Discussion Questions

1. Using the common motives for cross-border deals discussed in this chapter, speculate as to the reasons Actavis acquired Forest Labs.

2. What alternatives to acquisition could Actavis have pursued? Speculate as to why a takeover was the preferred option?

3. Speculate as to how Actavis’s takeover of Forest Labs may have created shareholder value?

4. Do you believe firms should be allowed to engage in tax inversions?

5. Why is Actavis organized as a holding company in Ireland?

6. Speculate as to why investors for both firms responded so favorably when news of the deal was announced?

END OF CHAPTER CASE STUDY: IRELAND-BASED DRUG MAKER ACTAVIS BUYS U.S. PHARMACEUTICALS FIRM FOREST LABS

Case Study Objectives: To Illustrate • Alternative motives for cross-border acquisitions • How taxes impact cross-border deals and capital flows • How activist investors can impact corporate decisions.

Reflecting the escalating costs of developing blockbuster drugs (i.e., those with the potential to deliver more than $1 billion in annual revenue) and the loss of patent protection on many substantial revenue producing medications, the pharmaceutical industry has been undergoing a wave of consolidation for more than a decade. The takeover strategy in many instances appeared to be largely formulaic: acquire rivals, slash costs, and minimize taxes. While Valeant Pharmaceuticals and Endo Health Solutions have employed this strategy effectively, drug maker Actavis is perhaps the most successful, tripling its market value during the last 3 years. Actavis is a global, integrated specialty pharmaceutical company focused on developing, manufacturing, and distributing generic and branded products in more than 60 countries. Structured as a holding company, its global headquarters is located in Dublin, Ireland. The firm’s US administrative headquarters is in Parsippany, NJ. Actavis historically has focused on generic drugs, but in recent years it has expanded through acquisition into branded drugs. Actavis on February 18, 2014, announced that it had reached an agreement to buy Forest Laboratories for $25 billion in cash and stock to create a pharmaceuticals firm with substantial exposure to branded and generic drugs. Forest Labs is a fully integrated specialty pharmaceutical firm focused on the US market, with a portfolio of branded products. The combined revenues of the two specialty pharmaceutical companies are expected to be more than $15 billion in 2015. The new company announced that it would be increasing its annual budget for pharmaceutical research and development to more than $1 billion. Strategically, Forest Labs represented an opportunity for Actavis to diversify into branded drugs and for Forest Labs to penetrate foreign markets not currently survived. Forest Labs also has an impressive number of drugs in the pipeline. In 2012, US-based Watson Pharmaceuticals bought Actavis, then headquartered in Switzerland, for nearly $6 billion and adopted its name. In 2013, the firm bought Irish-based Warner Chilcott for about $5 billion expanding its presence in specialty pharmaceuticals and moved its headquarters to Ireland to take advantage of the country’s favorable corporate tax environment. The takeover of Forest Labs needed an assist from famed activist investor Carl Icahn. Icahn has a track record of investing in drug makers and profiting from their turnarounds or sales to larger companies. His previous investments included ImClone Systems which was sold to Eli Lilly & Co. in 2008 for $6.3 billion and in Genzyme Corp which was sold to Sanofi in 2011 for $19.4 billion. In 2012, Icahn investments that were later sold included Amylin Pharmaceuticals which was acquired by Bristol-Myers Squibb for $5.1 billion. Icahn, who owns 11% of Forest’s stock through his firm Icahn Enterprises, played a key role in making this deal happen by prodding Forest Labs to install a new CEO in 2013 who was more amenable to selling the firm. To avoid a third proxy fight in as many years, Forest added an Icahn representative to its board in 2013 increasing his influence on board decisions. Under the terms of the deal, Forest shareholders will receive $26.04 in cash and 0.3306 of a share of Actavis, equivalent to $89.48 per share. This represents a premium of 25% from Forest Lab’s closing price the prior day. Forest shareholders will own 35% of the combined firms. Forest Labs agreed to pay a termination fee of $875 million if it backs out of the agreement in favor of a competing takeover proposal or if the firm’s shareholders do not approve the deal. The acquisitive Actavis has completed seven deals since January 2013. Like those deals, the firm expects to realize substantial costs savings. However, in this case, the takeover of Forest Labs will be accretive to earnings immediately following closing. This is relatively unusual as cost savings in most deals in the first year are negated by a combination of severance expenses and other integration-related costs. Actavis announced that it expects to realize a combination of operating and tax savings of $1 billion annually to be realized beginning in the first full year of operation of the combined firms. Assuming a discount rate of 12%, the present value of these savings in perpetuity is $8.3 billion ($1 billion/0.12), well in excess of the $5 billion acquisition premium paid for Forest Labs. Not surprisingly, investors greeted news of the merger favorably. Shares of Forest rose 30% and those of Actavis were up 12%. The takeover of Warner Chilcott in 2012 allowed Actavis to complete a “tax inversion” in which it relocated its headquarters to Ireland to escape the higher American statutory corporate tax rate. A big advantage of a “tax inversion” besides the lower statutory tax rate is that acquisitions become more affordable. Cash held overseas because of the more favorable tax rates can be used to pay for a deal and the earnings from the acquired firm are also taxed at Actavis’s lower tax rate. Tax inversions are not viewed as tax evasion strategies by the US taxing authorities as long as they can be justified by good business reasons such as getting nearer to a firm’s customers or suppliers. Tax evasion is the avoidance of taxes through illegal means such as misrepresenting income on a tax return. The maximum corporate tax rate in Ireland is 12.5% compared to 35% in the United States. Forest Labs earnings which had been taxed at the higher US rate will be taxed at the lower Irish rate currently paid by Actavis. Annual tax savings are expected to amount to at least $100 million. This gave Actavis a huge advantage in bidding for Forest Labs over other potential suitors by enabling it to offer a larger premium. From a legal perspective, an inversion is simply the process by which a corporate entity, established in another country, “buys” an established American company. The transaction takes place when the overseas entity purchases either the shares or assets of a domestic corporation. The shareholders of the domestic company typically become shareholders of the new foreign parent company. In essence, the legal location of the company changes through a corporate inversion from the United States to another country. An inversion typically does not change the operational structure or location of a company. In most cases, an inversion simply means the addition of a small office in the company’s new foreign “home.” Therefore, a re-incorporation rarely, if ever, leads to the loss of American jobs. However, it does lead to a loss of tax revenue.

