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In a move that will consolidate its position as India’s largest fast-moving consumer goods company, Hindustan Unilever (HUL) on Monday announced a merger with GlaxoSmithKline Consumer Healthcare Ltd (GSK CH India). As part of this steaming hot deal, health drinks including Boost, Horlicks and Maltova — the mainstays of GSK CH — will now move to the HUL stable. The transaction is an all equity merger with 4.39 shares of HUL being allotted for every share in GSK CH India. The deal values the total business at ₹31,700 crore.
ANALYSIS: Deal valuation justified, but growth concerns remain
GSK Plc (including its other group companies such as GSK Healthcare) will own 5.7 per cent of the merged entity but will have no representation on the board. GSK is expected to sell these shares subsequently, HUL’s Chairman and MD Sanjeev Mehta said at a press conference in Mumbai. Unilever’s stake in HUL will reduce to 61.9 per cent from 67.2 per cent. As a part of the deal, HUL has also entered into a five-year contract for the distribution business of GSK Pharmaceuticals that has over-the-counter (OTC) products such as Sensodyne, Otrivin, Crocin and Eno.
While brands owned by GSK CH India — Boost, Viva and Maltova — will be brought under the merged entity, Horlicks is being acquired by Unilever globally across Bangladesh and 20 other markets. HUL, which pays royalty to most of Unilever’s global brands that it sells in India, will pay royalty for Horlicks too since the brand is acquired by Unilever globally. Unilever’s share of the total consideration is €3.3 billion payable using a combination of cash and shares in Hindustan Unilever Ltd, making it one of the largest acquisitions for the Anglo-Dutch under departing Chief Executive Officer Paul Polman.
The deal will help HUL strengthen its food and refreshment business by entering the health food drinks (HFD) that has witnessed the entry of several global and Indian players in the last few years. While GSK CH is the leader in the ₹7,000-crore category, it is fast losing market share to other key players including Mondelez International (Bournvita), H.J. Heinz (Complan) and Abbott Nutrition (Pediasure). Nestle has relaunched its brand Milo in the ready-to-drink format and Danone has introduced Protinex. Indian players like Amul are also planning to tap this growing segment.
“This is a strategic and transformative move for us and we believe that GSK CH has some great iconic brands in the health and wellness space, and that will add significantly to our portfolio. We see significant synergies in terms of topline and costs,” Mehta said, adding that HUL will grow this business in double digits in the near to medium term.
Mehta added that HUL’s food and refreshment business, which is about ₹6,500 crore at present with brands such as Kissan, Knorr and Kwality, will grow to ₹10,000 crore post the completion of the merger. GSK CH’s current annual sales is about ₹4,200 crore.
Win-win for both
“The acquisition is in-line with HUL’s strategy of acquiring a profitable business with strong portfolio of brands in the domestic market. The potential deal is a win-win for both the parties as the acquisition of strong brands in the HFD category would boost HUL’s food business by 900 bps to 27 per cent from the current 18 per cent of sales with sustainable profitable growth, while the deal is positive for shareholders of GSK Consumer Healthcare as they will get a better value under the share swap arrangement,” said Kaustubh Pawaskar of BNP Paribas.
GlaxoSmithKline said it will continue to invest in growth opportunities in the pharma and vaccine businesses besides its OTC & Oral Health businesses. David Redfern, Chief Strategy Officer, GSK, said: “This transaction is very good for all the stakeholders. First, GSK Consumer Healthcare shareholders will be receiving a premium for their stake. Second, we have invested substantially in the business over the years. Today, we have access to 200 million people here in India with 170 servings per second of Horlicks. We believe we have got ideal partners who bring significant distribution capabilities right across India.”
(With inputs from our Delhi Bureau)
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