you can learn about merger and acquisition between Philip Morris and Sampoerna. thanks for my MM UI friends 2012

1. Corporate Finance
MERGER and ACQUISITION
Case Study :
PHILIP MORRIS – SAMPOERNA
Jakarta, June 2013
Presented by Group 6

2. COMPANY PROFILE - SAMPOERNA
PT Hanjaya Mandala Sampoerna (IDX: HMSP)
• PT HM Sampoerna Tbk. formally established in 1963
• Sampoerna is the second-largest cigarette maker in Indonesia with 19.91%
of market share (year 2004)
• Popular product : A Mild, Dji Sam Soe
• During Q1 2004, Sampoerna booked Rp 568 billion of net income
• Implementation of sophisticated technology (fo daily operational activities,
testing product quality, blending machine)
• Brand Positioning: low nicotin and TAR
• Creativity on media advertising

3. COMPANY PROFILE – SAMPOERNA
Sampoerna Performance 2001-2004
RASIO LIKUIDITAS
Rasio Lancar 2.28
Rasio Hutang Terhadap Ekuitas 0.71
Rasio Jumlah Kewajiban Terhadap Jumlah Aset
RASIO OPERASI
Laba Kotor Dibagi Penjualan Bersih 32.90%
Laba Kotor Dibagi Penjualan (Rokok Domestik) 33.50%
Laba Operasi Dibagi Penjualan Bersih 18.00%
Laba Operasi Dibagi Penjualan (Rokok Domestik) 20.70%
Laba Bersih Dibagi Penjualan Bersih 11.30%
Laba Bersih Dibagi Penjualan (Rokok Domestik) 13.20%

4. COMPANY PROFILE – PHILIP MORRIS
Philip Morris International Inc
• Collect US$ 40 billion of earnings (40 times of Sampoerna’s)
• Owned 14.5% of World Cigarette Market Share
• Popular Products : Marlboro, L&M, Virginia Slim

5. THE ISSUE: ACQUISITION
Factors that lead acquisition
Global Factors:
• Philip Morris are expanding in countries such as China and Indonesia as rising taxes
and health concerns cut the number of smokers in the U.S. and Western Europe
• Less negative perception of cigarette in Indonesia than US/Europe
• Tobacco companies in US face increased litigation and a shrinking market
• More than 69 percent of Indonesian men older than 20 smoke regularly
Sampoerna Competitive Advantages:
• Cigarette brand as sponsor for many events
• IT system in Sampoerna (accounting, manufacturing, supply chain management,
others data management)
• Had their biggest one-day gain in more than six years

6. PROBLEMS IDENTIFICATION
1. What are the business goals to be achieved by Philip
Morris, take the strategic step to acquire Sampoerna?
2. Why do Philip Morris pick Sampoerna to be acquired,
not the other cigarette companies?
3. In terms of Sampoerna, what are the underlying
Sampoerna to take a policy decision to merge with
Philip Morris?
4. What are the impacts of this acquisition on the
performance of Sampoerna own?

7. THE THEORY
There are three basic legal procedures that one firm can use to acquire
another firm:
1) Merger or Consolidation
o Acquiring firm retains name and acquired firm ceases to exist
o Advantage : legally simple
o Disadvantage : must be approved by stockholders of both firms
2) Acquisition of Stock
o Entirely new firm is created from combination of existing firms
3) Acquisition of Assets
o One firm can acquire another by buying all of its assets
o Advantage : reduce problem caused by minority shareholders
o Disadvantage : transferring could be costly

9. consolidation

10. THE THEORY
Why firms do acquisition?
a. A combined firm may generate greater revenues than two separate firms.
Increased revenues can come from marketing gains, strategic benefits, and
market power
b. Due to improved marketing, mergers and acquisitions can increase
operating revenues
c. Some acquisitions promise a strategic benefit
d. One firm may acquire another to reduce competition
e. To reach the economic of scale
f. Economies of Vertical Integration
g. Technology Transfer by a firm to another
h. Some firms acquire others to improve usage of existing resources
i. Elimination of Inefficient Management
j. Tax reduction may be a powerful incentive for some acquisitions
k. A merger leads to risk reduction, generating greater debt capacity and a
larger tax shield
l. Surplus Fund

11. THE THEORY
What are the side effects?
Earnings Growth
If there are no synergies or other benefits to the merger, then the growth in EPS
is just an artifact of a larger firm and is not true growth (i.e., an accounting
illusion).
Diversification
Shareholders who wish to diversify can accomplish this at much lower cost with
one phone call to their broker than can management with a takeover.

