo being developed for resistant hypertension currently in phase 2 clinical development. Together, these arrangements with R&D NewCo will provide Johnson & Johnson with additional sources of innovation and value. R&D NewCo will inherit Actelion’s fully established and validated drug discovery engine based in Allschwil, Switzerland and its proven and experienced discovery and development team. It will be well positioned to continue Actelion’s strong legacy of innovation to discover and develop new and differentiated products in multiple therapeutic areas.

Benefits of the deal

  • This deal will give J&J access to the Swiss group’s range of high-price, high-margin medicines for rare diseases, helping it diversify its drug portfolio as its biggest product, Remicade for arthritis, faces cheaper competition.
  • The transaction structure will provide flexibility for J&J to accelerate investment in its industry-leading, innovative pipeline to drive additional growth.
  • J&J expects to retain Actelion’s presence in Switzerland and also leverages its complementary capabilities in shaping medical paradigms.
  • The transaction will deliver a significant and immediate premium to Actelion shareholders, with greater value certainty as compared to Actelion’s standalone prospects. Actelion shareholders are also expected to realize substantial additional value from their ownership interest in R&D NewCo.
  • The transaction is expected to be immediately accretive to J&J earnings per share and accelerate J&J’s revenue and earnings growth rates, while enhancing long-term growth and value creation of the Janssen Pharmaceuticals business. Post-transaction close, J&J expects the transaction to increase its long-term revenue growth rate by at least 1.0% and its long-term earnings growth rate by 1.5% – 2.0% above current analyst consensus while J&J estimates EPS accretion in the first full year of $0.35 to $0.40. J&J shareholders are also expected to realize additional value from the J&J convertible ownership interest in R&D NewCo.
  • Extends Actelion products’ geographic and commercial reach: The J&J global presence and commercial capabilities will help open new markets and opportunities for Actelion’s in-market products and provide additional support for the successful launches of its promising late-stage therapies in highly competitive therapeutic areas.

Roadmap to Completion

The transaction is expected to close by the end of the second quarter of 2017. Moreover, Actelion will convene an Extraordinary General Meeting for shareholders to approve the distribution of shares of R&D NewCo by way of a dividend in kind to Actelion’s shareholders upon closing of the tender offer. The Extraordinary General Meeting is expected to be held in the second quarter of 2017.

The transaction is conditioned upon:

  • At least 67% of all Actelion shares that are issued and outstanding at the end of the offer period, which may be extended, tendering into the offer
  • The approval of the Actelion shareholders of the distribution of the shares of R&D NewCo at the EGM called for this purpose
  • Further customary offer conditions described in the offer prospectus, including regulatory approvals

Tax clearances in relation to the spin-off of R&D NewCo have been received from both the Swiss Federal and the Basel-Landschaft cantonal tax authorities. Jean-Paul Clozel has committed to tender all Actelion shares he owns into the offer and vote his shares in favor of the transaction at the EGM. Actelion’s Board of Directors unanimously recommends that Actelion shareholders tender their shares into the offer and vote in favor of the distribution of shares at the EGM.

Johnson & Johnson is prepared to pay the price per tendered share to the retail shareholders in CHF and therefore provide a wholesale exchange facility. The exchange facility shall be provided only to persons who hold their Actelion shares in a bank deposit in Switzerland, and who hold no more than 1,000 shares each.


Lazard and Citibank are acting as lead financial advisor to Johnson & Johnson. Cravath, Swaine & Moore LLP, Homburger AG and SextonRiley LLP are serving as legal advisors to Johnson & Johnson. Bank of America Merrill Lynch and Credit Suisse are serving as Actelion’s lead financial advisors. Niederer Kraft & Frey, Wachtell, Lipton, Rosen & Katz and Slaughter & May are serving as legal advisors to Actelion.


While some Analysts argue that the transaction is overpriced with respect to comparable transactions, the premium can be explained as a way to defeat competitive bidders. Moreover, the transaction price payment allows an efficient use of the significant amount of cash that Johnson & Johnson holds offshore so that no US tax for this invested money will be due compared to transferring it to the US.

