Consumer goods major Hindustan Unilever (HUL), which had earlier planned to sell its 49% stake in its BPO unit to Capgemini SA by March 2009, now plans to do so only by March 2010. The maker of Lifebuoy soaps and Surf detergent has amended the shareholder’s agreement with Capgemini SA allowing it to exit a year later than originally planned, according to HUL’s latest annual report, a development, which people familiar with the matter attribute to valuation differences between the two partners.
The FMCG major had divested a 51% stake in the BPO business (earlier known as Unilever India Shared Services ) in October 2006 in line with its strategy to focus on core businesses such as home and personal care (HPC) and foods.
When contacted, an HUL spokesperson denied the existence of valuation differences. “There are no valuation differences with Capgemini. The put/call option has been postponed for one year by mutual agreement, as it was felt that continued association of both companies in the joint venture was valued to be good for both parties.”
In a reply to a questionnaire sent by ET, a Capgemini spokesperson said, “Capgemini maintains an excellent relationship with Unilever; the Group acquired last year 100% of Unilever’s BPO F&A activities in Latin America. We cannot comment on Capgemini’s stake in Indigo for confidentiality reasons. However, we strongly deny that talks have fallen through as valuations were a concern.”
The persons close to the development quoted earlier said the move was a natural outcome of the changed financial and stock market conditions. In 2006, it was boom time for the IT/ITES industry and PE multiples were at an all-time high. Since then, it has experienced tremendous volatility, experiencing a crash, post-Lehman bankruptcy in September 2008, and then reviving, post-March. According to Bloomberg estimates, BPOs with $25-100 million in revenue were valued at 10.5 times the PE in 2006. The current valuations are around eight times.
Capgemini is a leading provider of consulting, technology and outsourcing services. It picked up a majority stake in Unilever India Shared Services and renamed it Capgemini Business Services India to leverage its expertise and capabilities and extend the business outside of the Unilever Group.
The acquisition was made to strengthen Capgemini’s finance and accounting business process outsourcing (BPO F&A) capabilities, a company official said. A call/put option is a financial contract between the buyer and the seller to buy shares at a specified time in the future.
Buying a ‘call’ option on a stock gives one the right to buy the stock; while buying a ‘put’ option confers the right to sell, with both options not being obligatory.
In 2008, Capgemini and Unilever were also reported to have entered into a 7-year agreement to deliver a full range of BPO financial shared services to Unilever’s businesses in Latin America, including transactional tax services for Unilever Brazil.
Source: Economic Times