Date: 8 October, 2020
by Varun Litoriya, NLU Odisha
HINDUSTAN UNILEVER LTD (HUL)
Hindustan Unilever Ltd (HUL), was established in 1933 and is a Unilever subsidiary. Unilever had more than 67% of HUL shares.
HUL is the leading fast-moving consumer goods company in India. Before the Merger, HUL was operating in four business segments, they were: Personal care, Home Care, Foods & Refreshments and Water purifier.
The shares of HUL are listed on BSE and NSE and earlier market cap was ~₹3,86,076 Crores.
GLAXOSMITHKLINE CONSUMER HEALTHCARE LTD (GSK)
GlaxoSmithKline Consumer Healthcare Ltd (GSK), before the merger, was one of the largest players in the Health Food Drinks industry in India.
The company is an Indian subsidiary of GlaxoSmithKline plc and is one of the biggest consumer healthcare companies in the world.
Equity shares of GSK were listed on BSE and NSE and the earlier market cap was ~₹31,758 Crores.
MERGER BY CASH DEAL
Hindustan Unilever Ltd (HUL) concluded with itself the merger of GlaxoSmithKline Consumer Healthcare Limited (GSKCH), more than a year after the first announcement of the Rs 31,700 crore mega-deal.
After receiving permission from HUL's board of directors, the company paid Rs 3,045 crore to buy the Horlicks brand for India from GSK — exercising the right available in the original contract between Unilever and GSK.
Unilever has bought the right to buy Horlicks for their subsidiaries hence royalty to be paid by HUL to Unilever UK at 1% of turnover for its use in India.
The deal has enabled the HUL to utilize cash on its balance sheet, create value for shareholders and helped them drive better salience in a local context.
Hence the case in the present matter the revenue of HUL will increase by this cash deal.
MERGER BY AN EQUITY SHARE DEAL
All GSK shareholders have become HUL post-merger public shareholders. There was a 5.28 percent dilution in the equity of the promoters.
At the same time, there was also a rise in public shareholders, with the largest increase being GSK promoters holding about 6 per cent in the HUL post-merger public shareholding category GSK was valued at Rs 31,310 Crores for which HUL offers 18,46,23,812 shares for each share of GSK at an exchange ratio of HUL 4,39.
From the original contract between Unilever (UK) and GSK PLC (UK), the HUL exercised their option.
GSK Plc (including group companies) now owns 5.7 percent of the combined company post- completion; while Unilever's shareholding in the merged entity is 61.9 percent versus 67.2 percent before the merger.
GSK's products such as Horlicks, Boost, and Maltova are now part of the food and refreshment sector that comes under the category of nutrition.
As part of the merger, 3,500 workers are now part of Anglo-Dutch giant Unilever's Indian arm. Under the deal, HUL is selling the country's GSK brands such as Eno, Crocin, Sensodyne etc.
The advantages of HUL buying GSK is that the HUL’s distribution which is nearly three times GSK Consumer would help deeper penetration of GSK consumer products.
The further merger will make the food and refreshment company of HUL 1.6 times bigger and give it a valuable nutrition brand. The merger is consistent with HUL 's strategy of building a viable and profitable F&R business in India.
GSK and HUL foresee substantial synergies across supply chain opportunities and organizational changes, market-to-market and distribution network optimisation, cost-effectiveness scales such as marketing and overlapping infrastructure optimisation.
Under a consignment sale arrangement (5years), HUL will market GSK's over-the-counter and oral health items.