Marcel Kwiatkowski
Virginia Bassano
Niccolò Di Lilla


The Power of Sight: Essilor Luxottica Merger

The Power of Sight: Essilor Luxottica Merger

Companies Overview


Global leading Italian Company in design, production and distribution of high-technical quality fashion, luxury, sport and performance eyewear with a brand-names portfolio consisting of Ray-Ban, Oakley, Vogue Eyewear, Persol, Oliver Peoples e Alain Mikli. It also includes prestigious licenses as well as brand like Giorgio Armani, Burberry, Bulgari, Chanel, Dolce&Gabbana, Michael Kors, Prada, Ralph Lauren, Tiffany & Co., Versace and Valentino. The firm was founded in 1961 by the current Chairman Leonardo Del Vecchio in Agordo (VE), Italy. It nowadays employs more than 75.000 people and is headquartered in Milano. Currently Delfin S.a.r.l., controlled by Del Vecchio family, acts as a holding company with a 61.9% stake, having no common managing interest with the subsidiary from an operational perspective.

The business model adopted covers every step of the value-chain production: design, development, production, logistics and distribution. This allowed Luxottica to operate as manufacturer and retailer in more than 150 countries, through more than 7.400 shops. The Company went public on NYSE on 1990 and is publicly listed on FTSE MIB index on the Italian Borsa di Milano since 2000. Luxottica has recently been rumoured about the acquisition of the Brazilian optical franchisor Ótica Carol, which was established in 1997 with approximately 950 locations. The transaction is valued at €110m and remains subject to customary regulatory approvals.



Headquartered in Charenton-le-Pont, France, Essilor is a leading producer of optical lenses and is led by the French-Canadian chairman and chief executive Hubert Sagnierès. The Firm’s expertise is in the field of designing, manufacturing and distributing ophthalmic lenses and equipment for eye care professionals.While owning different brands such as Varilux, Crizal, Eyezen, Xperio, Transitions, Bolon, Foster Grant and Costa, the Firm distributes its products in more than 100 Countries, through 490 prescription laboratories and 16 distribution centres.

The 90.4% stake of the Company is publicly listed on the Euronext Paris Stock Exchange and is a component of the Euro Stoxx 50 share index. The remaining 9.6% are split within employees, partners and treasury shares. The major shareholders are Harbor Capital Advisors Inc (3.76%), Vanguard Group Inc (1.95%) and BlackRock Fund Advisors (1.13%). Founded in 1972 after the merger of Essel and Silor, the company became the third-largest ophthalmic optical firm in the world. Essel was founded in 1849 in Paris, while Silor started under the name Lissac in 1931 as a retailer of ophthalmic lenses. The Company now employs 61,000 workers worldwide, and it launched more than 250 products in 2015. It also claims to invest €200mln in research and innovation every year.


Industry Overview

The global eyewear market can be split into contact lenses and spectacles. Further, the spectacles market can be sub-segmented into: spectacle frames, spectacle lenses, and sunglasses. There are different challenges and entry barriers that make this industry hard to penetrate as well as extremely competitive. The last year dynamics are making the eyewear sector an “optimistic” sector, with a compound annual growth rate of 2.5 per cent forecast for 2015 to 2020, according to May Ling Tham, head of personal accessories and eyewear research at Euromonitor.

Source: Financial Times

The challenges that are increasing the pressure on the $90bln global industry are strictly related to the convergence point of fashion and health trends. This creates a synergy between the ophthalmic lenses and the fashionable eyewear sector, making the demand increase. The key forces which are driving the industry growth are the rising ageing population, the high potential of vision correction, the urbanization process, the under penetration of eyesight correction and the increasing technical and innovation demand in developed markets. 63% of the 7.3bln people are considered to be in need of vision correction, but only 1.9bln can afford it. More than 2.5bln live in Asia, Africa and Latin America. The areas in which demand ramps up are mostly located in Asian markets, where consumers buy most of the products via online channels. The industry is also carving out a niche in the luxury products sector, thanks to the celebrities promotion, who made sunglasses a “must-have”.

