The transaction consists of three elements:
- all-Equity Merger of Hindustan Unilever Ltd (HUL) with the publicly listed GSK Consumer Healthcare India (GSK CH India),
- acquisition of 82% stake in GSK Bangladesh Limited (GSK Bangladesh), and
- acquisition of certain other commercial operations and assets outside India.
Unilever’s share of the total consideration is €3.3bn payable using a combination of cash, and shares in its listed subsidiary in India, Hindustan Unilever Limited.
In 2018, the GSK HFD portfolio delivered total turnover of c.€550m, primarily through the Horlicks and Boost brands. Almost 90% of the turnover is in India.
The transaction is aligned with Unilever’s stated strategy of increasing its presence in health-food categories and in high-growth emerging markets.
GSK HFD is the undisputed leader in the Health Food Drinks category in India, 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 South Asian households across generations. Over the last 15 years, the portfolio (and category) has grown at a double-digit rate. Despite this, the category still remains under-penetrated in India. Unilever is well positioned to further develop the market given the extent of its reach and capabilities.
Nitin Paranjpe, President, Food & Refreshment, Unilever, said: “We are delighted to be acquiring the GSK Health Food Drinks portfolio. 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. It is rare to be able to acquire brands with such leading market positions and fantastic consumer equity in one of the world’s most exciting and fast-growing markets.
Improving the health and wellbeing of 1 billion people by 2020 is a key pillar in our Unilever Sustainable Living Plan. Horlicks and Boost will add to our stable of purpose driven brands that help consumers to get more out of their lives.”
Sanjiv Mehta, Chairman and CEO, Hindustan Unilever said: “With this strategic merger of Hindustan Unilever and GSK Consumer Healthcare India Limited, we will be expanding our portfolio through 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 and cost synergies. The turnover of our Foods & Refreshments business will now exceed Rs. 100bn 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.”
Transaction and Financial Considerations
As outlined above, the transaction consists of three elements:
1. All-Equity Merger of HUL with the publicly listed GSK CH India
The merger of HUL with GSK CH India will be on the basis of an exchange ratio of 4.39 HUL shares for each GSK CH India Share.
This implies a total equity value of INR 317bn (c.€3.96bn) for 100% of GSK CH India and represents a premium of c.5%, based on the 15-day VWAP of both the respective shares ending 30th November 2018. Following the issue of new HUL shares, Unilever‘s holding in HUL will be diluted from 67.2% to 61.9%.
The merger includes the totality of operations within GSK CH India, including a consignment selling contract to distribute GSK’s Over-the-Counter and Oral Health products in India.
2. Acquisition of 82% stake in GSK Bangladesh
Unilever will acquire, for cash, 82% of the shares of the publicly listed GSK Bangladesh Limited at an equity value of BDT 16bn (c.€169m), implying an EV/EBITDA multiple of c.15x.
3. Acquisition of certain other commercial operations and assets outside India
Unilever will also acquire the commercial operations in 20 other predominantly Asian markets and the intellectual property rights for a total consideration of c.€470m in cash.
The total consideration for the transaction is c.€4.6bn, of which Unilever‘s implied contribution through both cash and through the issue of shares in HUL, its listed subsidiary in India, totals c.€3.3bn.
Unilever expects to achieve substantial synergies. Cost synergies are expected from a combination of supply chain efficiencies and operational improvements, go-to-market and distribution network optimisation, the benefits of scale in a number of cost areas such as marketing, and streamlining of overlapping infrastructure. The revenue growth of the HFD portfolio is expected to accelerate through leveraging Unilever’s vast local distribution and selling capabilities, particularly in India.
Post synergies, the implied EV/EBITDA multiple for the transaction would be below 20x.
By utilising HUL equity to fund the Indian component of the transaction, together with the synergies outlined above, Unilever shareholders are expected to benefit from returns well in excess of the cost of capital from Year 4. In addition, the Transaction will be EPS accretive, on an underlying basis, immediately post completion.
The Transaction is subject to customary regulatory and shareholder approvals, with expected completion in c.12 months.
Sources of information and basis of calculation
The agreed share exchange ratio in the merger of GSK CH India and HUL is 4.39 HUL shares for every 1 GSK CH India share.
The 15-day VWAP on the NSE for HUL of INR 1,717.45 and GSK CH India of INR 7,196.71 ending 30th November 2018.
The following exchange rates have been used in the above calculations: €1 = INR 80.00 and €1 = BDT 97.27.