Godrej Consumer to pay Rs 1,050 cr to buy Sara Lee's 51% stake in JV

Sara Lee brands account for 15 per cent of the total turnover of GSL.

Months after announcing its intention to acquire the remaining 51 per cent stake of US-based Sara Lee Corporation in their joint venture, Godrej Consumer Products Ltd (GCPL) today said the agreement was done.

It is a Rs 1,055-crore deal, subject to shareholder approval, for acquisition by GCPL of the entire stake in Godrej Sara Lee (GSL), the joint venture. GCPL is expected to complete the transaction by June 1, according to its chairman, Adi Godrej.

The deal is to be partly financed by debt and equity. The markets responded well and the GCPL stock closed 13.8 per cent up, at Rs 339.05 at the close of trading on the Bombay Stock Exchange (BSE).

Angel Securities’ analysts say the current deal values GSL at Rs 2,065 crore. This acquisition, they add, will help GCPL catapult into one of the strongest performers in the home and personal care segment in India. Along with the Megasari acquisition in Indonesia, this transaction confirms GCPL as the second-largest household insecticide company in Asia (outside Japan).

At the moment, Sara Lee brands contribute about 15 per cent to the total turnover of Godrej Sara Lee, amounting to Rs 965 crore. "The bulk comes from the brands controlled by us, which is Goodknight and Hit," said Adi Godrej. With full control of the JV, he added the task would be to grow it rapidly and look at synergies between it and GCPL.

The current deal, meanwhile, puts an end to the 15-year joint venture between the Godrej Group and Sara Lee, which saw the latter introduce brands such as Ambipur, Brylcreem and Kiwi into the country. This was via a licensing agreement, which Godrej says can be withdrawn with adequate notice by Sara Lee or the new owner of the brands. Internationally, Sara Lee has sold Ambipur to Procter & Gamble and Brylcreem to Unilever. Kiwi, the shoe polish brand, continues to be with Sara Lee. "We have to be compensated for the value of these brands in case the licensing agreement is withdrawn," said Godrej, adding: "We are still talking on those aspects."

GCPL had initiated the process of taking full control of the JV by first shifting the 49 per cent it held in the unlisted JV to the listed GCPL. The latter, therefore, controlled the JV company to that extent, whose results were consequently reflected in its books. It was then that GCPL announced it was keen to acquire the balance 51 per cent, which it has now done.

Angel Securities’ analysts have factored 21 per cent and 15 per cent year-on-year growth in top line for Godrej Sara Lee during the current (FY 2010-11) and next financial year (FY 2011-12), respectively. Assuming a 14 per cent net margin for Godrej Sara Lee in both years, the analysts believe the additional 51 per cent stake is likely to add Rs 83 crore and Rs 96 crore to the bottom line of GCPL in these years.

In the past few months, GCPL rapidly completed a few acquisitions, including Megasari in Indonesia and Tura (for around Rs 400-500 crore) in Nigeria. With the Megasari buy, GCPL became, as noted earlier, the second-largest insecticide player in Asia outside Japan, and is the largest home and personal care company in India.

Tura was the third acquisition by GCPL in the African continent in recent years. The first two, Rapidol and Kinky, were acquired in South Africa in 2006 and 2008, respectively. Both brands are in the haircare segment. Kinky is into hair braids, hair pieces, wigs and accessories such as styling gels, hair sprays and oil-free shampoos. Rapidol, on the other hand, is into hair colours, an important area for GCPL.