HUL completes merger with GSK Consumer Healthcare; buys Horlicks brand for Rs 3,045 crore

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Published: April 2, 2020 12:40:01 AM

Hindustan Unilever (HUL) said that it had acquired the Horlicks brand from GlaxoSmithKline Consumer Healthcare (GSK CH) for Rs 3,045 crore

HUL had on December 3, 2018 announced its decision to merge GSK CH India in a deal that valued the latter at Rs 31,700 crore.

Hindustan Unilever (HUL) said on Wednesday that it had acquired the Horlicks brand from GlaxoSmithKline Consumer Healthcare (GSK CH) for Rs 3,045 crore, exercising the option available in the original agreement made between its parent company Unilever and GSK.

In one of the largest FMCG transactions of recent times, HUL had on December 3, 2018 announced its decision to merge GSK CH India in a deal that valued the latter at Rs 31,700 crore. However, Horlicks was acquired by Unilever from GSK CH, and HUL would have had to pay royalty to its parent for the brand’s usage in India.

HUL chief financial officer Srinivas Phatak said the decision to buy Horlicks made economic sense against paying royalty for the same. This addition will now enable the company to utilise cash on its balance sheet, create value for shareholders and drive better salience in a local context.

Depending on the variant, the royalty rate for Horlicks ranged from 1.8% going up to 4.5%. Phatak told reporters that there would be a certain growth trajectory that will drive the Horlicks business, and if the company had assumed to pay a certain royalty with the existing rates there would be a certain cost associated with it.

On the other hand, Phatak said, “Ownership brings benefit from tax point of view, because when you own a brand you are able to get tax depreciation on the brand, which becomes an inflow”. He added that a combination of all this meant that “returns are attractive from HUL shareholders’ point of view”.

The company also announced that it has completed the merger of GSK CH India with HUL, adding brands like Boost, Maltova and Viva to its product portfolio. The deal will give a fillip to HUL’s food and refreshments division, which boasts of brands like Lipton, Knorr, Kissan, Red Label and Bru, and makes up about a fifth of HUL’s revenues.

The merger includes the totality of operations within GSK CH India, including a consignment selling contract to distribute GSK CH India’s over-the-counter and oral health products— Eno, Crocin, Sensodyne. HUL has said that it will increase rural penetration for GSK brands with affordable packs and availability of products and also has plans to grow premium segment portfolio of Horlicks cardio and protein range.

The company will also leverage its distribution capability, which is 3x of GSK, to unlock further opportunity in the health food drinks segment. The merger of GSK CH with HUL has been on the basis of an exchange ratio of 4.39 HUL shares for each GlaxoSmithKline Consumer Healthcare share. Following the issue of new HUL shares, Unilever‘s holding in HUL will be diluted from 67.2% to 61.9%, and GSK CH will hold about 6% stake in the merged entity.

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