Leg-Up Likely For Hindustan Lever Acquisition Plans

Hindustan Lever's acquisition plans are likely to be boosted if the Mumbai High Court clears the proposed compromise between the company and the Reserve Bank of India (RBI) to settle the three-year old preferential share allotment issue.

As per the proposal submitted before the court on June 11, Unilever, Lever's parent, has agreed to pay Rs 357 per share to settle the issue completely.

This will swell Hindustan Lever's networth by Rs 75 crore which, analysts say, can be utilised to buy more companies. "They can either pay off the money as special dividend, give a bonus or acquire some more firms," said Sujay Mishra, analyst at SSKI Securities. Lever and RBI had clashed 3 years ago over the pricing of the preferential allotment.

While Lever wanted to issue nearly 28 lakh shares to its parent at Rs 105 per share, RBI insisted that its new guidelines stipulated a price of Rs 700 per share.

The matter was dragged to the court which announced an interim arrangement in 1994 where Unilever would bring in Rs 31 crore to hike its stake.

Since Unilever's cost would have been higher under the RBI formula, the court directed the company to keep the remaining Rs 177 crore in an escrow account till the case is settled.

Now, Lever and RBI have agreed on a new price of Rs 357 per share which was the six-month average of Lever's share price when it made the preferential allotment application to RBI in 1993. "Both parties have compromised. Lever has agreed to hike the price and RBI has also climbed down from its stance," say industry sources.

If the Mumbai High Court, which is hearing the case on June 16, approves the deal, Unilever would take back some of the money kept in the escrow account (Rs 71 crore), and infuse the remaining Rs 75 crore into Hindustan Lever.

Analysts say this greatly improves the company's chances of fresh acquisitions or mergers.

The merger of Pond's with Lever is now considered likely as Unilever has also hiked its stake in Pond's to 51 per cent.