German consumer goods firm Henkel AG has called off talks to acquire a 26% stake in Indian soaps and detergent maker Jyothy Laboratories Ltd, a top company executive said.
Henkel AG chose not to exercise its option to buy as much as 26% in Jyothy Labs because the companies were not happy with the direction the talks were taking, Ulhas Kamath, joint managing director of Jyothy Labs, said in an interview on Tuesday. Henkel’s period of exclusivity, or the time a seller gives a buyer to agree to a transaction before the assets are offered to others, expired on 31 October after being extended from 31 March.
“We were talking to them and helping them exercise their options, and we agreed it was not going the way we want and they want,” Kamath said. “We will keep exploring the possibility of working with them because our relationship is great; we have been working with them for five years now. We don’t mind working with them.”
“Some of the terms were not acceptable to us, and the board was clear not to extend the deadline any further. We are still working with them,” the company’s management said in an investor call on 4 November. In the meantime, Jyothy Labs will focus on “organic growth” and will look out for other partnerships and acquisitions. “We are the right fit for companies coming to India. We will wait until GST settles,” Kamath said.
Meanwhile, Jyothy Labs will continue to sell Henkel’s detergent brand Pril and soap brand Fa through a licensing agreement. Royalties for the two brands will remain unchanged at 2% of revenue, Kamath said.
Jyothy first began talks and entered a period of exclusivity with Henkel to sell the stake in June last year, although it had agreed on exploring this option in 2011 when Henkel sold most of its India business to Jyothy Labs. In February, Henkel began due diligence to begin the transaction. Henkel’s stake purchase would have also triggered an open offer for public shareholders to sell their shares as per the Indian market regulator’s takeover code if it chose to buy more than 26% stake.
“Whatever the stock price drop has been today, it has been because of this deal, because the company’s numbers are not bad at all,” said an analyst at an equities brokerage firm on Jyothy Labs’ Q2 results, requesting anonymity. “What had happened is that the deadline for this stake sale was extended to March and then again to October, so there was a lot of expectation in the market that the deal will go through. So there was some buildup in the stock price. What would have happened with this deal is that if the promoters had kept their stake to just 50%, it would have led to more clashes in the management because MNCs have a very different way of thinking,” the analyst added.
Jyothy Lab’s promoters, members of managing director M.P. Ramachandran’s family, own 66.87% of the company as of September 2017, according to stock exchange filings.
Jyothy Labs also announced its results for the quarter ended September 2017 along with this announcement, where it posted a 46.9% year-on-year increase in profit after tax to Rs45.7 crore. The firm’s revenue from operations declined 0.5% year-on-year to Rs429.9 crore.
Shares of Jyothy Labs fell 14% to Rs335.95, while the benchmark BSE Sensex shed 1.07% to close at 33,370.76 points.
Source: Mint