Case Study Ebro Puleva

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Ebro Puleva Group

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  • On July 23 2004, Ebro Puleva bought rice company Riviana for USD380 millions. The share price 3 day prior and after the announcement the share price changed in average 0.6% that is described in the following table. However it is necessary to note that after the announcement the price increased for 1.2%. Seven days after the acquisition announcement varied a bit but at the end of the 7th day the trend overcame the of IBEX 35 index. However it is significant to mention that acquisitions should create long term value for shareholders thus we checked 6 month variance of Ebro Puleva’s stock price compared to IBEX 35 index change that isn’t going up along with the index exceeding at the last month due to the successful integration of cost synergies.
  • On April 24 2005, Ebro acquired Panzani, pasta manufacturing company, for EUR636 millions. In average, technically, the share price hasn’t changed (-0.7%). In addition, there is a decline of share price itself and compared to the market index within the six months for 5%. Although, the prices went up until July 2005 for nearly 15%, the dramatic slump occurred on the 22nd May 2005, due to the claim of Australian Sugar Society to WTO against EU countries export levels. In accordance with its WTO obligations, the EU must implement the WTO dispute rulings by no later than 22 May 2006 decreasing export amount by 1022 tonnes of sugar by the end of 2005.  As a consequence of the WTO dispute outcomes, the EU has no alternative but to reduce its sugar production and to do so swiftly. So due to this, the share price decreased not because the acquisition was a failure. The EU is the second biggest sugar exporter and Australia second last with a great potential. A seven day and 6 month share price is shown in the following graphs:
  • On June 7 2007, Ebro Puleva buys New World Pasta, US Company, for EUR362.5 millions. Surprisingly the purchasing announcement of American Pasta Company had in average 3.2% increase within 6 days of acquisition announcement which can be observed in the following table:Although, within 7 days of acquisition announcement the share price increased by 3%, in the long run the price dumped for 15% due to the initial invisible effect of the Credit Crunch which, necessary to note, was commenced in Europe by run on Northern Rock. Both of the trends are shown in the following graphs:
  • On July 28 2006, Ebro Puleva bought Minute Rice Company from Altria/Kraft for EUR280 millions. The share price at the end of the 7th day after the acquisition announcement didn’t change much however, the the share price trend was always higher than that of IBEX 35. Importantly, in the long run (6 months after the announcement) the price increased for 13%. Assuming that the business was growing on a normal scale the acquisition approved successful by adding value to shareholders. However, due to speculation in the market the share price slumped at the beginning of 2008.
  • On December 15 2008, Ebro Puleva sold its sugar division to Associated British Foods for EUR385 millions. The 7 day trend of share price hasn’t changed with minor technical variances.In the long run (6 months) the market share price increased for nearly 7% due to product line concentration, positive sales perception of investors in the stock market and initial strengthening of brand value.
  • 1. Here we are projecting the Consolidated Enterprise Value if we are going to keep, Ebro Puleva’s Dairy division. So in order to arrive to EV our group has made the following assumptions:Average Sales growth rate was taken from the Reuter’s website of Ebro Puleva’s page Computed future 5-year-EBITDA-margin based on the average 2007-2009 EBITDA marginTax rate was chosen on average 25% depending on the historical data and industry average tax rate.Forecasted Capex was calculated on 2007-2009 averageThe Projected NWC was computed as an average 2007-2008 Sales Multiple for the future 5 yearsLong Term dividend growth rate and outstanding shares were taken from the Ebro Puleva’s page on Reuters siteWACC was taken from the Investor Report.Lastly, we derived the Present Value of Ebro Puleva’s Share Price based on the FCF model which is EUR14.47 higher than the current market price (EUR)14.10 on Borla de Madrid
  • 2. Here is the Enterprise Value only of Dairy Unit of Ebro Puleva to show the shareholders how much it values and to subtract this EV (D) from the EV consolidated in order to derive the EV (P+R) with some growth assumptions of Capex and growth rate and We made the following assumptions:Calculated sales growth rate based on the historical 2003-2005 why? Because the company business is returning to the normal level of efficiency we decided to take pre-crisis sales growth rate in order to be more accurate in our projectionsTo calculate future Average EBITDA margin we used 2007-2009 EBITDA margin on averageTax rate still remains the same for the industryAverage Capex amount was found as an average of 2005-2009 CapexesFuture NWC multiple was calculated based on an average NWC/Sales of 2006-2008As a Dairy industry has been declining all over the world due to its complicated maintenance and short life time and loosing its attractiveness owning to Real Giants (Nestle and Danone) the long term dividend growth rate is 0.50%WACC of Dairy Division was found in Investors’ ReportBased on these assumptions we derived Enterprise Value of Dairy Business – EUR519,264 (Also to show that the sale price of EUR630,000 to Lactalis was on a premium of 21%
  • 3. And now, we have calculated the Enterprise Value and PV Share Price of Ebro Puleva assuming the sale of Dairy Unit and not only investing the incoming cash to enlarge the core divisions but to focus on further comprehensive development of already globally successful Rice-Pasta businesses.We made couple of following assumptions:We have chosen the Industry Turnover future growth rate from Reuter’s site - 5.81% knowing that proceeds from Dairy Unit will boost our sales steadilyAverage EBITDA margin was kept at the Consolidated LevelAverage Tax Rate is 25% industryAverage Capex was computed as a difference of Consolidated and Dairy Unit Capexes multiplied by 1.1 multiple due to the additional investments in equipments, machinery and R&D financed by the Sale of Dairy Unit, certainly.NWC was just taken as a difference between Consolidated NWC and Diary Unit’s NWC. (Same EBITDA) Long term dividend growth rate must be higher than the R+P+D (Consolidated one) because Ebro Puleva will focus on widening of Core Businesses by bringing higher ROE (g=ROE*retention rate)The WACC was unchanged and taken from consolidated FCF model due compensation of decrease of D/EV ration by the decrease of Debt rate (Because Banks will be informed that the default risk of Ebro Puleva decreases)When calculating Net Debt, we simply add the proceeds of EUR630 millions from Sale of Dairy Division to it (Because simply we will have increase in cash by selling the Dairy Unit)So, By Comparing our PV of Share Price with and without (by sale) Dairy business including some assumptions like proceeds invested to Capex, higher Sales growth rate and Long Term Dividend growth rate, we can easily notice the PV of Share Price if we sell Dairy Division is EUR21,52 against EUR14.47 , if we keep it within our business. Ultimutely by selling Dairy Unit, Ebro Puleva’s Management is creating additional 50% value to its Shareholders in the long run
  • On March 8 2010, Ebro Puleva lastly decided to sell its dairy business to Lactalis for EUR630 millions. Three day prior and after the sales announcement affected average decrease of share price by 1.6%. Furthermore, 7 day analysis of market price change went down by 4% percent because of day-trading speculation and trader’s short selling strategy. However, in the longer run (2 months), although, the IBEX 35 index decreased by 15%, the share price remained almost the same showing sustainability for future investors.To sum up, we would like to state that all above acquisitions and sales created a value for the Ebro Puleva ‘s shareholders except the New World Pasta one due to initial effect of Financial crisis and investors reluctance to pour funds in the market.