Deal drivers: 

The deal intention is to create a company that can produce eyewear in a large scale (lenses and frames) and sell them worldwide. Therefore, EssilorLuxottica would hold a competitive advantage through a comprehensive offering combining a strong brand portfolio, global distribution capabilities and complementary expertise in ophthalmic lenses, prescription frames and sunglasses. Potential revenue and cost synergies between €400mln and €600mln are expected. The combined entity would utilize widespread distribution networks and production capabilities. Through its 32 manufacturing facilities and 16 distribution centers, Essilor will leverage its operating capacity as it moves down in the value chain with an access to Luxottica’s 7.800 retail stores and 10 retail brands. In addition, Essilor will have an access to over 150 countries compared to the 100 pre-merger.

Beyond the production capacity, Essilor will be tied to some of the most valuable brands in the eyewear industry. Also, the Italian frames & sunglasses maker is an established innovative company (top 100 in Forbes’ ranking of the world’s most innovative companies), launching over 2.000 new eyewear styles a year.

Beyond the economics of the deal, succession considerations may have been a key factor for Luxottica’s main shareholder, Delfin. Mr Del Vecchio, Italia’s second richest man (net worth of €20bln) may indeed be implementing succession plans to secure the company’s future. Hence, the all-stock deal shows that the 81 years old founder believes in the upside of the merger, as well as in the management of Essilor. In addition, Luxottica suffered from a massive turnover in its top management, as 90% of its directors jumped ship in the recent years. In a piece published by The Economist (Issue of January 2017), manager painted Del Vecchio’s management style as concentrated, as he “could not foster a strong alternative leader and would not let any of his children become managers”. To overcome such issue, Mr Del Vecchio will be Executive chairman and M. Hubert Sagnières (CEO of Essilor) as Executive Vice-Chairman. Also, the Board of the new entity will be split between the two entities, ensuring a transition of power after M. Del Vecchio’s retirement.

Deal Structure:

On January 15th 2017, Essilor’s Board approved the agreement with the holding company of Leonardo Del Vecchio (Delfin). On the same day, the Board of Luxottica announced that the merger is in the best interest of the company and all its stakeholders. During the calls with the analysts and in various press releases, details of the Merger’s structure where made public and analysed. However, as the deal is still pending conditions may vary. The deal will be a stock-for-stock merger with an exchange of 0.461 Essilor Shares for 1 Luxottica share. The Italian company’s equity is valued at €22.79bln, based on the previous exchange ratio and on the Essilor share price of €102.1 and 484.16 million Luxottica shares outstanding. Such valuation implies a share price of €47.07 representing a -5.03% discount on the price of the day previous to the announcement (€49.56). On the day after the announcement price rose to €53.20, an 11.53% premium on the valuation. Together with the aforementioned equity Luxottica also has €1.13bln of net debt generating a total enterprise value of €23.92bln. Essilor has 218.51 million shares outstanding with market cap of €22.31bln at the initial price. After the announcement, the share price rose by 12.2% to €114.56 by 14:05 GMT of January 16 2017. With a net debt of €2.36bln, the French company had a pre-announcement enterprise value of €24.67bln. The new entity should thus have a combined enterprise value of about €48.6bln. As of the early announcements, newly issued Essilor shares will provide financing of the deal.

Throughout the transaction, with the values provided above, Delfin, majority shareholder of Luxottica, will exchange 62% of its shares retaining majority position in the combined entity. The holding of the Del Vecchio family, indeed, should keep a position of about 38% of the new entity. Most probably, EssilorLuxottica will become a holding company retaining control of Essilor International and Luxottica. Post-merger, the company will remain listed on the Paris stock exchange and becoming its 8th biggest company by market cap. Leonardo Del Vecchio will remain Executive Chairman and Chief Executive for the following years sharing managerial duties with Hubert Sagnières who would become Vice-Chairman and Deputy CEO. EssilorLuxottica’s Board will be made up of sixteen members of whom eight nominated by Essilor and eight by Delfin. The closing is expected in the second half of 2017 and should not face any regulatory constraint.


Essilor was advised by Rothschild’s and Citi’s investment banking teams (respectively ranked 1st and 6th in French M&A advisory), while Luxottica was advised by Mediobanca’s team (ranked 1st in Italian M&A advisory). Tax, corporate & competition due diligence are conducted by Cleary Gottlieb Steen & Hamilton LLP on behalf of Essilor, while Luxottica is advised by BonelliErede and Bredin Prat law firms.