Provide the Director of Operations with a memo presenting a short diagnosis of the recent problems that the introduction of new technology has caused in the packaging department.

In this memo you will address the following ideas:

1. The methods of collecting data for OB analysis

2. The conclusions drawn from the data

3. A complete statement of the diagnosis

Pigs R US Corporate Profile (is a company that produces ham)

Current Company Vision: Bringing quality meats to family tables everywhere.

Current Mission: We believe that family and tradition matter. Pigs R Us is a family too and because we believe that family matters, it our commitment to put only quality pork products on your kitchen table just as we would our own.

Current Business Philosophy

As one of the largest worldwide producers of pork products it is the goal of PRU to help improve its international sales. It will now look forward two years as change in business strategy is imperative to keep growing. The need for innovation and competitive edge ideas are the focus for the next two years. Sustainability both for profit and planet is foremost in the minds of the leadership. The development of "green" friendly international delivery strategies will be a main emphasis.  

Current Corporate Culture

PRU has always considered their employees to be like family. They value their input in the business and seek to empower them whenever they can. The current company culture is a hierarchical with a functional underpinning. The growth of the company and the need for structure and communication to keep the global deadlines has caused the Directors to move towards a collaborative culture. They hope that the family feel of the clan culture will not be lost hence the hybrid.

Organizational Structure:

This company has a functional division structure. However, within each division is a functional structure whose make up is dependent on its purpose. For instance, if the branch is a meat packing plant where slaughter takes place than its decision-making flow will follow the jobs that are part of the slaughter and packing processes. Communication and decision making still flows from top down.

A certain restaurant in town is known for refusing to give separate bills to customers. After a group has ordered and eaten together at this restaurant, the group is presented with a single bill for the entire amount that the group has eaten. It has been suggested that the restaurant does this because, with a single bill, those who dine in groups will be more likely to simply divide the charge equally, each person paying the same amount irrespective of who ordered the most, and that diners, knowing they will ultimately divide the charge equally, will order more than they would have ordered had each expected to pay only for his own order. Analyze this situation using the following model.

There are 3 diners in a group, denoted i = 1, 2, 3. Each has a utility function of the form ui (xi , ci) = ai ln (xi) - ti , where xi represents the amount of food ordered and eaten by i and ti is the amount that i has to pay. The price of food is px = 1. Assume that a1 = 1, a2 = 2 and a3 = 3.

a. How much food will each individual order knowing that the bill will be shared and how much will they order in total?  

b. How much food will each individual order if he or she has to pay for her own order and how much will they order in total?

c. Provide an intuition for why the bill is larger in (a) than in (b).

(this is edited w; variables now)

A random sample of 20 students at a university showed an average age of 21.4 years and a sample standard deviation of 2.6 years. The 98% confidence interval for the true average age of all students in the university is?

Enter in the upper limit of your confidence interval

5. Exchange rates and the demand for domestic goods

Piano Palace Co. produces electronic keyboards in the United States. Its most popular keyboard sells for $1,400. KeySharp Co., Piano Palace's primary competitor, is based in Germany and sells keyboards to US customers online. KeySharp sells its keyboards for 825 euros.

Suppose that initially, the exchange rate was $1.60 per euro.

This means that the price of KeySharp’s keyboards to US consumers was 825 euros ×$1.60 per euro =$1,320.

This means that the price of KeySharp’s keyboards to US consumers was _____?

. Because this dollar price of keyboards from KeySharp is(lower or higher)______________ than the dollar price of keyboards from Piano Palace, demand for Piano Palace keyboards is likely(high, low , higher)______ relative to KeySharp’s keyboards in the United States.