  • The divestment will allow the group to focus on further acquisitions, in its core businesses of branded rice and pasta in europe and North america. One plausible prediction is that the group will make a bid for Uncle Ben’sIn particular, in the rice industry there is a huge potential for technological innovation on many fronts. Such as genetic techologies, manufacturing proceses and product preparation. In addition, new consumption habits (health, readiness, immigration) demand more rice as a staple food.In addition, we suggest that an eventual further acquisition strategy should be performed in the rice busines because its profitability is even stronger than pasta: the ebitda margin is increasing from 9% to 14% in the 2005-2008 years, while that of pasta has decreased from 15% to 9% in the same period. So the group has a greater critical mass in rice, and it should focus investment behind what’s more profitable!The aim of the dairy division sale was not to generate a cash injection or help with debt reduction but instead it was part of the company strategy to focus the food business on ready meals.
  • -low threat by private labels because the frozen food industry require high capital investments, expert knowledge and there is a strong brand loyalty in this segment (it is perceived that quality is granted by branded manufacturers)-Retailers can switchbetween different manufacturers' products quite easily. But, brand loyalty ofconsumers exerts a pull-through on retailers, which makes it difficult for them toabandon the more expensive branded products for private-label alternatives.-The main competitors in the frozen food market (bertolli and buitoni) are not also players in the dry pasta industry. Ebro Puleva would be the only one playing both in dry and frozen/fresh category
  • Case Study Ebro Puleva

    1. 1. CaseStudy<br />Rome, June 7 2010<br />
    2. 2. COMPANY SNAPSHOT<br />LARGEST FOOD COMPANY IN SPAIN<br />>TURNOVER €2.3 MLN<br />>PROFITS €194M<br />>MARKET CAPITALIZATION €2.17BLN<br />Mainbusinesses:<br />In numbers:<br />RICE<br />PASTA<br />DAIRY*<br />
    3. 3. INTERNATIONAL PRESENCE<br /> MORE THAN 60 BRANDS<br />26 COUNTRIES<br />ASIA:<br />India<br />Thailand<br />EUROPE:<br />Germany<br />Belgium<br />Czech Rep.<br />Denemark<br />Spain<br />Finalnd<br />France<br />Greece<br />Hungary<br />Italy<br />Poland<br />Portugal<br />UK<br />Romania<br />Ukraine<br />AFRICA:<br />Algeria<br />Egypt<br />Libya<br />Morocco<br />Israel<br />AMERICA:<br />Canada<br />USA<br />Mexico<br />Puerto Rico<br />Uruguay<br />
    4. 4. PRODUCT PORTFOLIO<br />MILK<br />PASTA<br />RICE<br />
    5. 5. GLOBAL FOOD INDUSTRY: OVERVIEW<br />GROWTH TREND<br />SLOW BUT POSITIVE<br />
    6. 6. EXTERNAL ENVIRONMENT ANALYSIS<br />
    7. 7. GLOBAL FOOD INDUSTRY: 5 FORCES ANALYSIS<br />BUYERS POWER<br />SUPPLIERS POWER<br />NECESSITY OF FOOD PRODUCTS FOR BUYERS’ BUSINESS<br />NEED FOR RETAILERS TO TAKE INTO ACCOUNT CONSUMERS’ BRAND <br /> LOYALTY<br />HIGHER CONCENTRATION OF BUYERS RELATIVE TO SELLERS <br />THE AVAILABILITY OF CHEAPER INTERNATIONAL SOURCES<br />THE ABILITY TO INTEGRATE BACKWARDS DRIVE UP BUYERS’ POWER<br /> WEAK<br />MODERATE<br />MODERATE<br />LARGE AMOUNT OF CAPITAL INVESTMENT IN PRODUCTION <br />HIGH FIXED COSTS <br />LARGE SCALE PRODUCTION REQUIRED, <br />PRESENCE OF STRONG BRANDS <br />DIFFICULT ACCESS TO DISTRIBUTION CHANNELS<br />LIMITED ENTRY OPPORTUNITIES BECAUSE ALL SECTORS ARE ALREADY OCCUPIED<br />NEW ENTRANTS<br />STRONGER FINANCIAL SITUATION OF MARKET PLAYERS <br />THE POSSIBILITY TO PURCHASE SUPPLIES IN THE OPEN MARKET<br />COMMITMENT TO SUPPLIERS THROUGH FIXED-TERM CONTRACTS<br />HIGH SWITCHING COSTS <br />STRONG RELIANCE UPON SUPPLIERS<br />
    8. 8. GLOBAL FOOD INDUSTRY: 5 FORCES ANALYSIS<br />SUBSTITUTES<br />NO SUBSTITUTES DUE TO THE NATURE OF PRODUCTS<br /> HIGH<br />RIVARLY AMONG EXISTING FIRMS<br /><ul><li>NO SERIOUS THREAT FROM </li></ul>SUBSTITUTES -> NATURE OF THE PRODUCT: YOU CAN’T SUBSTITUTE IT<br />SUPPLIERS -> OPEN MARKET ALTERNATIVE<br />BUYERS -> RELIANCE ON BRANDED PRODUCTS TO SATISFY CUSTOMERS<br /><ul><li>DANGEROUS RIVARLY AMONG EXISTING PLAYERS</li></ul>HIGH FRAGMENTED INDUSTRY <br />(DESPITE LEADING INTERNATIONAL INCUMBENTS) <br />HIGHLY SIMILAR PRODUCTS<br />LOW SWITCHING COSTS FOR RETAILERS<br />HIGH EXIT BARRIERS<br />STRONG COMPETITION BASED ON PRICE<br />TO SUM UP<br />FOR AN INCUMBENT: <br />NEED FOR STRONG DIFFERENTIATION TO SURVIVE COMPETITION<br />CONCLUSION<br />
