This was triggered by GSK looking to help fund its $13 billion buy out of the Novartis stake in their consumer healthcare joint venture.
In what can be termed as the largest deal in the consumer space market, the country’s largest FMCG firm, Hindustan Unilever, on Monday said it will merge GlaxoSmithKline Consumer Healthcare India (GSK CH India) with itself for a transaction worth Rs 31,700 crore.
The all-equity merger deal includes an exchange ratio of 4.39 HUL shares for each GSK CH share, along with GSK’s entire operations of nutrition business, which includes health drinks like Horlicks, Boost, Viva, Maltova, and contract to distribute the latter’s over-the-counter and oral care brands like Senodyne, Eno and Crocin. Following the issue of new HUL shares, Unilever’s holding in HUL will be diluted from 67.2% to 61.9%.
Apart from the merger of HUL with GSK CH India, the transaction has two other parts, which is global in nature and transacted through HUL’s parent firm, Unilever. One is acquisition of 82% stake in GSK Bangladesh and the other is acquisition of certain other commercial operations in 20 other Asian countries.
While Boost, Viva, and Maltova are Indian brands, Horlicks is a global brand, which will now be owned by Unilever and be available to HUL.
HUL’S MERGER WITH GSKCH India is expected to bring significant synergies through supply chain opportunities and operational improvements,go-to-market and distribution network optimisation, scale efficiencies in cost areas such as marketing, and optimisation of overlapping infrastructure. The transaction is expected to be completed in about a year subject to regulatory and shareholders’approval. Following the merger, the turnover of HUL’s food and refreshment (F&R) business is expected to exceed Rs 10,000 crore, according to HUL chairman and managing director Sanjiv Mehta. “It is a new category for HUL in the FMCG space. F&R has been about 20% of our portfolio, but a very important part of HUL. With this merger HUL’s F&R will become one of the biggest businesses in the country. From a strategic rationale, it is a big fit for HUL as it helps us to strengthen our footprint in F&Rspace,” Mehta said.
The GSK CH India business delivered a total turnover of around Rs 4,200croreintheyear ended March 2018, primarily through its Horlicks and Boost brands. HUL chief financial officer Srinivas Phatak said the company expects the merger to bring in a potential to increase the margins significantly.“We clearly see the potential to increase the margin from 800 basis points (bps) to 1000 bps.
It is going to be a phased benefit. Aswecompletetheintegration, we will see a significant value coming through,”he said. In March, GSK Plc CEO Emma Walmsley had announced a strategic review of Horlicks and its other consumer healthcare nutrition products, adding that the company was exploring a partial or fullsaleofitsstakeinIndiasubsidiaryGSKCHbytheyear-end.
This was triggered by GSK looking to help fund its $13 billion buy out of the Novartis stake in their consumer healthcare joint venture. Shares of HUL ended the day at Rs 1,825.90 apiece, up 4.12% on the Bombay Stock Exchange, while GSK CH India shares ended the session 3.75% up at Rs 7,542.85 apiece on the BSE.