Indian company has first right of refusal to buy partner’s stake.
The proposed global sale of Sara Lee’s personal care unit to Unilever has increased the possibility of the former’s exit from its Indian joint venture (JV) with the Godrej Group. If Sara Lee does so, opine analysts, Godrej will have a distinct advantage, since an agreement gives it the first right of refusal to buy out Sara Lee’s stake.
In India, Godrej Sara Lee is a 49:51 JV between Godrej Consumer Products Ltd (GCPL), which has brands like Cinthol and Godrej No 1, and Sara Lee. The JV had acquired the distribution and marketing rights for Sara Lee’s household and body care products for the Indian and South Asia markets in July 2007, for around Rs 50 crore. In India, the JV owns brands like Good Knight, Jet and Hit, and manufactures, markets and distributes Sara Lee’s international brands like Ambipur, Kiwi and Brylcreem in the country.
GCPL has often reiterated its stance that it is willing to acquire its partner’s 51 per cent stake in the Indian JV. For the year ending March 2009, the net sales of Godrej Sara Lee (GSL) was Rs 755 crore and it posted after-tax profits of Rs 104 crore.
The stake in the Indian JV is understood to be close to Rs 880 crore, which has been calculated on the basis of a transaction earlier this year, where GCPL had acquired the 49 per cent stake of GSL from its group companies.
According to a report by Sharekhan, it is valued at 16.5 times its earnings of last year.
“The JV is a part of the household care business unit of Sara Lee and hence will not see an ownership change in India with Unilever acquiring the personal products business,” A Mahendran, managing director, GSL and head of the fast moving consumer goods (FMCG) portfolio cell at Godrej Group, told Business Standard today.
“Unilever buying Sara Lee’s personal care business is a positive development for the Godrej Sara Lee JV in India, as it would spur the movement at Sara Lee to exit from its other non-core businesses, giving GCPL a chance to buy-out the JV in India,” said Anand Shah, FMCG sector analyst with Angel Broking.
In fact, this May, GCPL merged into itself two group firms—Godrej Consumer Biz Pvt. Ltd and Godrej Hygiene Care — which held the 49 per cent stake in the JV with Sara Lee. GCPL had then issued a statement that the aim was to strengthen its consumer goods business and to build “scale to pursue growth opportunities”.
Currently, the Sara Lee brands contribute around 15 per cent of the turnover of the company, while the balance comprises the household insecticide brands from the Godrej stable. If Sara Lee exits the JV, it would have to pay the value of the licenced brands like Brylcreem, Ambipur and Kiwi to the JV company.
However, in India, it is unlikely that Sara Lee would discontinue brands and in all probability the fate of these licenced brands would be in the hands of GCPL post the restructuring, and subsequent buying out of Sara Lee’s stake in the JV, say analysts.