M&A

Merger and Acquisition Strategy Of HUL

Company’s M&A Strategy
HUL’s strategy is to build a sustainable and profitable Foods and Refreshment (F&R)
business in India by leveraging the megatrend of health and wellness. One of the strategy is
to strengthen the core which is seen in surf excel as HUL is no. 1 laundry company in India.
They consider takeovers as a preferred mode of strategy for rapid expansion. They also focus
on stragies that help them to focus on their success in rural market. HUL’s main aim for
M&A is to respond to threat or fill the gap in its portfolio. It acquired ayurvedic hair oil brand
Indulekha, GSK Consumer Healthcare for its malted food drink brands and Adityaa Milk to
beef up its ice cream portfolio. Though not all its buyouts have been successful, the strategy
reflects the company’s response to take on competition. HUL is betting on pharmacy and
chemist channels as well as it recently acquired Vwash from Glenmark and this was to
strengthen its OTC portfolio that can be made available in chemist and pharmacy channels.
They also believed in expansion of product portfolio as they focused on product innovation/
relaunches or development of new market. Unilever considered takeovers preferred more its
strategy of rapid expansion in all its major business. In food and beverage sector it also
acquired Kissan products and brook bond was spearheading the acquisition which absorbed
Kissan. In cosmetic and personal care they acquired Lakme skin care and formed a marketing
company. Lakme and GSK’s merger helped them to capture international market as they got
a readymade dedicated nationwide distribution chain.

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 2019-20 GSK Ch India

2019-20 V wash

2018-19 Adityaa Milk

Kimberlly
2016-17 Clark Lever
Limited

2015-16 Indulekha

Gold Seal
2015-16 Indus valley
and Rozana

2015-16 Modern

Marine
2013-14
exports

2012-13 Aquagel

Demerger of
2011-12 FMCG
export

2009-10 Bon Limited

Introduction of the Industry

Fast-Moving consumer goods is India’s fourth largest sector with household and personal
care accounting for 50 per cent of FMCG sales in India. Growing awareness, easier access
and changing lifestyles have been the key growth drivers for the sector. The urban segment is
the largest contributor to the overall revenue generated by the FMCG sector in India.
However, in last few years, the FMCG market has grown at faster pace in rural India
compared to urban area. Semi-urban and rural segments are growing at a rapid pace and
FMCG products account for 50% of the total rural spending.

Market Size

The retail market India is estimated to reach US$1.1 trillion by 2020 from US $840 billion in
2017, with modern trade expected to grow 20-25 per cent per annum,which is likely to boost

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revenue of FMCG companies. Revenue of FMCG sector reached Rs. 3.4 lakh crore in FY18
and is estimated to reach US$103.7 billion in 2020. FMCG market is expected to grow at 9-
10 per cent in 2020.

Rise in rural consumption will drive the FMCG market. It contributes around 36 per cent to
the overall FMCG spending. FMCG urban segment witnessed growth rate of 8 per cent,
whereas rural segment grew at 5 per cent in the quarter ended September 2019.

Road Ahead

Rural consumption has increased, led by a combination of increasing income and higher
aspiration levels. There is an increased demand for branded products in rural India. The rural
FMCG market in India is expected to grow to US$ 220 billion by 2025 from US$ 23.6 billion
in FY18.

On the other hand, with the share of unorganised market in the FMCG sector falling, the
organised sector growth is expected to rise with increased level of brand consciousness,
augmented by the growth in modern retail.

Another major factor propelling the demand for food services in India is the growing youth
population, primarily in urban regions. India has a large base of young consumers who form
majority of the workforce, and due to time constraints, barely get time for cooking.

Online portals are expected to play a key role for companies trying to enter the hinterlands.
Internet has contributed in a big way, facilitating a cheaper and more convenient mode to
increase a company’s reach. It is estimated that 40 per cent of all FMCG consumption in
India will be made online by 2020. The online FMCG market is forecast to reach US$ 45
billion in 2020 from US$ 20 billion in 2017.

Deal heading and announcement date

Merger: HUL and GSK CH India

Press release: 3rd December, 2018

Merger date: 1st April 2020

Deal Type: Share swap deal of 4.39 HUL shares for every 1 share hold in GSK

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Profile of Acquirer
Hindustan Unilever Ltd (HUL),  It was incorporated in 1933 and is a subsidiary of
Unilever, one of the world’s leading suppliers of Food, Home care, Personal care and
Refreshment products. Unilever has over 67% shareholding in HUL. HUL is India’s largest
fast-moving consumer goods company with a heritage of over 80 years in India, HUL
operates in business segments, they are:

 Personal care includes products in categories of oral care skin care, soaps, hair care,
talcum powder and colour cosmetics.
 Home care includes detergent bars detergent powders
 Food and refreshment
 Water purifier called Pureit

The shares of HUL are listed on BSE and NSE and market cap is 386076 crore

Profile of Target Company

GlaxoSmithKline Consumer Healthcare Ltd (GSK), is one of the largest players in the
Health Food Drinks industry in India. The company is an Indian associate of
GlaxoSmithKline plc UK one of world’s largest consumer healthcare companies. The
company’s principal activities are to manufacture and distribute a wide range of healthcare
foods drugs pharmaceuticals and dairy products. The products include malted milk food
malted foods biscuits energy and protein foods milk powders ghee milk fluid and milk cream.
The company has its manufacturing facilities located at Nabha in Punjab Rajahmundry in
Andhra Pradesh and Sonepat in Haryana. Equity shares of GSK is listed on BSE and NSE
and the current market cap is ~₹31,758 crores.

