HUL-GSK Deal explained

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      HUL-GSK Deal explained by Stocksbaazigar

Let’s discuss some important points of HUL-GSK Deal before discussing what to do in HUL shares? 

  
  • Hindustan Unilever Ltd. acquired GlaxoSmithKline Consumer healthcare at a share swap ratio of 4.39:1, valuing the all-stock merger at Rs. 31,700 Cr.
  • Bank of America Merrill Lynch was the sole Advisor of HUL for this deal while GSK was adviced by Morgan Stanley & Co. International Plc and Green Hill & Co. International LLP.
  • Following the issue of new HUL shares, Unilever’s holding in HUL will drop from  67.2% to 61.9%.
  • GSK Plc. will become the second largest shareholder in merged entity with 5.7% stake. It can offload this stake to any Investors and HUL does not have exclusive rights to buy these shares.
  • For HUL India Foods and Refreshment contribute 18% of the revenue, whereas the proportion for the parent Unilever is 41.7%
  • After the merger, the combined revenue of HUL’s Foods and Refreshment revenue will cross Rs.10,000 Cr.
  •   After completion of the deal, HUL will become India’s largest Food company listed on Indian Stocks Market.
  •  Boost, Maltova and Viva brands will be owned by HUL. However, Horlicks brand which is currently owned by GSK Plc. is acquired by parent company Unilever. HUL will pay for its royalty in India.
  • Horlicks is Market Leader in Malt-based Beverages with 43% Market share in India followed by Bourvita of Mondelez International which has Market Share of around 13%.
  • HUL will get distribution rights of  Oral Health Care and OTC products of GSKCH like Sensodyne, Crocin, and Eno for five years.
  • This deal in the health and wellness category is very strategic and transformative as there will be great synergy in topline and costs after the merger.
  • HUL reaches 8.2 Million outlets. It will help GSK’s brand reaching three-fold of the current distribution.
  • HUL’s Margin in food business will get enhanced by 900 basis points to 27% from the current 18% of sales with sustainable profitable growth.
  • HUL will increase it’s margin by 8 to 10% in medium terms after this Merger.

What to do in shares of HUL after the announcement of the deal now?

From last three months Nestle, HUL and Private Equity were eying for this Merger. But Market knew that only HUL had the Muscles to Pull the deal as it offered all-stocks deal whereas others offered Cash or combination of Cash-Shares deal. HUL gave good valuations to GSK, which is evident from the Swap-ratio finalized in the deal.

  GSK share should move up after this news while HUL share should correct. This seems Win-Win deal but if you will study it closely, you will realize that GSK got a slight advantage in it. Distribution Muscles of HUL will help GSK brand products penetrate the Indian Market more effectively.

HUL definitely has long-term benefits of this deal as explained in the discussion. But on short-term we might see some profit booking in the stock as it has already priced-in this HUL-GSK deal in Stock Price of HUL. HUL reached to 1800+ from 1500+ in just 3 months. HUL is a bluechip stock which has given consistent returns to its shareholders. Analysts have given thumbs up to this deal and have increased its 1-year target from 1800 to 2010-2050 now.

(Disclaimer: Stocksbaazigar Mr. Deepak Doddamani is NSE’s Certified Investment Analysis Professional and NSE’s Marketing Professional Level – 4. He is not SEBI Registered Advisor. Stocksbaazigar is not responsible for any of your Gains/Losses. Please consult your Financial Advisor before taking any investment related decisions. Thank you)

Video explanation on HUL-GSK deal: