GSK Plc on Wednesday began inviting bids to sell its entire 5.7 percent stake in Hindustan Unilever. The deal--valued anywhere between $3.2 and 3.4 billion--will be struck in the price range of Rs 1850-1950 per share, and will be formalised on the stock exchanges on Thursday, sources part of the deal told CNBC-TV18.
HUL shares closed at Rs 2001.80 on the NSE on Wednesday, down around 2 percent over the previous close.
GSK Consumer shareholders got 439 HUL shares for every 100 GSK Consumers shares following Unilever's
acquisition of GlaxoSmithKline’s health food and drinks portfolio in December 2018.
The important part about this trade is that GSK is looking to sell the entire stake in one large trade instead of part sale. This means there will be no overhang of further share sales by GSK in HUL.
Buyers are likely to be institutions, both foreign and domestic, sources said. This eliminates the possibility of HUL’s parent Unilever Plc buying the stake from GSK. Because of the dilution following the share swap under the merger terms, Unilever’s stake in HUL has fallen to 61.9 percent from 67.2 percent.
As a result of Unilever’s stake dilution, the free float (public shareholding) of Hindustan Unilever increased from 32.8 percent to 38.1 percent, thereby resulting in an increased weightage on the Nifty and other passive indices like MSCI.
GSK’s impending sale was among the many factors that dragged HUL's stock price of late. Over the last month, the stock has fallen around 23 percent after hitting a record high of Rs 2614 on April 8. The other reasons for the slide were lower revenues due to the nationwide lockdown, expensive valuations of 64 times one-year forward earnings, and some profit booking after a stellar 54 percent rise over the 12 months.
Analysts, traders and fund managers are likely to focus on the key positives triggers.
Past trends show that HUL has been the company that bounces back the fastest after any disruption in the FMCG sector. This was on display after Patanjali's aggressive strategy in the naturals space, and policy disruptions like demonetisation and the Goods and Services Tax.
The street will also be eyeing the growth opportunities that Horlicks and Boost bring to HUL.
In an interview with CNBC TV-18 in Jan 2020, Sudhir Sitapati (ED, Foods & Refreshment at HUL) said that Horlicks is a dream acquisition due to its low category penetration and high gross margins. The company expects a 10 percentage point synergy benefits from this deal. Brokerages ascribe an earnings per share accretion of anywhere between 5-10 percent on account of this.
In the past, HUL has shown remarkable growth via acquisitions like Pears, Kwality, Kissan, Knorr, Lipton and recent ones like Indulekha & Adityaa Milk. HUL acquired Indulekha in 2015 for Rs 330 crore and the brand is worth over Rs 2,000 crore as of 2019.
The final trigger would be how Hindustan Unilever carries itself into newer categories by Bolt-On acquisitions like V-Wash and some more opportunities that may arise due to COVID related disruptions.
For all the above triggers, the stock isn’t particularly cheap at 57-58 times one-year forward earnings. Wonder what the erstwhile ambassador for the Surf brand have to say about the stock. "HUL ki khareedari mein hi samajhdari hai"?
First Published: May 6, 2020 4:55 PM IST
