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    THE TALE OF DIVESTMENT – HUL AND GSK

    What’s the one common link between daily household chores like preparing tea and coffee, brushing your teeth, taking a bath, and washing clothes? Yes, all of them need water, a commodity that’s growing increasingly scarce globally, but what else?

    Think harder and another common link will strike your mind. One fast-moving consumer goods (FMCG) company,  which claims that on any particular day, 9 out of 10 consumers uses one of its products – Hindustan Unilever Ltd (HUL), makes products catering to all these categories.

    ENOUGH IS NEVER ENOUGH

    Back in 2018, the British-Dutch Company, HUL announced its merger with the Indian nutrition business of GlaxoSmithKline and was anticipated to support the FMCG company’s position in the Indian market in a significant manner.  

    Nearly 15 months after the announcement and getting the last set of regulatory approvals, HUL acquired the consumer business after valuating GSK at Rs. 31,700 crore with 4.39 shares being allotted for every share. The strategy was rather simple : HUL’s entry into the health food drinks category. 

    WHAT FLOWS FROM THE DEAL?

    The said deal is considered to be a win-win situation for both GSK and HUL.

    GSK’s brands like Horlicks (by selling which the corporate has additionally earned Rs3,045 crore), Boost, and Maltova is now part of HUL’s food and refreshments (F$R) business, increase its share of food and beverages in its product portfolio (with brands like Knorr, Kissan and Kwality) to about 28% of revenues, from 18% earlier giving the latter more room to dominate.

    HUL is additionally betting big on chemist and pharmacy channels to sell the other OTC brands in the portfolio like Eno, Crocin and Sensodyne by partnering with GSK (under a consignment selling arrangement) to diffuse brands of the GSK Consumer Healthcare family in India. With GSK’s world-class brands and HUL’s distribution strength, value for GSK can be unlocked and further build Hindustan Unilever’s go-to-market capabilities.

    For the aim of this equity merger (Equity merger in simple terms means the corporate used its highly expensive shares as currency for the deal), GSK Consumer base had been valued at 6.9 times sales when the deal was struck, far over the valuation of 4 times sales Heinz India Pvt. Ltd received when Complan and three of its other brands were sold a month earlier.

    Also, as a part of the merger, 3500 employees of GSKCH have became a part of the Indian arm of Unilever. However, GSK will still be chargeable for demand generation, portfolio strategy, R&D and marketing for the above mentioned brands.

    IN THE INVESTMENT MARKET

    In December 2018, when the announcement was out in the market, HUL’s shares were around ₹1,717 each. But in May 2020 GSK Consumer’s parent company GlaxoSmithKline Plc (GSK) sold the HUL shares it had earlier received as compensation.

    The good news is that the share sale wound up at ₹1,905 per share. A depreciation in the rupee against the British pound, however, gulped up about half those gains, leaving GSK with almost 5% higher realization compared to what it had anticipated by the end of 2018. 

    DIVIDED WE STAND, UNITED WE STAND TALLER

    Some analysts opine that HUL’s high-ended distribution network will result in better growth prospects for the newly obtained portfolio. 

    And, in the post-covid scenario, the acquisition of GSK Consumer’s Horlicks brand may go out better than expected, going by the initial estimation that demand for health-related products is anticipated to rise.

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