Guglielmo De Martino
Imad El Ahdi
Filippo Zanini


The Kraft Heinz Co – Deal Report

The Kraft Heinz Co – Deal Report



The Kraft Heinz Company is an American worldwide food company formed by the merger of Kraft Foods and Heinz in July 2015, backed by 3G Capital and Berkshire Hathaway. The merger has been agreed by the boards of both companies, with approvals by shareholders and regulatory authorities. Alex Behring, 3G Capital’s managing partner, becomes the chairman of the new company; Bernardo Hees, Heinz’s chief executive officer (CEO), is now the CEO of the new company; and John Cahill, Kraft’s CEO, is now the vice chairman of the new company. The company will have dual headquarters in Pittsburgh and Chicago, the respective headquarters of Heinz and Kraft. The company and its stock are both fresh from the oven, but in their current forms, they have been in the works for some time.

Arguably, this entire process started with the high-profile buyout of H.J. Heinz by Warren Buffett and Berkshire Hathaway in conjunction with 3G Capital. That deal happened in 2013, with Berkshire and 3G Capital agreeing to purchase the condiments maker for a base price of roughly USD 23 billion, representing an approximately 20% premium to Heinz shares prior to the announcement.



On August 10, 2015, the Kraft Heinz Company (following “K.H. Co” or “the company”) reported its second quarter results for Kraft Foods Group and H.J. Heinz Holding Corporation for the periods ending June 27, 2015, and June 28, 2015, respectively. Both companies reported their second quarter results separately. The Kraft Heinz Company completed the merger of Kraft and Heinz successfully at the end of the second quarter.

2Q 2015 before-merger Performance Recap – Kraft

Kraft’s 2Q15 net revenues fell by 4.9%, and Kraft’s organic net revenues fell by 3.3%. It reported operating income of USD 923 million and diluted EPS (or earnings per share) of USD 0.92. Diluted EPS included USD56 million or USD 0.06 per diluted share in spending on cost savings initiatives, as well as USD 37 million or USD 0.04 per diluted share in merger-related expenses. It also included a USD 21 million or USD 0.02 per diluted share gain on the sale of assets, and USD 20 million or USD 0.02 per diluted share in unrealized gains from hedging activities.

2Q 2015 before-merger Performance Recap – Heinz

Heinz’s net sales fell by 4.1%, and Heinz’s organic net sales grew by 5.9%, driven by higher pricing across all segments. Organic adjusted EBITDA1 rose 16.3%, driven by more sales and lower SG&A (selling, general, and administrative expenses).

2Q 2015 Performance Recap – Kraft Heinz Company

Since the merger, Kraft Heinz reported combined results for the first time this quarter. It reported net sales of USD 6.4 billion. This was a fall of 9% compared to the same quarter a year ago. The organic net sales fell by 2% compared to 3Q14. A negative 8.2 percentage point currency effect caused the adjusted EBITDA to fall by 3.4% to USD 1.5 billion this quarter. The adjusted EPS (earnings per share) fell by 4.4% because of the change in the adjusted EBITDA and the impact of a higher tax rate compared to last year.


3Q 2015 Performance Recap – Kraft Heinz Company

On November 5, 2015, Kraft Heinz reported its third quarter results for fiscal 2015. The combined results after the merger were not good. As a result, the stock price took a toll on the disappointing quarter. The stock fell by 5% after the earnings release. It closed at $72.01 on November 6. The fall in net sales was primarily due to a negative 6.7 percentage point impact from currency and a negative 0.3 percentage point effect from divestitures. The volume or mix fell 2.7 percentage points because of lower shipments in ready-to-drink beverages, food service, cheese, and boxed dinners in the US and Canada. However, the rest of the world showed strong growth. The merger seems to have benefited the company despite the disappointing results this quarter. The company has shown various synergies among its brands including Kraft, Heinz, Capri Sun, JELL-O, Kool-Aid, Lunchables, and Maxwell House.


