UnileverNSE -0.21 % said it had used the buyback of Hindustan Unilever shares five years ago and the subsequent near-three-fold increase in share price of the Indian unit to ‘secure’ last week’s GSK Consumer Healthcare transaction.
The company had in 2013 acquired an additional 15% stake in HUL through a buyback at Rs 600 per share. In the last five years, the share price of the Indian unit has risen to Rs 1,700 per piece, and this has helped more than nullify the impact of Unilever’s 5.3 % stake dilution in Hindustan Unilever, caused by the merger with GSK Consumer Healthcare.
The growth of HUL shares resulted in ‘an effective gain of € 1.7 billion’ (Rs 14,021 crore) for Unilever, CFO Graeme Pitkethly told analysts in a global investor meet last week. Unilever has arrived at this figure by deducting about € 0.9 billion (the price it paid for acquiring a 5.3% stake at the time of the buyback) from € 2.7 billion (the current value of the 5.3% stake).
“…We have used about one third of those (buyback) shares in securing this transaction.
Therefore, we have been able to take the gain that we had in the run up of the shares, and then use that to acquire a different set of cash flows, and access to the synergies in the GSK,” said Pitkethly.
Last week, Unilever announced an all stock deal to merge HUL with GSK Consumer Healthcare.
As a result of the merger, Unilever’s shareholding in its Indian subsidiary will come down from 67.2% to 61.9%. GSK, the parent company of GSK Consumer Healthcare, will hold 5.7% in HUL.
In addition to the India leg of the transaction, GSK will also sell its 82% stake in GlaxoSmithKlineNSE -0.20 % Bangladesh and other related brand rights for GSK’s consumer healthcare nutrition activities, including its prize brand Horlicks to Unilever, for which it is expected to receive cash proceeds worth £566 million, or Rs 4,987 crore.
Pitkethly, along with Unilever’s CEO Paul Polman and divisional heads, was in India for a two-day annual investor conference held in Mumbai. He said his calculation and correlation with GSK deal was to emphasise on how its local unit fared in terms of value creation for investors. HUL’s valuation on the benchmark index BSE has risen from about Rs 1.3 lakh crore five years ago to `3.9 lakh crore now, and accounts for about a quarter of Unilever’s market cap.
HUL expects to grow GSK’s business in double digits with potential to increase margins between 800 to 1000 basis points at 8% to 10% in the medium term.
Also, since HUL is acquiring all assets, it will also get access to the `3,850 crore cash balance at GSK Consumer, which can either be put to operational use or paid to shareholders.
Source: Economic Times