    9. 9. GLOBAL PASTA INDUSTRY: OVERVIEW<br />TOP 3 GLOBAL PLAYERS<br />WORLD PASTA PRODUCTION<br /> EXPECTED GROWTH IN PASTA DEMAND<br />INCREASED NEED FOR EASY-TO-PREPARE, VERSATILE FOOD<br />even in the middle eastern and african regions<br />COUNTER-CYCLICALILTY OF DEMAND FOR PASTA<br />as pasta is a relatively less expensive food staple, demand for pasta increases when the economy slows. <br />
    10. 10. GLOBAL PASTA INDUSTRY: 5 FORCES ANALYSIS<br />MODERATE<br /> WEAK<br />MODERATE<br />THE PASTA MARKET IS ATTRACTIVE IF<br /><ul><li>PRODUCTION IS ON A LARGE SCALE (CONSIDERABLE COST EFFICIENCY IN PRODUCTION)
    11. 11. CAPABILITY FOR INNOVATION IS STRONG
    12. 12. CAPABILITIES IN MANAGING INVENTORIES AND WHEAT PRICES’ FLUCTUATIONS ARE DISTINCTIVE</li></ul>WEAK<br />MODERATE<br />
    13. 13. GLOBAL RICE INDUSTRY: OVERVIEW<br />RICE<br />COMPETITIVE LANDSCAPE<br />IMPORTANCE OF PRODUCT DIFFERENTIATION<br />HIGHEST POTENTIAL FOR GROWTH IN <br />THE HIGH VALUE ADDED PRODUCTS<br />DEMAND FOR RICE<br /><ul><li>ONLY 2 GLOBALLY RECOGNIZED BRANDS</li></ul>Minute Rice<br />Riviana<br /><ul><li>STRONG THREAT OF PRIVATE OWNED</li></ul> LABELS IN BASIC PRODUCTS<br /><ul><li>LOW PRICE SENSITIVITY OF WORLD RICE </li></ul> CONSUMPTION<br /><ul><li>LOW SWITCHING COSTS FOR CUSTOMERS
    14. 14. INCREASING DEMAND IN US AND EUROPE</li></ul>SUPPLY OF RICE<br /><ul><li>STRONG PRICE VOLATILITY
    15. 15. POTENTIAL FOR INCREASING POWER OF SUPPLIERS
    16. 16. CONCERNS ABOUT CONTAMINATION OF GE RICE</li></ul>NEED FOR DIVERSIFICATION OF <br />RAW MATERIALS SUPPLIERS<br />: <br />
    17. 17. INTERNAL ENVIRONMENT ANALYSIS<br />
    18. 18. APPRAISING RESOURCES<br />TANGIBLE RESOURCES<br />HUMAN RESOURCES<br />Management and development of talent.<br />Creation of stable, quality employment.<br />Implementation of pay policies based on criteria of individual recognition and furtherance.<br />Participationin management.<br />Internalcommunication.<br />Human Resources Policy is based on:<br />
    19. 19. APPRAISING RESOURCES<br />INTANGIBLE RESOURCES<br />VALUES <br />leadership, transparency, servicevocation, honesty, integrity, respect and commitment to our shareholders and the environment<br />CULTURE<br />VISION <br />to be leader in the meal solutions sector, with the aim of providing consumers with the best possible food solutions in terms of functionality, health, convenience and pleasure,achieved through constant innovation geared towards meeting the demands of the market.<br />TECHNOLOGY<br />High R&D investments<br />in the nutrition research, including patents on infant formulas;<br />in the process for extraction and purification of Omega-3 acids<br /><ul><li>in the development of functional and high value-added products
    20. 20. in innovation in packaging (easy-to-use and extend life of products).</li></ul>REPUTATION<br />GLOCAL STRATEGY (respect of cultural differences among countries)<br />Strong reputation and brandperception<br />Strong local brands (more than 60 in dairy, rice and pasta)<br />
    21. 21. APPRAISING CAPABILITIES: functionalapproach<br />CORPORATE MANAGEMENT<br />Multidivisional coordination <br />Intenrnational Management <br />Good financial management  high cashflow generation <br />Strategic innovation <br />Management experience and expertise in M&A<br />MANAGEMENT INFORMATION<br /> Integrated MIS systems supporting decision making<br />Researchcapability PulevaBiotech<br />Developementof innovative high value-addednewproducts<br />R&D<br />Efficient volume manufacturing SISLOG WMS solution in flexibility<br />OPERATION INVENTORY<br />Design capability<br />PRODUCT DESIGN<br />Brand management<br />Qualityreputation<br />Responsivenesstomarlettrends<br />MARKETING <br />Sale responsiveness<br />Customer service ensuringsatisfaction<br />Effectivesales promotion and execution<br />SALES, DISTRIBUTION & SERVICE<br />
    22. 22. Management experience and expertise in M&A<br />SOME CASES OF EBRO’S M&A: THE MARKET REACTIONS <br /><ul><li>Ebro Puleva’s buy of the rice company Riviana for $380 millions
