Thursday, 21 February, 2019

How HUL could benefit from $3.8 billion Horlicks deal

Image used for representational purpose Image used for representational purpose
Melissa Porter | 05 December, 2018, 15:16

GSK India's brands include Horlicks and Boost.

The second-biggest deal by value in the consumer goods space is that of Diageo picking up majority stake in United Spirits.

In March, GSK Plc, the parent of GSK CH India, had said that its 72.5 per cent stake in the local arm will be put up for sale to fund the purchase of Novartis's 36.5 per cent in their consumer healthcare venture. The transaction is an all-equity merger with 4.39 shares of HUL being allotted for every share in GSK Consumer. GSK CH India is the market leader in the health food category with brands like Horlicks and Boost on its portfolio. I am confident that this merger will create significant shareholder value through both revenue growth and cost synergies. "The acquisition is transformative for our Foods and Refreshment business, allowing us to enter the Health Foods Drinks category, further strengthening our position in health and wellness", Unilever President, Food & Refreshment, Nitin Paranjpe said.

On Monday, HUL shares closed up 4.1 per cent at Rs 1,825.90 and GSK Consumer rose 3.8 per cent to Rs 7,542.85.

Hindustan Unilever Ltd (HUL), the Indian subsidiary of consumer goods giant Unilever, has agreed to acquire GlaxoSmithKline's (GSK) key consumer nutrition brands in India including Horlicks, Maltova and Boost. Sanjiv Mehta, chairman and CEO, HUL, said: "It will add huge amount of lustre to the great brands we already have in our portfolio".

Horlicks has a long history in India - which accounts for nearly 90 percent of the GSK arm's turnover in Asia - having been introduced there in the 1930s. Despite this, the category still remains under-penetrated in India. HUL has to spend Rs 31,700 crores for this merger.

"HUL has reached a definite agreement with GSKCH India in this regard", the company said in a statement. The scale of Unilever's India business-which is also its fastest growing-appears to have dimmed the chances of other suitors in the fray. "The transaction is subject to the satisfaction or waiver of the conditions precedents in the SPA (including necessary regulatory formalities and approval in accordance with the laws of Bangladesh)".

HUL is expecting the GSK deal to be completed in one year.

As part of the process, it had initiated a strategic review of Horlicks and other brands. Further details of potential risks and uncertainties affecting the Group are described in the Groups filings with the London Stock Exchange, Euronext Amsterdam and the US Securities and Exchange Commission, including in the Annual Report on Form 20-F 2017 and the Unilever Annual Report and Accounts 2017.