Glaxo is seeking to benefit from the surge in HUL stock, which has climbed a fifth since the deal was announced a year ago. By contrast, the Sensex has declined about a fifth. At Rs 4.72 lakh crore, HUL is India’s fourth most-valued company.
The transaction is priced between Rs 1,850 and Rs 1,950 per share, offering a 3 per cent to 8 per cent discount to HUL’s Wednesday closing price of Rs 2010.2 on the NSE, according to the terms of the transaction seen by ET. Based on this, the deal will be valued between Rs 24,750 crore and Rs 26,090 crore.
The implied value of HUL, based on the swap ratio announced in December 2018, was Rs 1,717 per share. The current market value of HUL is about 17 per cent higher.
Around 134 million shares, totalling 5.69 per cent of outstanding as of April 21, 2020, will be offloaded, according to the term sheet. The merger of GSK Consumer and HUL had taken place on the basis of a swap exchange ratio of 4.39 HUL shares for each GSK Consumer share held.
The holding of promoters of HUL would reduce to 61.50 per cent from 67.19 per cent. Foreign funds, local funds and insurers own 12.10 per cent, 2.87 per cent and 3.39 per cent, respectively.
JP Morgan, Morgan Stanley and HSBC are the book runners to the trade.
Analysts believe that merger of HUL and GSK Consumer will have substantial revenue and cost synergies in the next three to five years, ranging from media efficiency, lower staff cost, distribution advantage and lower corporate overheads. All these may drive margin expansion up to 1,000 basis points.
HUL’s distribution, which is nearly three times of GSK Consumer, would help deeper penetration of GSK consumer products. Credit Suisse in note after the GSK merger said that GSK had one of the highest fixed cost structures in the FMCG industry in India.
Its costs excluding material costs and advertising spends were 34 per cent of sales in FY19. At HUL, it was 19 per cent of sales.
“HUL is seen as the most efficient in the (Indian FMCG) pack. In this context, we expect the twin overhang of possible collateral damage from a sharp slowdown in overall economy, and GSK Plc’s upcoming stock-offering to keep the stock price under check for the time being,” JM Financial analysts Richard Liu, Vicky Punjabi and Nikita Maheshwari wrote on April 30.