    23. 23. Ebro Puleva’s acquisition of Panzani, pasta company, for €636 millions
    24. 24. Ebro Puleva’s buy of Minute Rice from Altria/Kraft for €280 millions
    25. 25. Ebro Puleva’s purchase of New World Pasta for €362,5 millions
    26. 26. Sale of Ebro Puleva sugar division to A.British Foods for €385mln
    27. 27. Ebro Puleva sells its diary business to Lactalis for €630 million</li></li></ul><li>Ebro Puleva’s buy of the rice company Rivianafor USD380 millions<br />Slight variance of 7-day-share-price<br />after the acquisition announcement<br />However, the company’s share price<br />trend remained above IBEX 35. <br />6-month-variance of share price isn’t going up along with the index, only exceeding at the last month due to the initial fruits of cost synergies integration.<br />
    28. 28. Ebro Puleva’s acquisition of Panzani, pasta company, for EUR636 millions<br />7-day-variance of the share price dropped according to speculative actions <br />Although the prices went up until July 2005 for nearly 15%, a gradual slump occurred on the 22nd May 2005, due to the claim of Australian Sugar Society to WTO against EU countries export levels.<br />Source: http://finance.yahoo.com/q?s=EVA.MC<br />
    29. 29. Ebro Puleva’s purchase of New World Pasta for EUR362,5 millions<br />Within 7 days of acquisition announcement, the share price increased by 3.5%, exceeding the IBEX 35 Index one.<br />The price dumped for 15% due to the initial invisible effect of the Credit Crunch which, necessary to note, was commenced in Europe by run on Northern Rock and spread all over the EU.<br />
    30. 30. Ebro Puleva’s buy of Minute Rice from Altria/Kraft for EUR280 millions<br />7 days after the acquisition announcement the share price trend was always higher than that of IBEX 35, even though remained stable. <br />The business was growing on a normal scale, the acquisition approved successful by adding value to shareholders. However, due to speculation in the market, the share price slumped at the beginning of 2008.<br />
    31. 31. Sale of Ebro Pulevasugar division to Associated British Foods for EUR385 mln.<br />The 7 day trend of share price hasn’t changed with minor technical variances and speculation matters.<br /> The market share price increased for nearly 7% due to positive sales perception of investors in the stock market and initial strengthening of brand value.<br />
    32. 32. EXTERNAL + INTERNAL ENVIRONMENT ANALYSIS<br />SWOT Analysis<br />
    33. 33. WEAKNESSES:<br /><ul><li>COMPLICATIONS IN NEW RECIPE DEVELOPEMENT
    34. 34. WASTE OF WATER AND ENERGY COSTS
    35. 35. LIMITED PRESENCE IN MICROWAVE AND QUICK COOKING PRODUCTS
    36. 36. RELATIVELY LOWER DIVERSIFICATIONS IN COMPARISON TO COMPETITORS
    37. 37. FALLING REVENUES FROM DAIRY BUSINESS</li></ul>STRENGTHS:<br /><ul><li>STRONG MANAGEMENT TEAM
    38. 38. STRONG BRAND
    39. 39. R&D INNOVATION AND REASEARCH
    40. 40. LEADERSHIP IN DIFFERENT SEGMENTS
    41. 41. STRONG CASHFLOW GENERATION
    42. 42. EFFICIENT STOCK MANAGEMENT
    43. 43. ACTIVE SHAREHOLDER REMUNERATION POLICY
    44. 44. EXCELLENT RELATIONSHIPS WITH RETAILERS
    45. 45. STRONG CAPABILITY TO DIFFERENTIATE</li></ul>SWOT ANALYSIS<br />THREATS<br /><ul><li>SENSITIVITY TO RAW MATERIALS COSTS
    46. 46. SENSITIVITY TO WEATHER CONDITION
    47. 47. GROWING SALES OF PRIVATE LABEL PRODUCTS </li></ul>LIKELYTO IMPACT THE COMPANY’S MARGINS<br /><ul><li>FUEL PRICE INCREASE
    48. 48. CONTAMINATION OF THE GLOBAL RICE SUPPLY.</li></ul>OPPORTUNITIES:<br /><ul><li>INCREASING DEMAND FOR FUNCTIONAL AND HEALTHY PRODUCTS AND FOR READY AND FROZEN MEALS WHERE EBRO HAS POTENTIAL TO EXPAND
    49. 49. INCREASING FOCUS ON ITS PASTA AND RICE BUSINESSES WILL POSITIVELY AFFECT REVENUE GROWTH
    50. 50. HORIZONTAL EXPANSION IN FROZEN FOOD WILL ENABLE EBRO TO RIDE ON THE GROWING US FROZEN FOOD MARKET</li></li></ul><li>INDUSTRY KSF & EP’s RESOURCES&CAPABILITIES:<br />PERFECT MATCH!<br />
    51. 51. BUSINESS STRATEGY<br />
    52. 52. BUSINESS STRATEGY: Industry KSF<br />BEYOND THE TRADITIONAL BUSINESS MODEL:<br />“PULEVA MODEL” as the basisof EP’s COMPETITIVE ADVANTAGE<br />PULEVA BIOTECH<br />