Deal Rationale
It is a win-win situation for both GSK and HUL as it helps HUL to strengthen its refreshment
and food business HUL will enter the Health food drinks which has seen the entry of several
global as well as Indian companies of late. It can be estimated that HUL’s food and
refreshment business which currently stands at 6500 crore would rise to 10000 crore as GSK
CH’s annual sales is about 4200 crore. Also post deal GSK’s losing market share and the
threat of competition from other key players like Mondelez International(Bournvita),
Pediaure and Complan shall be effectively dealt with.

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The transaction is aligned with Unilever’s stated strategy of increasing its presence in health-
food categories and in high-growth emerging markets. With this acquisition, HUL can unlock
significant synergies and scale up the brand by building awareness, driving penetration,
leveraging distribution and enhance offering for chemist channel.The deal will give a fillip to
HUL’s food and refreshments division, which boasts of brands like Lipton, Knorr, Kissan,
Red Label and Bru, and makes up about a fifth of HUL’s revenues. 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— Eno, Crocin,
Sensodyne. The deal values the total business at ₹31,700 crore. HUL GSK Acquisition -
View presentation slides online. Despite this, the category still remains under-penetrated in
India. HUL has acquired intellectual property rights including trademarks, design and know-
how related to the VWash brand worldwide. The iconic Horlicks brand has a deep heritage,
credibility and resonance around the world. The acquisition is transformative for our Foods
and Refreshment business allowing us to enter the Health Foods Drinks category, further
strengthening our position in health and wellness. Unilever to acquire Horlicks and other
consumer healthcare nutrition products from GSK. Unilever completes share buyback
programme.

According to a report by Goldman Sachs says that HUL is well positioned to deliver a 11%
CAGR in food and refreshment over FY19 to FY25 (estimates), driven by continued growth

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in credit demand from existing customers, increasing penetration and expansion into new
geographies and further market share gains from food and refreshment. 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.

Deal Value

All the GSK shareholder will be public shareholder of HUL post-merger. There is a dilution
in the promoters’ equity by 5.28%. Simultaneously there is also an increase in the public
shareholders, the major increase being promoters of GSK holding around 6% in the public
shareholding category of HUL post-merger. GSK is valued at Rs.31,310 crores for which
HUL is issuing 18,46,23,812 Shares at a swap ratio of 4.39 Shares of HUL for each GSK
share.

HUL would spend about Rs.3.1 billion for acquiring Horlicks and other related health food
products in over 20 markets. The transaction has 3 parts, including GSK picking up a 5.7 %
stake in HUL, valued at Pound Sterling 2.6 billion (or Rs.230 million). The other two parts

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include GSK’s in its Bangladesh unit, which will be paid in cash(Pound Sterling 150 million)
and sale of brand rights and operations in other countries for Pound Sterling 416 million also
in cash. The importance of Indian arm is evident from the deal that Unilever is paying nearly
84 % of the total deal value for it. The transaction is an all equity merger with 4.39 shares of
HUL being allotted for every share of Rs.10 each in GSK CH India. Being an all stock deal,
this transaction would save liquidity for HUL and at the same time prove competitively
advantageous to HUL in the food & refreshments markets. The amalgamation would result in
consolidation of the businesses of two companies resulting in expansion of the markets and
adding greater value to shareholders /stakeholders. The deal also includes the acquisition of
certain other commercial operations and assets outside of India. The benchmark BSE & NSE
indices ended largely flat on December 3, 2018. The S&P BSE Sensex ended at 36,241, up
47 points or 0.13 per cent, while the broader Nifty50 index settled at 10,884, up 7 points or
0.06 per cent. Share prices of HUL rose 4.1 percent in BSE& NSE to a record level than the
previous date than a year ago, while GSK CH added 2.8 percent to its highest level since
September 21,2018 in NSE. In London, GSK CH slumped 7.6 percent, the most in a decade,
while Unilever NV was little changed in Amsterdam. Shares of HUL and GSK CH moved
higher on the BSE, after their respective Boards approved their merger, subject to obtaining
requisite approvals from statutory authorities and shareholders. HUL settled at Rs 1835, up
4.6 per cent, while the GSKCH ended 3.6 per cent at Rs 7,531 on the BSE. Multinational
consumer goods major Unilever confirmed it was acquiring Horlicks and other health food
products in an all-equity merger.

