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The Board of Directors of Hindustan Unilever Limited (HUL) today approved a scheme of merger between the Company and GlaxoSmithKline Consumer Healthcare Limited (GSK CH India) subject to obtaining requisite approvals from statutory authorities and shareholders. HUL has reached a definite agreement with GSK CH India in this regard. The transaction is an all equity merger with 4.39 shares of HUL being allotted for every share in GSK CH India. This transaction values the total business at Rs 317 billion.
The acquisition is in line with the Hindustan Unilever strategy to build a sustainable and profitable Foods and Refreshment (F&R) business in India by leveraging the mega trend of health and wellness. GSK CH India is the market leader in the HFD category, with iconic brands such as Horlicks and Boost, and a product portfolio supported by strong nutritional claims. This portfolio has a long history in India with Horlicks having originally been introduced in the 1930s. Horlicks products have been an everyday staple in households across generations.
The average growth rate has been double digit over the last decade, and the category still remains under-penetrated in India. HUL is well positioned to further develop the market given the extent of its reach and capabilities. The FMCG giant will increase penetration with special focus on rural markets and emerging channels and expand its offerings to the fast-growing premium segment. Customer development, according to HUL, will be a growth multiplier given it direct coverage and technology led capabilities. It will drive significant cost synergies from a combination of supply chain efficiencies and operational improvements, go-to-market and distribution network optimisation, scale in a number of cost areas such as marketing and streamlining of overlapping infrastructure. The company expects the business to grow in double-digits in the medium-term and margins to be accretive to HUL post realisation of synergy benefits.
HUL is the number one FMCG business in the India with a demonstrated track record of delivering growth which is competitive, profitable, sustainable and responsible. Business has delivered growth of 10 percent CAGR in the last 10 years with EBIT improvement of 530bps.
Sanjiv Mehta, Chairman and Managing Director, HUL said, “With this proposed strategic merger with GSK CH India, we will be expanding our portfolio with great brands into a new category catering to the nutritional needs of our consumers. I am confident that this merger will create significant shareholder value through both revenue growth and cost synergies. The turnover of our F&R business will exceed Rs.100 billion and we will become one of the largest F&R businesses in the country. We look forward to welcoming new brands and great talent into the Unilever and HUL family, once the transaction is complete.”
The GSK CH India business delivered total turnover of around Rs 42 billion in the year ended March 2018, primarily through its Horlicks and Boost brands.
The merger of GSK CH India with HUL will be on a basis of an exchange ratio of 4.39 HUL shares for each GSK CH India share, implying a total equity value of Rs 317 billion for 100 percent of GSK CH India. Following the issue of new HUL shares, Unilever‘s holding in HUL will be diluted from 67.2 percent to 61.9 percent.
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 in India.
The transaction is expected to be completed in one year subject to regulatory and shareholder approvals.