Unilever has inked an agreement to acquire GlaxoSmithKline’s (GSK) health food drinks (HFD) portfolio in India, Bangladesh and 20 other predominantly Asian markets.
The transaction consists of three elements:
1.All-equity merger of Hindustan Unilever Ltd (HUL) with the publicly-listed GSK Consumer Healthcare India (GSK CH India),
2.Acquisition of 82 percent stake in GSK Bangladesh Limited (GSK Bangladesh), and
3.Acquisition of certain other commercial operations and assets outside India.
Unilever’s share of the total consideration is 3.3 billion Euro, payable using a combination of cash and shares in its listed subsidiary in India, HUL.
In 2018, the GSK HFD portfolio delivered a total turnover of about 550 million Euro, primarily through the Horlicks and Boost brands. Almost 90 per cent of the turnover is in India.
The transaction is aligned with Unilever’s stated strategy of increasing its presence in the health food categories and in high-growth emerging markets.
GSK HFD is the undisputed leader in the health food drink 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 and 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 food drink 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,” he added.
“Improving the health and wellbeing of one 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,” Paranjpe said.
Sanjiv Mehta, chairman and chief executive officer, HUL, said, “With this strategic merger of HUL 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 and refreshments business will now exceed Rs 100 billion, 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,” Mehta said.
Transaction and financial considerations
As outlined above, the transaction consists of three elements:
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 Rs 317 billion (about 3.96 billion Euro) for 100 percent of GSK CH India and represents a premium of about five per cent, based on the 15-day VWAP of both the respective shares ending November 30, 2018. Following the issue of new HUL shares, Unilever‘s holding in HUL will be diluted from 67.2 percent to 61.9 per cent.
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.
Acquisition of 82% stake in GSK Bangladesh
Unilever will acquire, for cash, 82 percent of the shares of the publicly-listed GSK Bangladesh Limited at an equity value of BDT 16 billion (about 169 million Euro), implying an enterprise value (EV)/earnings before interest, taxes, depreciation and amortisation (EBITDA) multiple of about 15 times.
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 about 470 million Euro in cash.
The total consideration for the transaction is about 4.6 billion Euro, of which Unilever’s implied contribution through both cash and through the issue of shares in HUL, its listed subsidiary in India, totals about 3.3 billion Euro.
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 20 times.
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 the fourth year. In addition, the transaction will be earnings per share- (EPS) accretive, on an underlying basis, immediately post-completion.
The transaction is subject to customary regulatory and shareholder approvals, with expected completion in about 12 months.