Dividend declared and EPS

As per the company’s press release, on July 31, 2015, it paid a cash dividend of $0.55 per share to all stockholders of record at the close of business on July 27 2015. This dividend was in lieu of the dividend declared on June 22 2015, by Kraft to its shareholders of record as of July 27 2015. The payment was conditional on the merger not having closed by that date. Kraft Heinz (KHC) in 2Q15 reported diluted EPS of USD 0.92 compared to USD 0.80 for the same quarter last year due to higher spending on cost savings initiatives and costs related to the merger with Heinz. These costs were partly offset by gains on an asset sale. The adjusted EPS was reported as USD 0.98 in the 2Q15. The EPS consensus estimate for the third quarter was USD 0.58. Yet Kraft Heinz reported an EPS (earnings per share) of USD 0.44 in 3Q15. It fell short of analysts’ estimates by 24%. It missed the EPS of USD 0.62 on revenue of USD 6.7 billion, according to the analysts’ forecast. The EPS fell by 41% compared to 3Q14. It fell 52% compared to 2Q15. The analysts that follow this company are expecting it to grow earnings at an average annual rate of 10% over the next five years. Analysts expect earnings growth of 12.6% next year over 2015’s forecast earnings.




K.H. Co’s competitors in the industry include Mondelez International (MDLZ), Hershey (HSY), and Mead Johnson (MJN). They reported gross margins of 39%, 45.5%, and 64.5%, respectively, for their last reported quarters. Kraft Heinz’s competitors such as Mead Johnson (MJN), McCormick & Company (MKC), and Keurig Green Mountain reported operating margins of 23.1%, 13.1%, and 16.6% in their last reported quarters.



Demand is driven by food consumption, which depends on population growth. The profitability of individual companies depends on efficient operations, because products are commodities subject to intense price competition. As consumer demand for local, organic and fresh foods continues to grow, the enormous multinational firms that are collectively being called “Big Food” are in the position of having to rework, reshape and reimagine themselves. Although this changing consumer landscape has contributed to lacklustre growth among some of the industry’s major players, the consensus among producers, analysts and healthy food advocates is that the major food companies – and their influence – are still going strong. The issue isn’t profits, it is growth. Consumers’ growing appetite for foods that feel healthier, fresher and less processed is one of the significant obstacles to growth. At the same time, while fresher, healthier foods may be grabbing more room in the line-up, there is reason to believe that the appetite for convenient packaged foods remains strong. Kraft’s Q4 2014 earnings release points to increased sales of Lunchables pre-packaged lunches and “ongoing growth in bacon” as key factors driving higher revenues in its refrigerated meals category. The future is uncertain. Lash points to Kellogg and Campbell’s as two companies that have struggled. Kraft, on the other hand, has been doing a good job refocusing its marketing efforts. Companies compete largely based on cost and their ability to distribute the finished product. Large companies have economies of scale in purchasing and distribution. Industry is concentrated: the 50 largest companies account for more than half of industry revenue. The food processing and packaging industry is poised for growth in the coming years.

Industry Earning Forecast

Looking into earnings estimates within the Food Processing Industry in the current quarter, 33.33 % of companies, who provide earning guidance within Food Processing Industry have increased their earnings outlook for the current fiscal year. 55.56 % of companies, who issued earning outlook within Food Processing Industry, have reiterated their earnings per share outlook for the current fiscal year while 11.11 % cut their earnings outlook.

Industry Sales Forecast

Within Food Processing Industry there were no increases of sales guidance, more corporations reiterate their sales projections, 87.5 % of businesses within Food Processing Industry. On the negative side, 12.5 % of businesses within Food Processing Industry expect now to sell less, compare to the previous guidance

US Kraft Heinz operates in four segments—the US, Canada, Europe, and the Rest of World. The US segment’s net sales were USD 4.5 billion—a fall of 3.7% compared to the same quarter last year. The adjusted EBITDA for this segment rose by 1.4% to USD 1.1 billion. The Canada segment’s net sales were USD 539 million. The net sales fell by 18.9% compared to the same quarter last year. The Canada segment’s adjusted EBITDA fell 20.3% to $110 million. The Europe segment’s net sales were USD 599 million. The net sales fell 13.9% compared to 3Q14. The segment’s adjusted EBITDA rose 8.3% to USD 222 million. The rest of the world’s segment’s net sales were USD 684 million down 25.3% compared to the same quarter a year ago. The Rest of World segment’s adjusted EBITDA fell 29.4% to USD 125 million.



