How Things Unfolded Between HUL and GSK For All-Stock Deal Is Unveiled!

HUL, India’s largest consumer goods company, was the only bidder to offer an all-stock option to GSK, said four people directly aware of the behind-the-scenes talks between GSK and potential buyers, which included at least one fast-moving consumer goods (FMCG) multinational, company, a host of private equity (PE) firms and one of India’s largest homegrown FMCG companies.

An unrivalled all-stock offer is what it took Hindustan Unilever Ltd to stave off several suitors for GlaxoSmithKline Consumer Healthcare Ltd, home to iconic brands such as Horlicks and Boost.

“It was too hard to resist, given the formidable presence of HUL in India and the accompanying market capitalization of over ₹3.95 trillion,” said the first person cited above. “In comparison, the others were offering cash and, in some cases, a mix of cash and stock, but the shareholders felt that the future of the business is most secure with HUL.”

HUL’s rivals such as Nestle India Ltd, The Coca-Cola Co. and ITC Ltd were in the fray.

The merger with HUL values the total business of GSK Consumer Healthcare at ₹31,700 crore. Shareholders will receive 4.39 HUL shares for each GSK Consumer share held, according to the share swap ratio.

The issue of new HUL shares will lead to dilution of its parent Unilever Plc’s holding from 67.2% to 61.9%. The valuation is a premium of 5% on the 15-day weighted average stock price of GSK Consumer.

“Several bidders were offering cash offers simply because they did not have a merger option,” said the second person cited earlier, requesting anonymity. “This was particularly the case with financial investors such as PE firms and even some of the strategic players.”

“There were three major criteria—valuation, certainty and ability to close the deal quickly and a distribution arrangement for the rest of the products that are not being sold. On all the three criteria HUL scored high,” the person privy to the deal said. “It was clear from the start that this was an asset for strategic investors only.”

The company was “clear all along that the most logical structure for the India leg of the deal is the merger of GSK Consumer Healthcare with HUL,” said the third person, highlighting the factors that favoured HUL. “HUL, given its reach and distribution, is far better placed to grow the business, take costs out, increase reach and thus help GSK Consumer shareholders participate in value creation.”