GSK Consumer merger sets stage for Hindustan Unilever, Nestle face-off

GSK, which will become the second-largest shareholder in HUL after the merger, may encash its 5.7 per cent shareholding in the company
Two of Europe’s biggest names — Nestle and Unilever — will now compete head-on in the food segment in India. The trigger is the merger of GlaxoSmithKline (GSK) Consumer into Hindustan Unilever (HUL), approved last week by the Chandigarh Bench of the National Company Law Tribunal (NCLT).

The NCLT nod paves the way for the final leg of the merger process, including an announcement of the record date (of the merger) and share allotment. According to sources, it is only a matter of weeks before the entire process is concluded. GSK Consumer shareholders will get 4.39 shares of HUL for each of their shares held.

GSK, which will become the second-largest shareholder in HUL after the merger, may encash its 5.7 per cent shareholding in the company. However, no formal announcement has been made yet on the proposed divestment, which is likely to happen via block deals. GSK Consumer closed trade on Friday at Rs 9,444.9 per share.

HUL and Nestle India’s closing price on BSE was Rs 2,174.90 a share and Rs 15,770.55 apiece, respectively.

The merger of GSK Consumer into HUL will also allow the latter to close the gap with Nestlé in terms of top line. HUL’s combined food and beverage turnover after taking into account GSK Consumer’s revenue will be over Rs 12,000 crore, said analysts tracking the companies. This is according to their financial numbers for FY19. The two companies are yet to disclose their full-year FY20 results.
Nestlé’s turnover for calendar year (CY) 2019 stood at Rs 12,369 crore. The company follows a January to December accounting year.  

More importantly, brands such as Horlicks and Boost will now be a part of HUL’s portfolio, taking on Nestlé’s Milo, which was relaunched in August last year in India. Analysts said this was in anticipation of the competition coming from HUL within health food drinks and Nestlé’s need to prepare ground before the merger was completed. Officials at Nestlé India were not available for comment. However, persons in the know said that Tamil Nadu was a market where Milo is being pushed aggressively within stores and homes. Tamil Nadu is also a market where Horlicks is strong, given that health food drink consumption is high within the market. In addition, Nestlé is pushing the Tetra Pak version of Milo across the country to build a base of loyal users ahead of Horlicks’s relaunch by HUL once the merger is through.

As things stand now, GSK Consumer has a value share of nearly 54 per cent in health food drinks. This includes brands Horlicks, Boost, Maltova and Viva. Mondelez’s Bournvita has a value share of 15 per cent, while Abbott, maker of Pediasure and Ensure, has a value share of 9 per cent, according to data sourced from the industry. Nestlé does not figure in the top three yet. But, things could change in the future, as Nestlé steps up effort to improve share in the category, said experts.

Abneesh Roy, executive vice-president, research (institutional equities), Edelweiss, said there were more categories where HUL and Nestlé will compete with each other besides health food drinks. This includes beverages, where Nestlé has Nescafé and HUL has Bru as well as packaged foods where HUL has Knorr and Kissan, while Nestlé has Maggi. The latter (Maggi) has already crossed 60 per cent share in instant noodles and is visible across condiments, spices, ketchups, soups and pasta. While HUL recently launched Hellmann’s mayonnaise to beef up its presence in packaged foods, which includes soups (Knorr), ketchups and jams (Kissan).

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