The Pittsburgh-based, privately owned H.J. Heinz Holding Corporation acquired Kraft Foods in October. After the merger, the company changed its name to Kraft Heinz (KHC), becoming the third-largest food and beverage company in North America and the fifth-largest in the world. The Company’s iconic brands include Kraft, Heinz, ABC, Capri Sun, Classico, Jell-O, Kool-Aid, Lunchables, Maxwell House, Ore-Ida, Oscar Mayer, Philadelphia, Planters, Plasmon, Quero, Weight Watchers Smart Ones and Velveeta, for a brand portfolio worthing around USD 500 m.

3G Capital, a Brazilian private equity firm, and Warren Buffett’s Berkshire Hathaway contributed to the merger by investing USD 10 billion in the deal together, making the Kraft Heinz Company worth around USD 46bn.


In addition, changes to the operations strategy can also contribute to cost savings. These could be targeted at reducing headcount, shutting down less efficient manufacturing facilities and implementing zero-based budgeting. Zero-based budgeting means that the managers have to explain every forecast expense for the year from scratch, without appealing to previous years’ trends. This helps the top management enforce a more stringent form of cost control and realize cost savings. Since the chairman-CEO team at the new company will be the same as that which implemented drastic cost cutting measures at Heinz, including a reduction in force of 4%, closing several factories and grounding corporate jets, there is reason to believe that the projected changes to the combined company’s operations strategy would be successfully implemented.

3.2.    TIMELINE

timeline kraft


3.3.    DEAL TERMS

The Kraft Heinz Co. (KHC) shares are traded since 2 July 2015 on the NASDAQ.

Berkshire and 3G Capital Company together invested around US$10 billion in the deal, making Kraft Heinz worth about US$46 billion. Buffet and his partner 3G are paying a significant amount of money in order to obtain the majority stake of 51%, in particular they are paying:

– USD 16,5 one-time dividend to shareholders of Kraft equal to USD 10bn

– USD 18 bn, equal to half the Market Cap of Kraft before the transaction

– USD 14 bn, equal to half the purchase price Berkshire and 3G Capital paid for Heinz in 2013.

The implied deal worth around USD 45 bn

On the 08/11/2015 K.H. Co shares were traded at USD 72,24 for a Market Cap of USD 86,4 bn of which the USD 44,06 bn are attributable to Berkshire and 3G Capital.



The combination of the two food companies companies pursues intensive synergies objectives among which the majority will be pursued through cost cutting.

3G Capital Company has proven effectiveness in operational improvement and cost optimisation, as it happened at Heinz 3G will probably replace a part of the management team and employ zero-base budget in order to justify every budgeted expense. Those moves, as happened for Heinz, are intended to drive rising adjusted profits and therefore increasing shareholders return. The expected cost synergies should be around 1.5bn $ by the end of 2017 and will include intensive job cuttings and plant closures due to the overlying operations in North America. The company started in this direction by cutting 2,500 jobs also due to the changing taste of customer, more health conscious. Other cost savings could possibly come from the enlarged business and therefore the increased bargaining power towards suppliers as well as clients, such as retailers and therefore a wider presence on the shelfs.

The company will probably try to leverage some revenue s synergies, among which the common distribution channel and the geographic presence.

The Kraft Heinz Company will have to decide how to handle the geographic business distribution, on one hand Heinz’s sales are mostly generated outside the US with a remarkable portion coming from the Emerging Markets that contribute for the 25% of sales; on the other Kraft produce nearly almost all of its sales within the North American market. A spontaneous idea would be to boost Kraft’s sales in Europe, but this is in part limited by the agreement with Mondelez Int., a spin-off separated from Kraft in 2012.

Both Berkshire and 3G stated that they have long-term projects and objectives therefor they intent to stay shareholders of the Kraft Heinz Co. in the long period. This is understandable because they have paid a consistent amount of money in order to obtain the 51% of the new company and they will need time to justify their investment.


Bernardo Hees, CEO of the newly formed Kraft Heinz, said, “The job cuts are not surprising, given the reputation of the company’s management on Wall Street.” Hees also stated that he has overseen cost cutting at Heinz, representing 20% of the workforce, since it was taken over in 2013 in a prior partnership between 3G and Berkshire. The 3G Capital Company is well known for its tight cost controls, meaning the cuts announced on August 12 mostly affected people on the Kraft side of the business.