Now suppose that the euro weakens relative to the dollar, and the exchange rate changes to $2.00

After this change, the price of KeySharp’s keyboards to US consumers is _______?

. Because this dollar price of keyboards from KeySharp is now (lower or higher
) _________ than the dollar price of keyboards from Piano Palace, demand for Piano Palace keyboards is likely(rise or fall)_______ relative to KeySharp’s keyboards in the United States, due to the change in the exchange rate.

Suppose that Piano Palace not only sells keyboards in the United States but also exports and sells them to France (another country in the eurozone).

When the euro was $1.60, consumers in France paid _______?

euros for keyboards from Piano Palace. At this exchange rate, the euro price of Piano Palace keyboards was (lower or higher)_______ than that of KeySharp keyboards. However, at the newer exchange rate, the euro price of Piano Palace keyboards is now_____?

. This would cause French consumers to increase demand for (KeySharp keyboards, relative to Piano Palace keyboards OR Piano Palace keyboards, relative to KeySharp keyboards)

.

Generalizing from the results of this fictionalized scenario, when other currencies are weak against the dollar, US imports should be relatively (high or low)_____ , while US exports should be relatively (low or high)_____ , leading to a(more or less)_____ favorable position in terms of the balance of trade.

Louise is a 20-year-old woman who has been admitted to an acute mental health inpatient ward following an episode of self harming behavior.this is her first contact with mental health services. Louise presents with lacerations to both arms; some are superficial scratches, others, while of varying severity and depth, are not life-threatening. There are also visible scars on her arms from apparently previous incidents of self-harming behaviors. Louise has been admitted via the local accident and emergency department following an initial CRISIS assessment by the hospital Mental Health Liaison Team. Louise had consumed half a bottle of vodka and also admitted to smoking cannabis prior to the incident. She denies having taken an overdose of any type and this is corroborated by normal blood test results. she was originally accompanied there by her mother who did not remain with her. Louise does not appear remorseful for what she has done. She says she is depressed and angry with her parents who 'think she is worthless and do not care about me because i haven't gone to university like my brothers'. She maintains that she doesn't need any help with her problems, claiming that they are down to 'my immaturity, as my parents keep telling me' and that I'll grow out of it with time.

• Provide 3 nursing diagnosis for this patient

• List health assessment priorities for the nursing diagnosis provided

• Explain 2 evidence-based practice intervention for each nursing diagnosis

• Explain Lab work that is required to give a medical diagnosis

Walter and Nancy provide 60% of the support of their daughter (age 18) and son-in-law (age 22). The son-in-law (John) is a full-time student at a local university, while the daughter (Irene) holds various part-time jobs from which she earns $11,000. Walter and Nancy engage you to prepare their tax return for 2017. During a meeting with them in late March 2018, you learn that John and Irene have filed a joint return. What tax advice would you give based on the following assumptions:

a. All parties live in Louisiana (a community property state).

Who can Walter and Nancy claim as dependents?

What significance does filing a joint return have on exemptions?

The joint return test ________ to the qualifying child and qualifying relative categories of ___________ exemptions.

Indicate whether the following options could rectify the situation. Select "Yes" or "No" whichever is applicable.

1. If they could document the reason for filing a joint return was to claim a refund for tax withheld, no tax liability exists for either spouse on separate returns and neither spouse is required to file a return.

2. If John or Irene amend their return and file separately before April 16, 2018.

3. There is nothing that can be done, since the return has already been filed.

If John and Irene had not filed a joint return, who could Walter and Nancy claim as a dependent?

b. All parties live in New Jersey (a common law state).

The joint return problem ______________ be resolved

If John and Irene had not filed a joint return, who could Walter and Nancy claim as a dependent?

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1. Our educational system is reducing the intrinsic motivation to learn and replacing it with extrinsic motivation.

1. What is the difference between intrinsic and extrinsic motivation? What is it that motivates you to learn at University?
2. Make an argument for or against the statement above using examples from theories learned in class and your everyday experience to support your argument.

This assignments asks you to take a recent article from a current media source that deals with the changing of social contract between employers and employees. What has changed in the workplace? You may also choose to orient the assignment toward today´s environment.

In today's circumstances, what does the dedication of employees to their organization and to those served by their organization demonstrate about the quality of that institution? Think of first responders, hospital workers, grocery store workers, etc. who are working for more than a paycheck but to really serve those in need, their customers (of a sort). Find a media example of an organization rewarding their workers who exhibit the important values of that organization.

You may also find articles on organizations which are going to great lengths to help their employees during these difficult times or organizations who have converted their operations to producing products critically needed by hospitals or medical personnel; E.g. breweries converting their production to making hand sanitizers.

Your paper should focus on the purpose and values of the organization and how it is reflected in the care for their employees or the care given by the employees to those they serve.~´

Please provide a two page paper. This is a Application Report.

• Summarize the article
• Analyze how the article relates to the unit’s topic and the study of management.
• Answer the questions: What does the article teach us about practicing management? What did you learn?