12. ANALYSIS
Acquisition Type Philip Morris – Sampoerna is ACQUISITION OF STOCK type, which
has the following characteristics:
a. Meeting with candidate investors and all shareholders is not held and there is no
voting mechanism to express the consent or not to takeover candidate investors.
b. Candidate investors can make an offer directly to shareholders. Directors and
Management data is not involved in the acquisition process.
c. If the board of directors and management companies in acquired side rejected,
then the cost of acquisition by prospective investors is higher than the merger
process.
d. Typically, the minority shareholders are not involved in the bidding process by
potential investors so that not all shares of the company can be held
e. The takover will end up with merger process

13. ANALYSIS
Type classification of the takeover process Philip Morris
International Inc. on HM Sampoerna Tbk. is following the
acquisition horizontal type, where the two sides, PMI and HMS is
engaged in the same industry.
Acquisition of Philip Morris International Inc. over 97% shares of PT
HM Sampoerna Tbk have a positive impact. The existence of
business support experts, and financial management of the parent
company Altria Group's Philip Morris Indonesia.

14. THE ACQUISITION
The Acquisition Process
Jan, 2005
Appoint Panamas as
exclusif distributor
Marlboro and L&M in
Indonesia
March 12, 2005
Acquisition of 42,09% Sampoerna Share, worth
Rp 18 trillion with price Rp 10.600 per share
(18% at premium price) consist of :
a. Shares owned by:
Dubuis Holding Limited (32.41%)
PT Lancar Sampoerna Bestari (7.73%)
Boedi Sampoerna (1.95%)
b. Shares owned by family (5%)
c. Shares owned by public (52.91%)
May 18, 2005
Philip Morris increase its holdings to 97%
stake in Sampoerna at US$ 4.9 billion or
Rp 45,066 trillion to buy 4.251.510.000
shares at price Rp 10,600 per share
August 28, 2009
Philip Morris Indonesia increased its
stake in PT Hanjaya Mandala
Sampoerna Tbk (HMSP), purchased 6.1
million shares at a price of Rp 8,575
per share. Ownership increases to
98.18%

15. Keterangan Setelah Sebelum
2010 2009 2008 2007 2006 2005 2004 2003 2002 2001
MARKET VALUE RATIOS
Price per Share
8,575 10,600
Earning per Share 1,465 1,161 889 827 805 544 454 321 374 208
Price-earning ratio (price per
share/earning per share) 7.39 19.49
Impacts of Acquisition for PT HM Sampoerna
THE ANALYSIS

16. Keterangan Setelah Sebelum
RASIO SOLVABILITAS
Total Kewajiban
Jangka Panjang
531 503 442 1,401 1,260 1,996 2,651 2,488 2,338 2,407
Total Equity
10,215 10,466 8,050 8,067 5,787 4,822 5,176 6,000 5,395 4,391
Rasio Hutang
Terhadap Ekuitas
(Debt Equiity Ratio)
0.01 0.09 0.27 0.28 0.28 0.68 0.71 0.4 0.43 0.78
Rasio Jumlah
Kewajiban Terhadap
Jumlah Aset (Total
Debt Ratio: HJP/TA)
0.5 0.41 0.5 0.49 0.54 0.6
0.35 0.18 0.23 0.29
Equity Multiplier
(Total Asset/Total
Equity)
2.01 1.69 2.00 1.94 2.19 2.48 2.26 1.70 1.82 2.16
PERTUMBUHAN PENJUALAN DAN RASIO UTILISASI (TURNOVER)
Penjualan Bersih 43,382 38,972
34,68
0
29,78
8 29,545 24,660
17,64
7
14,67
5
15,12
9 14,067
Pertumbuhan
Penjualan
0.11 0.12
0.16 0.01
0.20 0.40
0.20 (0.03) 0.08
Total Asset Turnover
(sales/total asset) 2.11 2.20 2.15 1.90 2.33 2.07 1.51 1.44 1.54 1.49
Impacts of Acquisition for PT HM Sampoerna

17. Keterangan Setelah Sebelum
RASIO PROFITABILITAS
Profit Margin (Net
Income/Sales) 0.15 0.13 0.11 0.12 0.12 0.10 0.11 0.10 0.11 0.07
ROA (Net
Income/Total Asset) 0.63 0.29 0.25 0.26 0.29 0.20 0.18 0.26 0.36 0.24
ROE (Net
Income/Total Equity) 0.31 0.49 0.48 0.53 0.69 0.51 0.38 0.14 0.17 0.11
MARKET VALUE RATIOS
Price per Share
8,575 10,600
Earning per Share 1,465 1,161 889 827 805 544 454 321 374 208
Price-earning ratio
(price per
share/earning per
share)
7.39 19.49
Impacts of Acquisition for PT HM Sampoerna

