Hindustan Unilever Limited (HUL), India’s largest FMCG company, announced that it has successfully completed the merger with GSK. This merger was announced on 3rd December 2018 and was not executed because of pending approvals. It is said to be one of the largest
deals in the FMCG sector and believed that this deal will lead to significant value creation for all stakeholders of HUL.

About HUL

The Deal

The merger is on a basis of an exchange ratio of 4.39 HUL shares for each GSK CH India share, implying a total equity value of Rs 31,700 crore for 100 per cent of GSK CH India.

“In addition, the board of HUL also approved acquiring the popular health drink brand Horlicks for India from GSK for a consideration of Euro 375.6 million (Rs 3,045 crore), exercising the option available in the original agreement between its parent firm Unilever and GSK,” HUL said
in the regulatory filing.

As a result, brands like Horlicks, Boost and Maltova will now come under HUL. This deal will also allow HUL to utilise cash on its balance sheet and create value creation for all stakeholders, the company said.

“This will enable HUL to utilize cash on its balance sheet and create value for shareholders. In addition, it will enable HUL to drive better salience in a local context. The other brands which were under the ownership of GSKCH like Boost, Maltova and Viva come to HUL’s brand portfolio by virtue of the merger,” the statement said.


Tax Implications

This is a “tax neutral merger” under section 2(1B) of the Income Tax Act. However, if GSK
monetises these shares at a later stage, tax implications will arise for GSK promoters.


The deal will enable HUL unlock significant revenue and cost synergies.

Operational Improvement and Supply Chain Opportunities
HUL looks forward to take advantage of cost synergies from the deal and create value, by harnessing supply chain efficiencies and operational improvisation. “We will drive significant cost synergies from a combination of supply chain efficiencies and operational improvements, go-to-market, and distribution network optimization, scale in a number of cost areas such as marketing and streamlining of overlapping infrastructure. We expect the business to grow in double-digits in the medium-term and margins to be accretive to HUL post realization of synergy benefits,” said the firm.

Adding iconic brands like Boost, Horlicks to its product portfolio
Products like Horlicks were introduced by GSK in the 1930s and have now become a staple for people across the country.
This acquisition is in line with HUL’s F&R strategy, which is to build a profitable food and refreshment business by taking advantage of the trend of health and wellness.

HUL looks forward to increase penetration with special focus on rural markets and emerging channels, as per its release. “The average growth rate has been double digit over the last decade, and the category still remains under-penetrated in India. HUL is well-positioned to further develop the market given the extent of its reach and capabilities,” said the firm. Post the acquisition, the turnover of the
company’s Foods and Refreshment (F&R) business will exceed Rs 10,000 crore.
“We will become one of the largest F&R businesses in the country,” HUL
Chairman and Managing Director Sanjiv Mehta said.

Why did GSK sell Horlicks?

GSK wanted to take full control of a joint venture named Novartis, which owns Sensodyne toothpaste, Panadol headache tablets, and Nicotinell patches. The company will pay Novartis £9.2bn for its 36.5% stake. To fund this deal GSK considered selling Horlicks brand and other nutrition products.


In the long run, benefits from synergy are expected to be even bigger for HUL, which is seeking to lead in food and refreshment business
This deal in true sense can provide a boost to HUL in the future.