Zydus Cadila Group has mounted an aggressive Rs 4,500 crore offer for the Kraft Heinz Company’s consumer brand business in India, outbidding the Coca-Cola Company for a portfolio that includes children’s milk drink Complan, said multiple sources aware of the developments.
The Cadila Group’s bid is conditional. Coca-Cola, the world’s largest beverage company, is now also actively pursuing GSK Consumer’s Horlicks in a potential $4 billion transaction and has been shortlisted with Nestle and Unilever for the second round of negotiations. The Kraft Heinz deal is expected to close within a month, the officials said. Ahmedabad-based Cadila Group is working with investment bank Avendus.
Once selected, Cadila may rope in a private equity partner for financing support. It had sent feelers to PE groups True North, Temasek, Warburg Pincus and Carlyle to partner them and may place its equity in a back-to-back deal. Mails sent to Kraft Heinz and Cadila did not generate a response till the time of going to press. Coca-Cola declined to comment.
DIFFERENT DEAL STRUCTURES
ET reported on September 6 that Coca-Cola and Zydus Cadila were in the running for the sale. However, a private consortium of Apax and Arpwood Partners made a strong play and emerged as a surprise bidder in the final round, until Kraft Heinz tweaked the deal.
Kraft Heinz unexpectedly decided last month to sell the European holding company that houses the India operations and wants the buyer to absorb the tax losses of that entity, registered in Italy. The original plan was to sell only the Indian operations and brands. The Italian company is held by an arm of the US parent that is registered in the Netherlands. Coca-Cola’s offer is for the European entity, while Cadila has bid only for the Indian operations. “From a pure financial bid perspective, Cadila’s bid is 10-15% higher than that of Coca-Cola, but it is only for the local operations.
The seller has to decide which structure to approve,” said one official. As an Indian company, Cadila may find it difficult to get regulatory approvals to buy an offshore entity that has most of its assets in India. Additionally, such a move may also put them on the wrong side of the tax department, especially after the Vodafone tax matter. “The Cadila bid has several conditions and the company has sought several CPs and safeguards. The sellers have other tax-related issues as well, which as a buyer, Cadila is not willing to absorb. So the negotiations are still ongoing,” said another official. Coke, according to officials, was predominantly keen on only Glucon D brand but with the complicated transaction dragging chose to focus aggressively on Horlicks instead. Kraft Heinz’s consumer business in India spans Complan, talcum powder Nycil, glucose powder drink Glucon-D and Sampriti Ghee. The brands generated approximately `1,200 crore in sales ($190 million), led by Complan and Glucon-D. A diversified portfolio and steep valuations deterred potential buyers such as Danone, Tata Group, Nestle, DaburNSE -3.81 %, WiproNSE -2.90 % Consumer and ITC.
Source: Economic Times