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WELCON LIMITED: ‘Project Milestone’*

CASE STUDY, STRATEGY
ET Cases - FLAME, 7 pages
AUTHOR(S) : Prof. Sushil Bahl, Faculty, Flame School of Business, Flame University, Pune

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WELCON LIMITED: ‘Project Milestone’

Welcon Limited, a leading pharmaceutical company based out of Mumbai, acquired and took full control of Mentil Pharmaceuticals Limited (Mentil Pharma) for ₹90 crore. Mentil Pharma had been a part of a large and diversified business group, which was fast disinvesting some companies that were not profitable or that did not fit into its core business areas, or future growth and investment plans.

Mentil Pharma had a large workforce of about 1,100 in their headquarters and manufacturing unit at Mumbai, and branch offices all over India. The annual turnover of the company was around 140 crore, with a sizeable range of multi-vitamin formulations in its marketing and manufacturing basket. Doctors countrywide prescribed its brands. In the range of products, Vitamin B12 formulation was a star product and the market leader in the country. Nevertheless, because of low involvement and motivation (attitude) of its employees, high salaries and benefits offered in comparison to other profitable and large Indian and MNC pharma companies, Mentil Pharma was losing heavily in profitability along with low manufacturing productivity, stagnating product sales and market share.

Objectives of the VRS Scheme at Welcon Private Ltd.

In a meeting called with the Director Personnel & HR, Vice President Legal Affairs, and General Manager PR and Corporate Affairs, Dr. S A Banglowala, Proprietor and Chairman of Welcon Limited, gave a briefing on the requirement of cutting down on the employee strength of the recently acquired Mentil Pharma (now an integral part Welcon Limited)............

Acquisitions and Integration of Work Cultures!

As a result of a series of growth oriented steps (new products, R&D, marketing and promotion, exports thrust, and acquisitions in the UK) over the past few years, Welcon grew to become a large and professionally managed company, with a turnover of 1000 crore and a workforce of 4,000 employees. The growth was achieved with all round performance-oriented policies and practices, high level of employee motivation, and up-to-date products (bulk drugs and formulations) sold across Indian markets. Welcon had recently made another successful acquisition of a medium sized manufacturing company in the UK at 72 crore, having a turnover of around 135 crore, for an initial thrust in the European markets...............

Factoring in the Labor Union

Erstwhile Mentil had a strong and powerful Employees Union that was pampered by the management, and had entered into various agreements on work and productivity related areas, which were all pro-labor. The Union had a strong hold on the workers at all levels. The acquisition of Mentil by Welcon was not a very
welcome happening for the Union and all its members.

The Union was opposed and hostile towards the move. They believed that Welcon management had a ‘bania mentality’ and a hard task master philosophy, which lacked human approach in dealing with employee welfare related issues. They also believed, and had rightly sensed, that consequent to the acquisition there will be reduction of staff in the form of layoffs and retrenchment...............

Objectives of ‘Project Milestone’

In formulating and implementing the VRS scheme, the objectives for the Task Force were clearly:

• To offer an attractive VRS scheme which the employees – workers, staff, and managers – will accept and opt for willingly. Its dynamics and mechanics should be so devised that the implementation is smooth and problem free
• The scheme was backed by appropriate and effective communication on features, benefits, conditions to be fulfilled and creating the right image of management, projecting all round growth and synergies from the acquisition
• ...............

‘Project Milestone’ – Features and Working

Like in any similar ‘golden handshakes’ at a company, it was necessary to ensure that the features of the scheme and the monetary package are firstly, fair and honest; and secondly, it was a win-win situation for both the employees and the company. The offer and the scheme needed to be well balanced and tactfully executed.

The Welcon Task Force surveyed the social, legal and taxation implications of a VRS scheme as prevalent in the industry, and as per the prevailing Income Tax Act. The key aspects that they found favorable in respect of the planning and working of Welcon’s scheme were:

• The compensation received by an employee for the VRS was exempt from Income Tax up to 5 lakh
• Compensation should be received on the time of taking on the voluntary retirement only
• Compensations should be in line with the scheme of the company, as approved by the Chief Commissioner or Director General of Income Tax
• ..............

Industry Practices w.r.t. of VRSs

At the time of Welcon’s VRS, the industry practices prevailing on payment of compensation at such a separation or parting with employees were:

• Lumpsum Payment – three months’ salary for every completed year of service; or one month’s salary multiplied by the balance months of service until the age of actual retirement; or up to a maximum of 5 lakh, and a minimum of 3 lakh
• Deferred Payment – last drawn salary for twenty years; or up to the age of actual retirement, whichever occurs earlier on monthly basis

.........................

Project Milestone –The Scheme

The final VRS scheme offered to the employees was in respect of three groups, taking into account the individual age group and number of years of service put in Mentil Pharma.

• Group I: Either less than 10 years of service or 40 years of age
• Group II: Either more than 10 years of service, or 40 years of age up to a maximum of 54 years of age
• Group III: Age of 55 years and above For each (age) group the compensation package worked out as follows:

..........................