    53. 53. FUNDAMENTAL ROLE OF <br />PULEVA R&D DIVISION: BIOTECH<br />Biotech allows to create unique, highly sought after value added products. <br />User-friendly, differentiated products that improve consumers’ quality of life. <br />Puleva Biotech’s scientific researchers have been generating healthy bioactive strains with a high industrial component and significant commercial value<br />Puleva is a leading researcher in ‘Nutraceuticals’ or ‘functional foods’: natural, bioactive<br />chemical compounds that have health promoting, disease preventing or medicinalproperties.<br />
    54. 54. BUSINESS STRATEGY: COMPETITIVE ADVANTAGE<br />LEVERAGE OF COMPETITIVE ADVANTAGE IN RICE INDUSTRY<br />Innovations in the ricecategoryincluded :<br />pre-cooked, shelf-stableplainrice and ricemixeswhichcouldbequicklyreheated in microwave<br />single service portionsofprecookedproducts<br />LEVERAGE OF COMPETITIVE ADVANTAGE IN PASTA INDUSTRY<br />Innovation in the pasta industryincluded :<br /><ul><li>shelfstableoffrozenmicrowaveable pasta meals, microwaveableofprecooked pasta, fresh and frozen pasta meals complete meal in one box
    55. 55. Functionalformulations: multi grain pasta, fortified in fiber, protein and omega 3s + pasta madefromorganicflour
    56. 56. New steam system to produce betterqualityproduct</li></li></ul><li>CORPORATE STRATEGY<br />
    57. 57. CORPORATE STRATEGY: INTERNATIONALIZATION<br />ATTRACTIVENESS OF OVERSEAS MARKETS<br />POTENTIAL TO ESTABLISH COMPETITIVE ADVANTAGE inoverseasmarkets<br />WHY?<br />The industryanalysisshowedusthatboth the rice and pasta industry are globallyattractive<br />Ebro Pulevahas the abilityto match itsdomesticstrengths in resources and capabilitiesto the key successfulfactorsof the global industries.<br />GLOBAL STRATEGY<br />
    58. 58. GLOBAL STRATEGY: PROS & CONS<br /><ul><li>COST BENEFITS OF SCALE AND REPLICATION replicationofknowledge-basedassetcosts a fractionof the original
    59. 59. POSSIBILITY TO SERVE GLOBAL CUSTOMERS
    60. 60. EXPLOITING NATIONAL RESOURCES  rawmaterials and low costlabor
    61. 61. LEARNING BENEFITS  integrationofknowledgefromdifferentlocations and enviroments
    62. 62. MORE STRATEGIC FORCE TO COMPETE  cross-subsidization: multinationalsfight aggressive competitive battles in individualnationalmarketsusingtheirresourcesfromothernationalmarkets.</li></ul>GLOBAL STRATEGY<br />A PURELY GLOBAL STRATEGY IS NOT APPROPRIATE!!<br />INTERNAZIONALIZATION STRATEGY HAS TO BE VIEWED AS A TRADE OFF BETWEEN THE BENEFITS OF GLOBAL INTEGRATION AND THOSE OF THE NATIONAL ADAPTATION<br />BECAUSE OF THE DIFFERENT PREFERENCES OF CONSUMERS IN DIFFERENT MARKETS:<br />everynationrepresents a uniquecombinationofdistinctivecharacteristics: productsdesignedtomeet the needsof the “global customer” tendtobeunappealingtomostconsumers<br />
    63. 63. EBRO: FROM GLOBAL to GLOCAL <br />Stanrdardizeproductfeatures and company activitywhere scale economies are substantial<br />GLOBAL LOCALIZATION: GLOCAL STRATEGY<br />Differentiatewherenationalpreferences are strongest and whereachievingthemisnotovercostly.<br />
    64. 64. CORPORATE STRATEGY: OWNERSHIP CHOICE<br />ACQUISITIONS<br />Low levelofuncertainty<br /> Abilitytodigestacquisitions<br /> Feasibilityofacquiring<br /> Desireto transfer knowledge<br />CHOICE OF ACQUISITION OVER ALTERNATIVE OWNERSHIP FORMS (PARTNERSHIP,ALLIANCES,… ETC.)<br />
    65. 65. CORPORATE STRATEGY: ORGANIZATIONAL DESIGN<br />MATRIX ORGANIZATION<br />BoardofDirectorChairman<br />Geographic Area1<br />Geographic Area3<br />Geographic Area2<br />Geographic Area3<br />…<br />Dairy<br />…<br />Rice<br />…<br />Pasta<br />DISADVANTAGES<br />SOLUTIONS TO INCREASE COORDINATION<br />EXCESSIVE COMPLEXITY<br />SLOWER DECISION MAKING<br />DIFFUSED AUTHORITY<br />INFORMATIONAL LOGJAMS<br />PROLIFERATION OF COMMITTEES AND REPORTS<br />OVERLAPPING RESPONSABILITIES<br />* due totheir strong management team Herbamanaged the europeanricebrandswhilePanzanimanaged the european pasta business<br />
    66. 66. CORPORATE STRATEGY: NEXT STEPS<br />YES!<br />WHY?<br />NO!<br />WHY?<br />YES!<br />WHERE?<br />HOW?<br />
    67. 67. CORPORATE STRATEGY: NEXT STEPS - DRIVERS<br />YES!<br />THE CHANGE IN THE RETAIL FOOD MARKET<br />NO!<br />YES!<br />
    68. 68. Changes In RetailFoodMkt: the threatof private labels<br />WHAT ARE Private Labelproducts or services:<br /><ul><li> manufactured or provided by one company to be offered under another company's brand.
