3).What effect did the acquisition have on Ciba's balance sheet and performance?
Ciba acquired Allied Colloids in 1997, the financial statement for this year showed the company as having sales of 7.82 billion and a net income of 571 million. The following year after the acquisition, sales rose by 85 million. With this rise in sales of around 11%, net income for the company dropped to 369 million. This drop was partially caused by difficult market conditions, however during this year Ciba initiated a restructuring program that would save the company 150 million in 1999.
The table below shows Ciba’s sales and net income (in millions) for the years following the acquisition.
Taken from BASF.com Ciba financial statements 1997-2003
Although an increase in total sales from 1997 to 1998, Ciba experienced a net loss following the merger. This effect was due to difficult market conditions, and it was in the second half of 1998 that the company saw the full financing costs related to the acquisition of Allied Colloids. Sales from 1997 steadily increased each year until 1999. During the end of 1999, Ciba signed an agreement with Morgan Greenfield Private Equity who intended to buy the Performance Polymers business. Due to this business transaction the company’s financial statement shows a decline in sales from 1999 to 2000 of almost one billion. This can be deceiving since Ciba’s net income rose slightly over 28% from 325 million to 452 million.
When looking at Ciba’s financial statements, we can see that the company took a pretty big hit in 1998. Since then, the company has made a strong and steady climb in the right direction. In the case of Owners Equity this is no different. Looking at the chart below that illustrates O/E along with sales and net income, we can see that for the most part, the company has looked very strong since 1998 in sales, net income, and equity.
Taken from BASF.com Ciba financial statements 1997-2003
Overall the acquisition of Allied Colloids by Ciba Specialty Chemicals had a positive effect on the company. For the years following the merger sales have increased and thanks to a company restructuring program expenses were cut by 150 million in 1999. The result has been an increase in net income as well as owners’ equity.
4).Who won? Who lost? Be specific and provide detailed analysis.
Stating that a specific party won would indicate that the opposite party lost. When looking at this case it is difficult to say which (if any) company could be considered a loser. Due to the strong financials that were discussed above, I would have to say that Ciba definitely benefited from the transaction. Not only were they financially stronger after the merger, they were able to diversify the company which allowed them to enter markets that they were previously not able to enter. Allied Colloids on the other hand was rescued by their “White Knight” which kept them from being acquired by the U.S. Company Hercules. It was Hercules who initially offered a price of 155/share for allied colloids. If Allied Colloids would have accepted this offer it would have been a definite loss because outside analysts said the company was worth around 180/share. Thanks to Ciba, Allied would eventually accept their offer of 205/share, which was significantly above their perceived value. In the end Allied Colloids would be purchased for Ciba’s offer of 2.3 billion. In addition to the financial benefits of the merger many jobs were to be saved with the purchase by Ciba. David Farrar, the chief executive of Allied Colloids, said: 'I believe we have saved the jobs in Bradford and the jobs of the 3,400 people who work for us around the world. Ciba have said they want to grow our business and a reduction in the workforce is not a factor.' If Hercules was to purchase Allied Colloids, they feared large job losses were inevitable. If I were to determine a clear loser out of all of this it would have to be Hercules. Not only did they lose out on the technological benefits that were paramount within Allied Colloids, but Hercules calculated if they were to acquire Allied Colloids they would save 200 million a year in costs in addition to other benefits.
5.Post-script: Search online and provide a brief post script of the case since the acquisition. Your answers to questions 1-4 must be independent of your answer to question 5. Your answer to this question may contradict your answers to 1-4 above.
In recent years Ciba, the acquirer or Allied Colloids, has been acquired itself. The purchasing company is the world’s biggest chemical group known as BASF who finalized the deal in 2009. Ciba’s downfall had been its lack of backward integration which led to margin erosion. Ciba and BASF’s board of directors reached an agreement in which all parties agreed on the merger. The transaction was finalized early April 2009 at a price of 6.1 billion Swiss Franc’s or about $5.5 billion. This result was surprising considering Ciba’s strength and growth in the late 1990’s and early 2000’s.