Mumbai: Anglo Dutch consumer products giant Unilever Plc on Tuesday launched a $5.4 billion, or Rs 29,000 crore, voluntary open offer to buy shares from the public in India. The offer, which is the largest in the country's history, will see the parent raising its stake in Hindustan Unilever (HUL) to 75%
Unilever, which currently holds 52.48% in HUL, is offering shareholders Rs 600 per share—a 26% premium to last one month's average trading share price—to tender their shares. HUL shares soared after the Tuesday morning announcement ending 17%, or Rs 86, higher at Rs 583.60. The move signifies Unilever's conviction in the growth story of India, as HUL reported steady growth over the last two years and actively invested in categories driving future sales. But it also provided heft to a gathering trend of market leading global companies delisting from Indian bourses, or limiting the local investor participation in one of their biggest growth engines worldwide.
"This represents a further step in Unilever's strategy to invest in emerging markets and offers a liquidity opportunity at an attractive premium for existing shareholders. The long heritage and great brands of Hindustan Unilever, and the significant growth potential of a country with 1.3 billion people makes India a strategic long term priority for the business," said Unilever CEO Paul Polman in a statement.
Unilever currently garners 55% revenue from emerging markets, and a faster pace of growth could see them contribute almost 75% of the business by 2020. Unilever has accelerated momentum in markets like India to offset slowdown in the developed world. Unilever will acquire up to 487 million shares representing 22.52% of the total outstanding shares of HUL under the voluntary offer managed by HSBC Securities and Capital Markets (India).
Sebi regulations require a minimum 25% public float to remain listed in the country. A Unilever spokesperson said there was no delisting plan on the anvil. The organization sees benefits in projecting HUL as an "Indian company" in addition to attracting good talent, he added. "India and Brazil are the No. 2 operating companies for Unilever after the US. It is an
attractive proposition for Unilever to increase holding in the Indian subsidiary," the spokesperson explained. The FMCG behemoth's local units in India and Indonesia faced some investor heat after recent moves to hike royalty payments to the parent. Unilever's ownership of the Indonesian unit stands at 85%, while it operates wholly owned subsidiaries in China and Brazil. Global rival Procter &Gamble India has a large part of its Indian business parked under a 100% company, P&G Home Products, though it operates another listed local company (Procter & Gamble Hygiene andHealth Care) as well.
HUL's higher dividend payout this year, and now an offer to buy shares at a premium, are seen by some as a means to assuage the investor fraternity perturbed after the increased royalty payouts. The annual results announced a day earlier exceeded analyst estimates, with volumes improving despite a slowdown in the industry growth. HUL is currently trading within striking distance of the voluntary offer price, with a section of the investors anticipating an upward revision factoring in the future growth. The Unilever spokesperson, however, said there would be no revisions in the offer price.
Industry analysts said it was worthwhile for the parent to buy shares in the Indian subsidiary as valuations would only move up, making share purchase offers more expensive in the future. Most MNCs hold 100% in their subsidiaries abroad or a substantially higher stake of 60-75% to benefit from any dividend payouts. That emerging markets like India would grow bigger in size is a bait worth biting for most MNCs who are now upping their holdings through costly buybacks. British drug giant GlaxoSmithKline recently increased stake in GlaxoSmith-Kline Consumer Healthcare, its publicly-listed consumer healthcare subsidiary in India, from 43.2% to 72.5% in a transaction valued at Rs 4,800 crore. The group attributed this to "a significant vote of confidence in the long-term growth prospects" in India.
In the last decade, companies such as Reckitt Benckiser (2003), Cadbury India (2003), Otis Elevator Company (2003), Kodak (2003), Philips (2004), Carrier Aircon (2005), Panasonic (2007) and Ray Ban Sun Optics (2008) have delisted their shares from the Indian bourses. India's growth potential spurs HUL, GSK offers Secular Uptrading To Boost FMCG IndustryNamrata Singh TNN
Mumbai: The growth potential of the Indian market, where a secular consumer trend of uptrading is expected to bolster growth in the FMCG market, is akey factor why multinationals such as Unilever and GlaxoSmithKline (GSK) are increasing their holdings through voluntary offers. The contribution of developing and emerging markets (D&E) to Unilever's turnover is expected to grow to 75% by 2020, as Asia overtakes North America as the biggest consuming continent in terms of purchasing power parity.
Certainly, India has a big role to play if Unilever is able to extract growth from this market to its maximum potential. At Hindustan Unilever's (HUL) press meet on Monday to announce the company's results, Unilever COO Harish Manwani made an interesting point about why the organization is investing in sectors of the future — face wash, deodorants, hair conditioners, fabric softners and premium personal products. What stands at a turnover of Rs 1,000 crore today, could very well become Rs 10,000-15,000 crore a decade down the line. HUL is making investments in these emerging categories to "future proof" the business.
"We can see the trend unfold in South-East Asia. History is littered with examples of how certain segments have grown to become full-fledged categories. These categories may be small today, but when the tipping point comes, we want to ensure we are leaders in these categories," he said, in effect demonstrating the future roadmap.
Most of these categories are aspirational in nature and premium in pricing, which means as these categories grow, they will result in a higher value or sales turnover for HUL. This should augur well for Unilever as well, especially if it has a substantially high shareholding in the company.
With HUL already investing behind categories of the future, its turnover and profits would only grow at a higher rate. Unilever certainly does not want to miss out on an opportunity to get a higher share of future dividends paid out by the Indian subsidiary.
According to a BCG/CII report, the Indian consumer market is poised to grow 3.6 times between 2010 and 2020, faster than most other emerging markets. Estimated at $991 billion in 2010, total consumption expenditure is expected to grow to nearly $3.6 trillion in 2020, the report said.
Unilever is allocating resources to this market with an eye on return on investment, said industry experts. Resource allocation is not only in products but also in technology. Unilever recently said its royalty payments from India would increase in a phased manner from the current 1.4% of turnover to 3.15% of turnover over five years. Two out of the six global R&D centres of Unilever are in India and China. In an interview to TOI last year, Manwani attributed the fundamental shift in resource allocation to D&E to rising income levels and these markets emerging as growth centres. He said D&E was an irreversible shift, wherein India and China have a growth runway of 20-25 years. |
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