Havells India: the Sylvania Acquistion Decision

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1. Havells’ proposed acquisition of Sylvania Limited Inc. (SLI) makes sense from a strategic point of view. Macroeconomic conditions and an increasing threat of competition give merit as to why this proposed acquisition makes strategic sense. The electrical and lighting industry is poised for a major growth spurt (page 3), and this could pan out to be a lucrative time for companies such as Havells to begin investing in both these segments. Havells has become a dominant player in the switchgear market (page 4), and it has smaller positions in the cable and wire (C&W) and electrical consumer durables (ECD) industries, both of which faced stiff competition. Even though, Havells has a good footing in their Indian domestic market, competition is now increasing due to globalization and governmental policy changes. The liberalization policy of the Indian government has brought new international entrants into the Indian market increasing domestic competition.

Havells needs to plan for an acquisition to diversify their operations geographically and through their product offerings. SLI, whose primary operations are in Europe and Latin America, would provide this geographic diversification. For SLI, as their competitive landscape increased, their management is also looking expanding its geographic reach. As well, Havells’ business is predominantly in electrical control gears with a small presence in lighting. The acquisition of SLI, whose product offering is primarily in lighting and lighting fixtures will give provide Havells product diversification. As Havells currently has a small presence in lighting, the acquisition of SLI could bear fruit to positive synergies if these operations are combined successfully. SLI’s wide marketing network is perceived as a good channel for marketing Havells’ products in Europe (page 8). Combining the two companies R&D knowledge could bolster innovative products for both segments. These possibilities of synergy and the need for diversification due to competition make this acquisition lucrative from a strategic view.

2. The major risks with this acquisition are cultural/geographic differences of the companies, different product mix, and the size of the target in comparison to the acquirer. The cultural differences stem from the geographic locations of the two companies. The culture in Indian companies is much stricter than that of Europe. These create risks of organizational cultures clashing and proving to be counter-productive. The different legal requirements due to operations in varying geographic markets create risk because of the need to have specific restrictions in each market that need abiding. The legal risks can be managed by involving third party firms who understand legal requirements in various geographic areas. The cultural risks can’t be managed away and need to be carefully monitored to avoid conflicts in the two organizations.

The different product mixes stem from the fact that Havells is primarily in the electrical segment of the industry whereas SLI is primarily in the lighting segment. This causes a risk in operations as Havells doesn’t understand that market segment. This risk can be managed through combining Havells small lighting division with SLI and leveraging SLI’s marketing to bundle electrical and lighting to target larger bids. The size of the target, SLI, will create a large financial risk if the acquisition, requiring heavy external financing, does not create positive synergies. Lenders of this large acquisition would require their money paid back, and if something doesn’t go according to plan Havells would face liquidation risks. Financial risk cannot be avoided but can be managed through cost control, layoffs, and divestments to make the companies lean and more efficient.

3. Management would face cultural challenges between the two organizations’ management teams. Havells’ is a family business managed by relatives whereas SLI is not. This brings...
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