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HUL formerly known as HLL is Indias largest consumer

products company with an annual turn over of Rs. 13,000 Crores (2007)
Brooke Bond is a brand-name of tea owned Co by Unilever,

formerly an independent manufacturer in the United Kingdom, known for its PG Tips brand and its Brooke Bond tea cards.


Merger of
Hindustan Vanaspati Manufacturing Company(1931)

Lever Brothers India Limited (1933)

United Traders Limited (1935)


Brands like Lifebuoy, Lux, Surf Excel, Rin, Fair and Lovely,

Ponds , Sunsilk the list is endless Boost for HLL in India: Liberalization of Indian economy in 1991 Removal of Regulatory framework

Brooke Bond Lipton India Ltd.

Presence of Brook Bond in India dates back to 1903.

Unilever acquired Brooke Bond through an international

acquisition in 1984. Unilever acquired Lipton in 1972. Brook Bond and Lipton Tea Ltd were merged in 1993 to form BBLIL.

HLL - BBLIL Merger (The Case)

Case analyzes the charges of

insider trading by SEBI against the merger of HLL and BBLIL Controversy - Illegal purchase of BBLILs 8 Lakh shares by HLL, prior to public announcement of their merger. SEBI: suspected insider trading and conducted enquiries. SEBI issued a show cause notice to HLL.


Insider trading is buying and selling of securities by the insider of

a company who has price sensitive information about the company. It can be both legal as well as illegal. Having special knowledge is unfair to other investors who are oblivious to any such information.


Insider trading is for listed companies only. Merchant bankers and intermediaries come under the purview . Punitive in nature It is defined what constitutes insider trading

and then the offender is punished accordingly.

Mergers and Acquisitions (M&A)

M&A Aspect of corporate strategy dealing with buying, selling

and combining of different companies for synergy. Merger is what concerns us - this may fraught a stock swap or cash payment. Stock swap - The ratio in which an acquiring company offers its own shares in exchange for the target company's share.


Eliminate competition. To manage growth. To reduce operating costs. Expansion plans- venturing out into a different field. To be able to control pricing.

Entities Involved



Merger was certain as HLL had started consolidating. The big question was WHEN would the merger take place. There was no formal announcement from the companys side,

however speculation about the same had been doing rounds in the market.

Sequence of events

HLL purchased 0.8 million shares of BBLIL from UTI at Rs.

350.35 per share. Transaction took place on March 25, 1996. On 19 April 1996, HLL notified the stock exchange of its proposal to merge with BBLIL. A day after the announcement of the merger, BBLIL scrip quoted @ Rs. 405 leading to a gain of 4.35 Crores for HLL.

Preparing for the war

SEBIs crack down with Indias first ever guilty verdict for an

insider trading offence.

HLL marshaled its formidable corporate resources to battle it out

against SEBIs charges.

The Allegation

August 4, 1997, SEBI issued a show cause notice to HLL

claiming that there was prima facie evidence of the company indulging in insider trading.
Alleged HLL of using price sensitive information prior to its

merger with BBLIL.

SEBIs Verdict

The timing of the deal and HLLs buying of shares further

suggests that the HLL management was almost certain and all geared up for the merger.
March 1998, SEBI found HLL guilty of insider trading as it had

bought shares of BBLIL from UTI even when it was completely aware that a merger was impending.

Case Analysis

SEBI s view: A Thin line exists between an honest action and a

Pragmatic evaluation of insider trading - An onerous task. HLL and BBLIL were under a common management - This

bolsters the speculation of complicity

HLLS Contention

No company can be an insider to itself Transactional knowledge existed as it was a primary party to the

merger and not because BBLIL was an associate company. It further endorsed its argument by stating that allegations would not have been made if HLL had purchased shares of TOMCO - as the two were not associated.

HLLs Arguments

Only information about swap ratio is price-sensitive and this

wasnt known to HLL or its directors when the BBLIL shares were purchased.
The news of the merger was not price-sensitive as it had been

announced by the media before companys announcement.

Merger - Generally unknown

An absurd argument put forth by HLL was information about the

merger was known in the market. It was giving speculation as a justification for its clandestine behavior. In fact BBLILs management also concealed information of the merger. It could have informed UTI about the merger when the latter held 8 Lakh shares.


HLL agreed that shares had been bought with the sole intention of

increasing stakes in BBLIL.

UNILEVER wanted to own a 51% stake in HUL. However, section 3 of SEBI [prohibition of] insider trading

regulations clearly defines insider trading irrespective of the fact whether profits have been made or not.

SEBIs charge and HLLs justification

Instead of buying shares from the secondary market, the method

of preferential allotment could have been adopted by HLL. Such a step would have involved various compliances/clearances, and required Unilever to bring in substantial funds in foreign exchange. The implication: HLL depleted its reserves to ensure that Unilever did not have to bring in additional funds.


HLL argued that issuing of preferential share would have been a

cheaper option to ensure that it had a 51 per cent stake in HLL.

While the preferential route would have been beneficial for itself,

it would have been detrimental for other shareholders- would lead to a lower EPS.


SEBI accused HLL of dealing with BBLIL shares on the basis of

unpublished price-sensitive information which is prohibited under Section 3 of the Regulations. Section 2 (k) states that unpublished, price-sensitive information relates to amalgamations, mergers, and takeovers or is of concern to a company and is not generally known or published. SEBI held that there can be no dispute that the information of the overall fact of the merger fell under this definition.


Generally it is difficult to determine whether there exists a case of

insider trading. All points in this case indicate a clear case of insider trading. Merger definitely price sensitive information. HLL depleted its reserves for one specific shareholder at the expense of other share holders- violation of corporate governance.

On a lighter note

SEBIs verdict is a black spot on a company that excels in

cleaning them up. SURF EXCEL HAI NA