    69. 69. available in a wide range of industries from food to cosmetics to web hosting.
    70. 70. often positioned as lower cost alternatives to regional, national or international brands (although recently some private label brands have been positioned as "premium" brands to compete with existing "name" brands)</li></ul>usually SUPPLIED by:<br />Large national brand manufacturers that utilize their expertise and excess plant capacity to supply store brands (ErbaPuleva)<br /> Small, quality manufacturers who specialize in particular product lines and concentrate on producing store brands almost exclusively <br /> Major retailers and wholesalers that own their own manufacturing facilities and provide store brand products for themselves.<br />
    71. 71. Changes In RetailFoodMkt: the threatof private labels<br />The effectof the Global Financial Crisis:<br />Private label has received a BOOSTfrom the weakened economy as consumers look to make cutbacks: consumers’ price sensitivity has strongly increased; shoppers are seeking out cheaper deals for their food and drink supplies<br />Share of private labelproducts<br />in traditionalretailersshelfs<br />(94% in discounters)<br />Share of private labelproducts<br />purchasedoverallfoods and <br />beverageproducts<br />18%<br />34%<br />48 %<br />19 %<br />1999<br />2009<br />1999<br />2009<br />2010..<br />2010..<br />
    72. 72. Changes In RetailFoodMkt: the threatof private labels<br />NEGATIVE CORRELATION BETWEEN MARKET SHARE OF PRIVATE LABELS <br />AND PERSONAL DISPOSABLE INCOME:<br />1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008<br />
    73. 73. Changes In RetailFoodMkt: the threatof private labels<br />The consumers’ change in purchasingbehavior:<br />Share of private labelproducts<br />purchasedoverallfoods and <br />beverageproducts<br />Howoften do youpurchasestore-brandproducts?<br />34 %<br />18 %<br />2010..<br />1999<br />2009<br />
    74. 74. Changes In RetailFoodMkt: the threatof private labels<br />The newretailers’ strategy:<br />Share of private labelproducts in traditionalretailersshelfs (94% in discounters)<br />Retailers have recognized that they cannot simply rely on national branded products to draw consumers into their stores and sustain loyalty.<br />48%<br />19%<br />2010..<br />1999<br />2009<br />Manufacturers’ product brands<br />with their pervasive presence everywhere<br />consumers don’t need to have a strong relationship with a particular store setting to have access to these products.<br />can be a magnet to draw people into its store versus others and accrue direct meaning and loyalty to the overarching banner. <br />Proprietary brands (private labels) exclusively <br />available at a specific retailer <br />
    75. 75. Changes In RetailFoodMkt: the threatof private labels<br />The sustainablesuccess of Private Labels:<br />Today's retail marketers are managing their proprietary brands with the same combination of care and innovation as manufacturers of national brands!!<br />the poor relative of national brand consumer goods<br />good alternative in terms of both price and quality to brand products<br />TRADITIONAL DEFINITION: <br />NEW DEFINITION: <br />The current success of the private labelsisnottemporaryanymoreand not just relatedto the business cycle, as in the past, asHernandezargued in the case.<br />63%<br />33%<br />Brandnamemanufacturermustdevelop a clear and long termorientedstrategyto face the new challenge of Private Labels!<br />
    76. 76. Optimal strategy to face Private Label challenge<br />The three dimensions that define a branded manufacturer’s starting position:<br />Leading Brand<br />WEAK<br />3rd or 4th tier brand<br />Manufacturer brand share<br />Strength of RETAILER relationship<br />Private Label Supplier<br />STRONG<br />LOW<br />Role of private label in that category<br />High<br />Source: Competing in the New World of Brands: McKinsey&Company<br />
    77. 77. Optimalstrategies are drivenby the specificmanufacturerstartingpositions: examples<br />Source: Competing in the New World of Brands: McKinsey&Company<br />
    78. 78. Ebro Puleva’s strategy in Private Label Market <br />STRENGTHENING THE BRAND<br />Raise in Marketing expenses and investments into brand equity by different advertising tools and using its knowledge in customer behavior allows EP to position itself stiffly in all levels of consumption<br />FRAGMENTATION STRATEGY<br />is working, enabling EP to improve yield by breaking sales down into smaller formats and markets<br />EP POSSESSES SOME PRIVATE LABEL PRODUCTS <br />Riviana, EP subsidiary, manufactures private labels mostly in rice field.<br />INNOVATION & RESEARCH<br />PulevaBitech creating highly sought after value added products, and user-friendly, differentiated products that improve consumers’ quality of life during high price sensitivity consumer behavior times (Crisis)<br />
    79. 79. Horizontal scope contraction<br />CORPORATE STRATEGY: NEXT STEPS - DRIVERS<br />YES!<br />
    80. 80. EBRO DAIRY BUSINESS SEGMENT <br /><ul><li> market leader in Spain’s high-valuedairysector, conductingbusinesthroughtwocompanies: Puleva and Lactimilk