According to company spokesman Michael Mullen, the job cuts were part of the company’s process of integrating the two businesses and designing the new organization. The company expects that this new structure to eliminate duplication to enable faster decision-making, increased accountability, and accelerated growth.

Wednesday the 4th November the Company confirmed that they could cut 2,600 jobs and seven factories over the following 12/24 months.



To contact the authors:

Amedeo Ferrari      

Luca Cartechini      

DELL & EMC -The Path to be Giants- M&A Reports

DELL & EMC -The Path to be Giants- M&A Reports

Computer technology giant Dell Inc. is an American privately owned multinational computer technology company based in Texas, United States. About 70 percent of Dell’s business is still tied to it’s core business of personal computers. Bearing the name of its founder, Michael Dell, the company is one of the largest technological corporations in the world, employing more than 103,300 people worldwide. Dell was listed at number 51 in the Fortune 500 list, until 2014. After going private in 2013, the newly confidential nature of its financial information prevents the company from being ranked by Fortune. In 2014 it was the third largest PC vendor in the world. Dell is currently the #1 shipper of PC monitors in the world. In the first half of 2015 Dell showed of 12.6 percent year-over-year growth and revenue of $2.3 billion which placed the company in the second spot with 18 percent market share this quarter. Dell hasn’t released earnings numbers since it went private in 2013, but back then its EBITDA was $4.5 billion. And there is some indication that Dell’s cash flow has slipped since then.



EMC Corporation is an American multinational corporation headquartered in Massachusetts, United States. EMC is a global leader in enabling businesses and service providers to transform their operations and deliver information technology as a service (ITaaS). Fundamental to this transformation is cloud computing. EMC has over 70,000 employees and is the world’s largest provider of data storage systems by market share. On October 12, 2015, Dell Inc. announced that it would acquire EMC in a cash-and-stock deal valued at $67 billion—the largest-ever acquisition in the technology industry. In the first quarter of 2015, EMC finished in the top position within the worldwide enterprise storage system market and ex, holding a market share of 17.4% and a total revenue of $1,531Million. EMC reported an increase in the 2 quarter 2015 by 1.99% year on year, while most of its competitors have experienced contraction in revenues by -4.36%.




The sector seems to be highly competitive as we can see many players on the market, with a strong presence worldwide. First of all, Dell Inc. mainly competes with Hewlett-Packard Company and Lenovo, but also with IBM Corporation, particurarly in the business hardware and software arenas. Apple is one other strong competitor for what concerns PCs. It is absolutely important the loan of $ 2 bn from Microsoft Corporation who let Dell improve his business in data analytics and cloud services.  Dell’s PCs compete as well with products from HP, Lenovo, Apple, Acer and Asus. However, unlike any of those rivals, Dell no longer offers smartphones. Although Dell continues to sell Windows-based tablets, it no longer competes in the Android tablet arena. At the same time, EMC Corporation has a strong presence in the Electronic Components Industry and his main competitors are Avnet Inc, NetApp, SanDisk Corporation, VOXX International Corporation and West Digital Corporation.

Analyzing the results of Dell and EMC compared with the industry, we can state what follows:

Dell Dell’s Competitors EMC Corp. EMC Corp.’s Competitors
Revenue Growth Y/Y 0.21% 0.89% 1.99% -4.36%
Revenue Growth Q/Q 3.13% -1.79% 6.84% 3.85%
Net Income Growth -72.13% 70.43% -16.56% -43.35%
Profitability – Net Margin 1.41% 15.38% 8.65% 9.48%

Table – Data analysis based on 2013 for Dell, on 2015 for EMC Corp.


Most of companies in this sector compete based on their market presence, wide range of products, service or price. Some of these companies also compete by offering information storage, information governance, security or virtualization-related products or services, together with other IT products or services, at minimal or no additional cost in order to preserve or gain in terms of market share.

The main advantages to have to over come next upcoming new challenges are quality, performance, functionality, scalability, availability, interoperability, connectivity, time-to-market enhancements and total value of ownership. It i also required a well-developed distribution channel in order to serve clients worldwide in an efficient way.

