BHUBANESWAR : Unilever is poised to pip Nestle SA to buy GlaxoSmithKline Plc’s consumer-health business in India with $3.4 billion all-cash offer for a 72.5 per cent stake. If the deal is sealed in favour of Unilever, it would give a huge fillip to the company’s position in India. Experts say that GSK is likely to merge its acquired business with HUL making it the largest food and refreshment company in India post the acquisition.
“If Unilever Plc acquires this business, our sense is the same will be merged with HUL at some point in time. Considering ~`41.6bn of GSK’s health food drink topline getting merged with HUL, the overall revenue pool for HUL from foods and refreshments segment will increase to 27 per cent, a 900 bps increase,” said Abneesh Roy, Senior Vice-President (Institutional Equities Research), Edelweiss Securities.
Food and refreshments contribute 18 per cent of HUL’s revenues, whereas the proportion of food and beverage for Unilever globally is 41.7 per cent. Meanwhile, GSK’s earnings before interest and taxes margins have been consistently higher than HUL’s food and refreshment business. “In FY18, it was higher by 340 bps. Thus, GSK will be margin accretive to HUL’s F&R business,” Roy noted.
Citing confidentiality obligation, HUL on Thursday said it cannot disclose details on the particular case, while GlaxoSmithKline Consumer Healthcare Thursday confirmed that “consideration is being given to a potential transaction”. However, sources say that Unilever have won out after revising its initial share-swap offer into an all-cash deal. A definitive agreement is likely to be signed as early as next week.
A section of analysts say the valuation is on the steeper side considering the health drink category has not been growing for quite a few years, while others say Unilever may reinvent the product and position it as something else, but not a health food drink. Also, their reach of more than six million outlets with strong presence on shelf space will help Unilever gain a competitive edge in the country. As part of the agreement, Unilever will also help GSK sell its over-the-counter and oral care brands.