    81. 81. contribution: about 20% ofgroup total revenue
    82. 82. mostlyfocused on the high-end categoriesoffunctionalfoods and infantnutrition, whereitenjoyed strong market share and brandrecognition.</li></ul>first moveradvantage<br />PIONEER IN THE DEVELOPMENT OF FUNCTIONAL MILK IN EUROPE.<br />ButItwasmostly a domestic business, its EBITDA performance hadbeen in declinerecently.<br />HORIZONTAL <br />CONTRACTION<br />
    83. 83. DAIRY INDUSTRY ANALYSIS<br />Rivalry among existing firm:<br />VERY HIGH<br />Concentration:highly fragmented<br />Difference among competitors: all companies adopt similar strategies<br />Industry growth rate: moderate growth for functional dairy products<br /> increasing consumption of milk and other liquid dairy products in developing countries<br />Product differentiation: low:milk is a commodity<br /> only possible differentiation is in the functional sector.<br />Role of private labels:strong competition<br />MODERATE<br />Suppliers’ power: <br />rather high<br />perishable nature of milk + high transportcosts, manufacturers are forcedtorely just on localsuppliers<br />recent EU economicliberalizationof the dairysectorisforecastedto generate 12% increase in the volume of milk production and a 40% drop in milk prices<br />Relative concentrationofsuppliersoverbuyers: <br />Additionalsourcesofpower:<br />Roleofregulation:<br />
    84. 84. DAIRY INDUSTRY ANALYSIS<br />Powerofbuyers: <br />Switchingcosts: lowbecauseof the commodity nature of milk and otherdairyproducts.<br />Bargainingpower: due to the economicdowturnretailers are more focused on theirown low cost private labeldairyproductsratherthanhigherexpensivebrandedproducts .<br />HIGH<br />Threatofsubstitute: <br />Buyer propensitytosubstitutes: low propensitytoswitchtosoya milk, kefir, and rice milk becausetheir are notwidelyavailable and almostunknown.<br />WEAK<br />Threatof entry: <br />Economiesof scale: needto play on a global scale toreachefficiency in production, distribution, and marketing.<br />Capital requirements: need to focus in R&D sector to develop new functional products require huge capital investments.=> high fixed costs which need to be spread over a bigger production scale than the national one.<br />MODERATE<br />
    85. 85. IS THE DAIRY INDUSTRY ATTRACTIVE ?<br />
    86. 86. Changing market conditions<br />The milk market shrank in 2008: a timid growth of 1.3% in volume<br /> Aggressive promotion by Global Branded manufacturers<br /> Growth of Private Label brands and lower retail prices offered by distributors <br />Ebro Puleva‘s dairy business is almost domestic, not international <br />Particularly vulnerable to the sharp recession occurred in Spain in 2008<br />(private labels rivalry)<br />Notsufficient scale to deal withretailersarmedwith wide private-labelbusinesses<br />Global competitorsboostedtheirinvestments in nutrition, health and wellness<br />Its competitive advantagederivedfromfocusing on the production offunctionalmilksthatprovidedhealthbenefitsbeyondbasicnutrition (differentiationstrategy).<br />Butthiscompetitive advantagewaserodedby global competitors, as Nestlè and Danone, thatstartedadopting a strategy is based on marketing products with nutritional qualities and health benefits, investing massively in R&D and clinical studies<br />
    87. 87. Attemptto focus on businesseswithhigherpotentialgrowth<br />DAIRY DIVISION TO BE SOLD<br />
    88. 88. Financial Evaluation of the horizontal Contraction Strategy<br />The calculation of Value Creation to EB Shareholders by “keeping the Dairy Division” or “selling it and using proceeds from sale to invest in Pasta and Rice Businesses” <br />
    89. 89. 1. Enterprise and Share Value Including Dairy Division<br />
    90. 90. 2. Enterprise Value of Dairy Unit<br />
    91. 91. 3. Enterprise Value excluding Diary Unit<br />
    92. 92. Decision to keep or sell Dairy Unit<br />SHARE PRICE<br />€ 14.47<br />SHARE PRICE<br />€ 21.52<br /><ul><li>By selling, the Debt to Equity Ratio of EB decreases leading to lowering interest rates from Credit Organizations
    93. 93. By selling, Capital Expenditures in Pasta and Rice Division will raise leading to increase of the long term growth rate</li></li></ul><li>Sell puleva but keep the Dairy Innovative Expertise in Puleva Biotech <br />
    94. 94. FACTS & FIGURES<br />The Dairy Division of <br />Ebro Puleva group <br />was actually sold.<br />
    95. 95. Ebro Puleva sells its Dairy business to Lactalis for EUR630 million<br />7 day analysis of market price change went down by 4% percent because of day-trading speculation and trader’s short selling strategy<br />Although, the IBEX 35 index decreased by 15%, the share price remained almost the same showing sustainability for future investors.<br />