Deal Structure
The merger of GSK Consumer Healthcare Ltd. with HUL will based on an exchange ratio of
4.39 HUL shares for each GSK share. Appointed date shall mean same date as effective date
or such other date that is mutually agreed in writing between GSK and HUL. GSK consumer
lead brand Horlicks will be acquired by uniliver i.e. the parent company of HUL. The FMCG
space in India is up for bigger things with Hindustan Unilever’s proposed acquisition of
GlaxoSmithKline Consumer Healthcare India for Rs 31,700 crore, a deal which is being seen
as one of the most expensive in the country’s consumer goods market.

The merger will witness an expansion of HUL’s portfolio, which will include iconic brands
such as Horlicks and Boost, into a new category catering to the nutritional needs of their
consumers. “Brands such as Horlicks and Boost are iconic, and we are excited to have them

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in the Hindustan Unilever fold. The merger gives us a unique opportunity to live our purpose
and serve India where nutrition related challenges form the largest causes of disease –
malnutrition and micronutrient deficiency - and aligns well with the government’s ambitious
Swasth Bharat and Poshan Abhiyan programs. I am delighted to welcome the 3500 – strong
Nutrition team to the HUL family," said Sanjiv Mehta, Chairman and Managing Director,
Hindustan Unilever

Deal Advisor

Bank of America Merrill Lynch was the sole Advisor of HUL for this deal while GSK was
adviced by Morgan Stanley & Co. International Plc and Green Hill & Co. International LLP.

 You need to capture closing timeline and list why it could take time
between signing a deal and closing a deal.
HUL made the first announcement 3rd December and that was subject to approvals and the
approval then got secured HUL have approved HUL acquiring the Horlicks brand for India
from GSK for a consideration of Euro 375.6 mln (INR 3045 Cr). This was an option available
in the original agreement made between Unilever and GSK. The other brands which were
under the ownership of GSKCH like Boost, Maltova and Viva come to HUL’s brand
portfolio by virtue of the merger.

You need to capture and comments on public (press) statements by

buyers and sellers at the time of signing the deal.
Unilever uses pricey HUL shares to pay top dollar for GSK Consumer: With the HUL-GSK
merger, Unilever avoids the rigmarole of an open offer for GSK Consumer Healthcare's
shareholders, and the possibility of having two listed subsidiaries in India

GSK to sell 6% stake in HUL for $3.7bn: Report If the deal happens, the deal could value
GSK’s stake in HUL at Rs 26,580 crore ($3.7 billion), based on HUL’s December 13 closing
price of Rs 2,005.30 per share, or an about 17 percent appreciation over its pre-merger price

NCLT approves scheme of amalgamation for HUL-GlaxoSmithKline Cons merger: “We

wish to inform you that the Hon'ble National Company Law Tribunal, Mumbai Bench, vide
its order dated 24 September, 2019, has sanctioned the aforesaid scheme. This order is

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subject to sanction of the scheme by the Hon’ble National Company Law Tribunal,
Chandigarh Bench,” the firm stated on Wednesday.

You need to present your idea of Post Merger/Acquisition Integration.

In long term, benefits from synergy extraction are estimated to be even bigger and more
durable for HUL, which is seeking to establish its leadership credentials in the Indian
packaged foods business. HUL intends to allocate more resources to strengthen the brands
that could become the mainstay of its foods business. This deal in true sense can be a boost to
HUL. The amalgamation of Unilever & GSK CH would be favourable to both companies and
create value addition through increased sales revenue and expansion of consumers from vast
segments of the FMCG markets. The value creation logic of the amalgamation of both
companies would lead to revenue enhancement through access to new and vast segments of
the market and exploit the opportunity to cross sell in the FMCG sector through overarching
distribution channels. Motivation to the synergistic Research and development (R&D) is
another dimension of the amalgamation of the two Giants – HUL & GSK CH. Reduction in
the costs of R& D would through acquisition of GSK CH for HUL

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Reference

https://www.moneycontrol.com/news/business/gsk-to-sell-6-stake-in-hul-for-3-7bn-report-
4733701.html

https://mnacritique.mergersindia.com/hindustan-unilever-gsk-consumer-healthcare-merger/

https://www.campaignindia.in/article/hul-gsk-consumer-healthcare-merger-completed/459207

https://www.business-standard.com/article/companies/merger-complete-focus-now-shifts-to-
integration-of-hul-gsk-operations-120040101670_1.html

http://heb-nic.in/cass/admin/freePDF/z3syst63rf2wzvb5v2x5.pdf

https://www.cnbctv18.com/retail/hul-completes-merger-of-gsk-consumer-with-itself-
5602721.htm#:~:text=The%20merger%20values%20GSK%20Consumer,as%20Sensodyne%2C
%20Eno%20and%20Crocin.

https://www.motilaloswal.com/site/rreports/636795105631397108.pdf

https://www.indiainfoline.com/article/general-editors-choice/hul-%E2%80%93-gsk-consumer-deal-
what-is-there-for-the-shareholders-118120300182_1.html

https://www.exchange4media.com/marketing-news/hul-gsk-merger-a-win-win-for-both-sides-
93251.html

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