Mumbai-based Jyothy Labs has emerged the frontrunner to buy Henkel India, the detergents and personal care major. This comes just two months after the German parent initiated the selloff process.
Henkel’s Indian co-promoter, A C Muthiah, on Wednesday sold 14.9 per cent of the 16.7 per cent stake held by him to Jyothy. Muthiah has been involved with Henkel for 25 years, first as a joint venture partner and then as a co-promoter of India operations. He held the stake through his group company, Tamilnadu Petroproducts. The deal was struck at Rs 35 a share, a discount of 19 per cent over Henkel’s closing price on Tuesday.
Jyothy, which paid Rs 60.7 crore, will now become the largest Indian shareholder in Henkel India. Mape advised Jyothy in the transaction.
“There is synergy between the two companies’ offerings. We saw a value-added proposition in this purchase”, said
M P Ramachandran, chairman and managing director, Jyothy Laboratories.
Muthiah could not be reached for comment. A Henkel spokesperson refused to comment.
The shares of Jyothy Laboratories closed at Rs 228, down 0.44 per cent from the previous close, on the Bombay Stock Exchange (BSE). Henkel India closed 4.98 per cent up at Rs 45.35, after hitting the upper circuit on BSE.
Henkel AG holds 50.97 per cent in the India unit. Public and institutions hold 32.33 per cent.
People close to the deal said Jyothy would now aim to acquire Henkel’s stake and thereby trigger an open offer for another 20 per cent stake. After the offer, Jyothy’s stake will be 86 per cent.
The total cost for Jyothi is likely to be Rs 383 crore, which it will fund through internal accruals and money raised from a recent Rs 300-crore qualified institutional placement.
Sources said Jyothi also suggested to Henkel that the banks might restructure the Rs 520 crore debt on Henkel’s books. The debt is guaranteed by Henkel’s German parent.
Jyothi’s brass, which visited Henkel’s headquarters in Dusseldorf, Germany, last month, had even suggested royalty payments of around 2 per cent of sales of the global brands in India for the next five years.
Even though Henkel has not yet entered into an exclusive agreement with Jyothi for selling the residual stake, on Wednesday’s development will queer the pitch for Henkel India’s other suitors.
HSBC was given the mandate to sell Henkel India’s locally acquired brands such as Margo soap, Neem Active toothpaste and Chek detergent. Also on offer was a long-term licensing of international brands Henko, Pril and Fa as the $17-billion German conglomerate wanted to exit both laundry and personal care segments in India.
Jyothi Laboratories and Henkel India have synergy in various business segments. Both are present in home care, fabric care, dish wash, personal care and household cleaning segments. Even though Jyothi’s flagship has been its liquid fabric whitener Ujala, it has successfully diversified into other categories with leading brands like Maxo household insecticides, Exo utensil cleaners, Jeeva Natural soaps and personal care products and laundry chains Jyothi Fabricare Services and Spas. Jyothi has been interested in Henkel’s India portfolio for a long time.
In financial year 2009-10, Jyothi Labs reported a turnover of Rs 581.60 crore and a net profit of Rs 80 crore. In the quarter ended December 201O, the revenue was Rs 149 crore and net profit Rs 17 crore.
Henkel has been reportedly expecting a valuation of Rs 600 crore for its portfolio. Henkel India reported a revenue of Rs 450 crore in financial year 2010-11. In the quarter ended December 2010, its revenue was Rs 97.14 crore, but it posted a loss of Rs 2.3 crore.
Henkel only wants to continue with hair colour (Schwarzkopf) and industrial business in the country.
Kolkata-based Emami, Godrej and Wipro Consumer were among others who were approached for a deal. But with Jyothi picking up this strategic stake, which is just below the mandatory open offer mark of 15 per cent, the other suitors may backtrack or rethink about the deal.
Emami Director Harsh Agarwal said, “If the news is true, it can have an impact on the selling process. But we will have to look into the details of the deal before commenting. We are interested in the Henkel brand and will certainly evaluate the opportunities.”
Margo soap, Neem toothpaste and Chek detergent are brands that Henkel acquired from the erstwhile Calcutta Chemical Company almost a decade back. Margo is the biggest brand in its portfolio with an annual revenue of around Rs 95 crore. Investment bankers said Godrej and Wipro could be more inclined to buy Henkel India’s personal care brands as the latter’s detergent and cleaning products portfolio had lagged behind global peers Unilever and Procter & Gamble significantly in the domestic market.
Initially, Henkel and Spic joined hands under a joint venture, Spic Fine Chemicals, which was renamed as Henkel Spic India (HSIL) in the mid-90s. Subsequently, HSIL was merged with Henkel India (formerly Calcutta Chemical Co).