The Swiss-based maker of Kit-Kat, Maggi, and Nescafe instant coffee intends to acquire about 12.24% (roughly 1.18 crore shares) in Nestle India for a price not higher R6,250 per share.
At that price, the transaction will be valued at R7,400 crore ($1.2 billion), said one of the people requesting anonymity as the discussions are private and still in progress.
The proposed buyback price of R6,250 stands at a premium of roughly 15% from the current market price. On Wednesday, shares of Nestl India settled at R5,449.85 on the BSE, up R210.95 or 4.03% from the previous close. As per Sebi's minimum public shareholding norms, a privately-held listed Indian firm cannot raise its promoter holding above 75%.
When contacted for an official response, Nestle, however, denied the proposal to buyback shares in its Indian subsidiary. Currently, we have no plans to increase our stake in Nestl India, the companys spokesperson Meike Schmidt said by email.
The stock has touched a high and low of R5,864.85 and R4,410, respectively during the last 52-week period. The stock trades at 42.99 times a one-year forward earnings (P/E), while the earnings per share (EPS) stands at R110.73, according to Bloomberg estimates.
According to Nestl's half yearly cash flow statement, the company has cash and cash equivalents to the tune of Swiss Franc 3.873 million ($4.26885 billion).
Analysts peg the fair value of Nestle Indias stock in the range of R4,500 - 4,950 per share. They said that investors may be lured to tender their shares in the buyback and the acceptance ratio could be high, as the near-to-medium term outlook for FMCG stocks remains weak given the high valuations and concerns over a slowdown in volume growth post the festive season.
However, analysts said it was too early to comment on the success of the buyback and preferred to wait for an official announcement from the company.
It is very early to comment on the acceptance ratio or the success of the buyback. We must wait for the company to make a formal announcement, said an analyst.
Brokerages like Standard Chartered, JP Morgan, and Ambit Capital have a neutral or underweight rating on Nestle India due to the weak domestic revenue growth and declining market share.
Nestle will become the third multinational company (MNC) in the consumer sector in the last twelve months to announce an acquisition of shares in its Indian subsidiary.
In April this year, Unilever stunned the Street by announcing a R29,220 crore ($5.4 billion) voluntary open offer to buyback shares of Hindustan Unilever (HUL). In December last year, British multinational pharmaceutical company GlaxoSmithKline announced an open offer to buyback 31.8% (1.34 crore shares) in its Indian subsidiary GlaxoSmithKline Consumer Healthcare at a price of R3,990 per share. The deal was valued at R5,221.87 crore (roughly $1 billion).