In the largest single investment in the Indian consumer goods sector, Anglo-Dutch giant Unilever on Tuesday offered to pay $5.4 billion (over R29,380 crore) to raise its stake in its Indian unit Hindustan Unilever (HUL) to 75% through an open offer, sending its shares zooming by 17% and adding Rs. 18,550 crore to the company’s market value on a single day.
Unilever currently holds 52.48% in HUL, the maker of detergent brand Rin, Dove soap and Fair and Lovely skin cream.
The offer to buy up to 487 million shares or 22.5% of HUL’s existing equity is the latest big bet on long-term consumer demand in India. It also reflects Unilever’s focus on emerging markets amid weakness in the US and Europe. Emerging markets, which make up 57% of Unilever’s turnover, have contributed double-digit growth in recent quarters.
“This (open offer) represents a further step in Unilever’s strategy to invest in emerging markets and offers a liquidity opportunity at what we believe to be an attractive premium for existing shareholders,” said Paul Polman, CEO, Unilever. “The great brands of HUL, and the significant growth potential of a country with 1.3 billion people makes India a strategic long-term priority.”
Unilever will pay Rs. 600 a share in an open offer which is 21% higher than HUL’s closing price of Rs. 497 on the Bombay Stock Exchange on Monday. The offer, payable in cash, is expected to begin in June 2013.
For investors, this should be a long-term bet, said analysts, suggesting that those with short-term views should tender shares.
“Already at Rs. 500, after yesterday’s results, the stock was fairly rich. With this 20% kind of premium it becomes quite a good sell,” said Raamdeo Agrawal, director and co-founder, Motilal Oswal Financial Services. “But for a very long-term investor, who survived the slump of 2001 to 2010 period, it would make sense to hold on. The company is now doing well and they have found their growth track in businesses they are in.”
The announcement comes a day after HUL announced a 15% rise in net profit for the quarter ended March 2013.
In a similar deal in November, UK-based GlaxoSmithKline Plc offered to buy a further 31.8% stake in its Indian consumer products business for $940 million.