Last but no least, offering a full range of expertise before, during and after purchase is one service that, nowadays, this industry can’t miss.

Only the most client-oriented companies will grow and acquire other companies in order to ensure long-term growth and a strong presence.


  • 29. Oct 2015 Dell privatization Deal with Silver Lake Partners completed
  • Oct 2014 Hewlett-Packard announces its split
  • April 2015 Dells rolls out aggressive marketing campaign to redefine company
  • May 2015 EMC acquires Virtusstream (cloud computing software company)
  • July 2015 Silver Lake manager expresses admiration for EMC’s “federation model”. A report suggest that Dell wants to spin off its CyberWork security business in an IPO
  • Aug 2015 EMC endures continued pressure from investor Elliott Management
  • 08 Oct 2015 innital report suggests that EMC and Dell are making a deal. NYSE 27.18
  • 12 Oct 2015 Del-EMC deal is officially confirmed. NYSE: 28.35


 Looking at deal financials, we can immediately understand we are studying an huge deal, one of the biggest in the history: following data are in EUR million.

Implied Equity Value 55,987.19
Net Debt -283.53 (incl. ST investments: USD 1.939 bn)
Enterprise Value 55,703.66
Deal Value 55,703.66

We can now go over, analysing the share price, underlying that the Offer Price per Share was EUR 28.86, including the Premium paid to acquire each share.

freccia (2).jpg

Moreover, market multiples implied are positive, as follows.

deal finan.png



What brought Michael Dell and the company’s management to acquiring EMC in a $67bn deal?

The combination of Dell and EMC will create the largest “privately-controlled, integrated technology company.”

Expensive or not, Dell, led by CEO Michael Dell, would be able to expand its business and gain entry into a key part of the data storage market. It would also get control of the software company VMware.

EMC’s investment in VMware (VMW) has been a success driving the Group’s growth. Out of $24.4bn in revenues, EMC last year generated $5.5bn in free cash flow, resulting in a 22.7% cash flow yield. Stable and solid free cash flow will help repay the new $50bn debt issued to finance the transaction.

Furthermore, relevant synergies are expected from the transaction, with revenue synergies expected to be $2bn, that is three times the cost synergies. Indeed, Dell is planning to sell EMC’s solutions to some of its customers, pointing to over $1bn in potential additional annual revenue. As a result, Dell will complete its product offering, thus recovering a competitive advantage relative to competitors like Hewlett-Packard and IBM.

Moreover, the transaction is in line with Dell’s strategy to widen its portfolio from a prior focus on personal computers to now also include data storage capabilities including servers, cloud computing and virtualization.

However, does this deal make any strategic sense? It does on paper. Dell and EMC overlap very little. Dell posts about $56 billion in annual revenue according to an estimate, most of which comes from PC sales and a little of which comes from enterprise storage. EMC is the world leader in storage gear, and for the most part its products do not overlap with Dell.

The two businesses are largely complementary: combining them could yield a company with about $80 billion in annual revenue and free cash flow of about $7.7 billion.

Both PCs and enterprise storage are declining or slow-growing markets. The argument for combining the two is to create a unified vendor for PCs, servers, software and storage.

[1] Source: Mergermarket.


Antonio Conte, Head of M&A

Thea Wrobbel, M&A Associate TMT

Riccardo Pizzino, Head of Treasury & Legal



TMT Consolidation – M&A Specialist

TMT Consolidation – M&A Specialist

On the 26th of May, news reported that Time Warner Cable will be bought by Charter Communications for $55bn or $195 a share.  After the drop out of Comcast from the acquisition, Time Warner Cable have been approached  by Charter Communications, which is the third largest cable television provider. The deal shows how consolidation is becoming increasingly important in the Media Industry. The new giant will have to pass by the difficult waters of regulators, which have previously led the Comcast-TWC deal to a stalemate, and further to the drop out of Comcast. TWC’s share soared after the news considering the premium Charter is willing to pay to seal the deal. In Merger Arbitrage, normally the target company’s shares soar following the news, and adjust to the price proposed by the acquiror, while the acquiror’s shares tend to decline.

Nowadays, in TMT, the bigger the better.

Time Warner Cable

Charter Communications


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