    96. 96. THE DISINVESTMENT OF DAIRY BUSINESS<br /><ul><li>Allowance to focus on further acquisitions in Rice and Pasta Industry </li></ul> Possible bid – Uncle Ben’s<br /><ul><li>A higherpotentialtoinvestfor technological innovation on genetictechologies, manufacturing processes and productdevelopment</li></li></ul><li>CORPORATE STRATEGY: DIVERSIFICATION<br />THE DIVESTMENT FROM THE DAIRY BUSINESS ALLOWS THE GROUP TO FOCUS ON:<br />Product Diversification and Firm Performance<br />PASTA<br />RICE<br />Source: Adapted from R. E. Hoskisson, M. A. Hitt, & R. D. Ireland, 2004, Competing for Advantage (p. 228), Cincinnati: Thomson South-Western.<br />PRODUCT RELATED DIVERSIFICATION<br />RUMELT companiesthatdiversifiedintobusinessescloselyrelatedtotheircoreactivitiesweresignificantlymore profitablethanthosepersuedunrelateddiversification<br />
    97. 97. SYNERGIES BETWEEN RICE AND PASTA<br />EBRO PULEVA UNDERSTOOD THAT RICE&PASTA HAD THE POTENTIAL TO WORK WELL TOGHETER CREATING VALUE BY SHARING AND TRANSFERRING RESOURCES AND CAPABILITIES<br />SYNERGIES<br />OPERATIONAL RELATEDNESS<br />STRATEGIC RELATEDNESS<br />Roucesallocation<br /><ul><li>similarsizeof capital investment project, sourcesofrisk</li></ul>Strategyformulation<br /><ul><li>similar key successfulfactors, stage ofindustry life cycle</li></ul>Distribution<br /><ul><li>Common distributionchannels
    98. 98. Common retailgrocerybuyers</li></ul>Marketing and advertising<br />Manifacturing<br />TO INCREASE SYNERGIES EBRO PULEVA DECIDED TO:<br />In LOGISTIC  common depositsstrategicallylocated<br />In SALES  salesteamsellingbothrice&pasta<br />In SOURCING  the sameskillsrequiredtopurchase rise and durumwheat<br />
    99. 99. International scope expansion?<br />NO!<br />
    100. 100. SOUTH AMERICA<br />ASIA<br /><ul><li>ALMOST TOTALLY UNEXPLORED REGION
    101. 101. NO BRAND RECOGNITION
    102. 102. UNCERTAINTY ABOUT CONSUMERS’ DEMAND FOR HIGH VALUE ADDED PRODUCTS
    103. 103. LOW LEVEL OF RICE CONSUMPTION</li></ul>=> NOT ATTRACTIVE<br /><ul><li>NO PROFITABLE INVESTMENT OPPORTUNITIES FOR NEW ENTRANTS
    104. 104. DESPITE HIGH LEVEL OF CONSUMPTION => NOT ATTRACTIVE</li></ul>AFRICA<br /><ul><li>LOW INCOME LEVELS IN MAJORITY OF COUNTRIES
    105. 105. IT IS REASONABLE TO EXPECT LOW /NEGLIGIBLE LEVEL OF DEMAND FOR HIGH-VALUE ADDED PRODUCTS
    106. 106. LOW LEVEL OF CONSUMPTION</li></ul>=> NOT ATTRACTIVE<br />
    107. 107. Horizontal scope expansion?<br />YES!<br />
    108. 108. EXPANSION OPPORTUNITIES FOR EBRO PULEVA<br />EBRO PULEVA TODAY (2009):present in 26 COUNTRIES<br />EBRO PULEVA NEXT STEPS:<br />HOW should the company compete?<br />FOCUS ON INNOVATIVE and HIGH VALUE ADDED PRODUCTS<br />WHERE should the company GROW<br />
    109. 109. CORPORATE STRATEGY: NEXT STEPS ourproposal<br />WHAT<br />FROZEN READY MEALS <br />WHERE<br />U.S. MARKET<br />HOW<br />BY M&A<br />
    110. 110. WHAT: FrozenFoodIndustry<br />Leadingplayersmustmaintain product quality if they are to maintain their brand equity in the long term so they need to source raw materials of appropriate quality. <br />But substitutes are available.<br />MODERATE<br />ATTRACTIVE<br />The threat of new entrants is moderate due to high capital investments and the presence of well established brands.<br />Substitutes to frozen food include fresh products<br />as well as canned and dried goods, which pose a moderate threat.<br />Rivalry in the market is intensified by high fixed costs and exit barriers. However, steady growth in the market in recent years alleviates rivalry to an extent.<br />MODERATE<br />LOW<br />LOW<br />Large retailers, such as supermarkets, can make large purchases and negotiate on price with manufacturers, boosting buyer power.<br />Retailers are unlikely to be swayed by brand loyalty, but they will have to stock brandspreferredbyconsumers. brand loyalty of consumers exerts a pull-through on retailers, which makes it difficult for them to abandon the more expensive branded products for private-label alternatives<br />MODERATE<br />
    111. 111. Global FrozenFoodIndustry<br />
    112. 112. Global FrozenFoodIndustry<br />
    113. 113. Frozen ready meals market<br />Frozen ready meals and pizza sales <br />generated 43.2% of the global frozen food market's revenue.<br />Europe accounts for 36.5% of the global frozen food market's value. <br />In comparison, USA for 22.7%<br />The global frozen food market has the presence of leading players like Nestle, H.J. Heinz, and Findus.<br />
    114. 114. Frozen ready meals market<br />
    115. 115. WHERE: U.S. FrozenmealsIndustry<br />Frozen ready meals market in the USA<br />
    116. 116. HOW: grow by acquisitions<br />Grow by acquiring small and medium competitors<br />and <br />Gain market share byexploiting:<br /><ul><li> The strength of the brand value in dry pasta
    117. 117. Ebro’s customer behavior knowledge
    118. 118. Knowledge and expertise thanks to the presence in the sector
    119. 119. PulevaBiotechassetstomarket healthy value addedproducts</li></ul>Why?<br /><ul><li> Financial resources to invest (Ebro: low levelofdebt)
    120. 120. Expertise in Acquisitions
    121. 121. Low level of concentration in the industry room for acquisition</li></li></ul><li>Stefania CARDONE<br />Sara CARULLO<br />Ulugbek KURBANOV <br />Valeria MAZZOCCO <br />Mariangela VILLARI <br />CaseStudy<br />

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