18. Impacts of Acquisition for Philip Morris
2012 2011 2010 2009 2008 2007
Asia
Net revenues ($ Millions) 11,198.00 10,705.00 7,324.00 6,528.00 12,222.00 11,097.00
Operating companies income
($ Millions) 5,197.00 4,836.00 2,707.00 2,436.00 2,057.00 1,803.00
Cigarette Shipment Volume
Asia (Billion Units) 326.60 313.30 282.30 226.00 224.00 212.00
Common dividends declared to
public shareholders as a % of
Diluted EPS
62.70% 58.10% 62.20% 69.10% 46.40% —
Basic earnings per share 5.17 4.85 3.93 3.25 3.33 2.86
EPS Growth 6.60% 23.41% 20.92% -2.40% 16.43%

19. Summary of Operations: (in
millions of dollars, except per
share data)
2008 2007 2006 2005 2004
Net revenues $63,640 $55,243 $48,302 $45,316 $39,637
Cost of sales 9,328 8,711 8,146 7,654 6,716
Excise taxes on products 37,935 32,433 27,533 25,299 22,032
Gross profit 16,377 14,099 12,623 12,363 10,889
Operating income 10,248 8,894 8,350 7,730 6,509
Interest expense, net 311 10 142 94 4
Earnings before income taxes
and minority interest
9,937 8,884 8,208 7,636 6,505
Pre-tax profit margin 15.60% 16.10% 17.00% 16.90% 16.40%
Provision for income taxes 2,787 2,570 1,825 1,833 1,762
Earnings before minority
interest
7,150 6,314 6,383 5,803 4,743
Minority interest in earnings,
net of income taxes
260 276 253 187 146

20. Summary of Operations: (in
millions of dollars, except per
share data)
2008 2007 2006 2005 2004
Net earnings 6,890 6,038 6,130 5,616 4,597
Basic earnings per share 3.33 2.86 2.91 2.66 2.18
Diluted earnings per share 3.32 2.86 2.91 2.66 2.18
Dividends declared per share to
public shareholders
1.54 — — — —
Weighted average shares
(millions)—Basic
2,068 2,109 2,109 2,109 2,109
Weighted average shares
(millions)—Diluted
2,078 2,109 2,109 2,109 2,109
Capital expenditures 1,099 1,072 886 736 711
Total assets 32,972 31,777 26,143 23,233 21,381
Total long-term debt 11,377 5,578 2,222 4,141 —
Total debt 11,961 6,069 2,773 4,921 807
Stockholders’ equity 7,500 15,595 14,449 10,505 13,231

21. Summary of Operations: (in
millions of dollars, except per
share data)
2008 2007 2006 2005 2004
Common dividends declared to
public shareholders as a % of
Diluted EPS
46.40% — — — —
Book value per common share
outstanding
3.74 7.39 6.85 4.98 6.27
Market price per common
share—high/low
56.26-33.30 — — — —
Closing price of common share
at year end
43.51 — — — —
Price/earnings ratio at year
end—Diluted
13 — — — —
Number of common shares
outstanding at year end
(millions)
2,007 2,109 2,109 2,109 2,109
Number of employees 75,600 75,500 74,200 94,700 45,500
Cigarette Shipment Volume Asia
(Billion Units) 224.00 212.00

22. THE ANALYSIS
Answering Problem Identifications: What are the business
goals to be achieved by Philip Morris, take the strategic
step to acquire Sampoerna?
Answer :
a. PMI has a strategic alliance with HMS
b. PMI to Expand Business “kretek” cigarette in Indonesia
c. Acquisition is a tool for companies to increase global
reach and competitiveness

23. THE ANALYSIS
Answering Problem Identifications: Why do Philip Morris
pick Sampoerna to be acquired, not the other cigarette
companies?
Answer :
a. Difficulty in orbiting new brand because increasing of market
segment
b. Acquisition assessed as a cheaper and effective way
c. HMS has had brand equity, financially healthy in the sense of not
being in debt, has a good corporate culture, employees are
competent, well-integrated information systems, and so forth

24. THE ANALYSIS
Answering Problem Identifications: In terms of Sampoerna,
what are the underlying Sampoerna to take a policy
decision to merge with Philip Morris?
Answer :
a. Putera sell HMS because the tobacco industry is predicted to begin
setting. In the last three years revenue growth of tobacco
companies in Jakarta Stock Exchange (JSE) under the 10% level
b. PMI offered shares at premium price. Logically it is so hard to resist

25. THE ANALYSIS
Growth of Share Price, ROE, Asset, Sales

26. CONCLUSION
a. Local culture + international management team  synergy
b. Acquisition is strategic business decision and appropriate for PMI +
HMSP deal at that time
c. Growth of sales, value of company, high ROE was achieved after
acquisition