Composition of the Internal Marketing and Communications Strategy

Target group: Employees of the acquired company, Mentil Pharma

USP of the VRS Scheme: Assured lumpsum capital and further assured monthly income Aid for asset creation

In addition, incentives like children’s education, Mediclaim policy, and employment chance to one child

Communication and motivation package and activities undertaken by Welcon:

• Individual and personalized letters to employees from the Director HR, delivered by hand to the residence for the whole family to see
• Attractive and detailed brochure on the VRS scheme and the monetary offer
• ...........................

The Outcome

The magic figure of 400 employees to be given the golden handshake was achieved in about 4 months’ time. The Task Force achieved the Chairman’s objective with excellence. Moreover, there no adverse media publicity, as was the directive to the General Manager, Corporate Affairs.

The VRS scheme went on to help in the desired and satisfactory integration of Mentil Pharma employees within Welcon, in all respects of corporate culture, policies, and practices in line with the management’s requirement and objective. It also aided in the re-deployment of some of the employees, and thus positivelyrenewed the confidence and motivation in the acquisition and Welcon management at large....................

Teaching Note Preview

WELCON LIMITED: ‘Project Milestone’

 

Synopsis

The case study is a real-life case of a take-over of one not so profitable company (Mentil Pharmaceuticals) by another large, established and profitable pharma company (Welcon Limited in Mumbai) from a major Industrial Group some years ago.

Mentil Pharmaceuticals taken over by Welcon Limited is a result of the industrial group divesting in some of its non-core business lines, and pharmaceuticals being one of them. Mentil was a market leader in Vitamin B12, but was not making good profits, and thus sold to Welcon at a mutually agreed and substantial value.

As a result, of this take-over Welcon management in the process sees the need for quick and substantial reduction in work force, and wage bill at the merged Mentil.

Within the other overall strategies post take-over of managing the company profitably the objective of reducing Mentil work force and workforce, it was decided to institute a Voluntary Retirement Scheme (VRS) for all erstwhile Mentil employees, across the board factory workers to senior managers. A well planned and an attractive “golden handshake”, which will go through smoothly and successfully in attracting as many employees as possible to opt for it. The management set itself a target of reducing 400 employees out of the 1100 it had inherited and in a period of three months!

With formation of a special task force for the purpose, Welcon management worked out and implemented a scheme that had the following benefits and advantages to offer to the potential employees who they considered as beneficiaries and takers of the VRS scheme:

  • • It will be fair and not leave the employees in a difficult situation, namely, their career outside. In the process avoid any misgivings among the employees voluntarily opting for it
  • • The employees will be compensated adequately and suitably to leave the company, as per industry, income tax, and legal standards
  • • It will be with immediate effect and the employees opting for it will be able to take up another job/career and continue their life uninterrupted
  • • Help in the integration of the remaining Mentil employees within Welcon, and work towards its growth, as well as their own growth and development

 

The VRS scheme is launched and announced through internal communication tools and material to all employees and clearly directed to the eligible employees from Mentil

However, the implementation of the VRS does not go without glitches! The Union protests and threatens to go to court for a stay order. The affected employees and their families are greatly unhappy and de-motivated, there is the chance of negative publicity in the media, and ramification in the pharma industry and among doctors!.......

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Abstract

Mergers and acquisitions are a common happening in business and the corporate world. We see this happening all round us today, among start-ups as well as major long-standing companies. Within this downsizing, and "golden handshakes," to get companies to be lean, thin and mean - and profitable - is also commonplace and often. The challenges of this are generally wide ranging and affect people (employees) structures, HR, corporate culture and integration, along with finances.

One such real-life example, and discussed in this case-study, was of Welcon Limited, a large pharmaceutical company, in Mumbai, downsizing considerable manpower in Mentil Pharmaceuticals Ltd., acquired from of a large business group that was systematically exiting and divesting in its non-core businesses and companies - consumer products and pharmaceutical, among others.

Welcon Limited set itself a task of reducing Mentil's manpower by 400 employees in a short period of 3 months! A task which would greatly impact the employee structure, their integration, morale and motivation in the activities, as well as overall culture, just as much as its overall business growth and profitability objectives, in the Indian pharma industry.

The case study explores the circumstances in which a special Voluntary Retirement Scheme (VRS), for the erstwhile Mentil employees was conceived, planned and  implemented for the acquired smaller and loss making pharma company, and in order to integrate the employees of the merged entity to be more efficient, productive and profitable.

The case study explains how the VRS was met with resistance from the staff Union, and a large section of the Mentil workers, and the strategy utilised by Management to overcome a crisis which had potential for blowing into a negative situation of significant proportions.

The case study discusses and provides details of the VRS at Welcon, along with information on how it was designed, communicated and sold to the employees by a Task Force, after witnessing some resistance and agitation, and then finally the desired positive result, and peaceful outcome.

Besides the discussion on the VRS, the case study states the ultimate outcome in respect of the company's hard-nosed HR and IR stand, communications and PR strategy, with a win-win situation for the Management and all employees, within the company's objective of bringing about integration and motivation, and "feel-good" factor in the end.



Pedagogical Objectives

  • To handle a sensitive and crucial crisis in a company’s survival and growth involving its employees inherited, and the impact on the existing employees - morale and integration issues
  • To analyze, plan, and devise a real and effective strategy in managing employee productivity and general profitability in a take-over and acquisition situation -which is unusual and uncommon in all respects of managing a company and business
  • To have a broad overview and handle of key financial and legal aspects in such a situation affecting management and employees

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