Will $3.8 bn-worth HUL-GSK deal profit India unit? What analysts are saying

A plan by Hindustan Unilever Ltd.’s parent to buy GlaxoSmithKline Plc’s Indian consumer business for 3.3 billion euros ($3.8 billion) in cash and shares is positive for the local unit’s earnings, according to analysts, even as the price tag is said to be about $1 billion more than rival Nestle SA’s offer.

Shares in Hindustan Unilever rose 4.1 percent on Monday to a record, while GlaxoSmithKline Consumer Healthcare Ltd. added 2.8 percent to its highest level since Sept. 21. In London, GlaxoSmithKline slumped 7.6 percent, the most in a decade, while Unilever NV was little changed in Amsterdam.

The buyout “is accretive from both an EPS and margin perspective” and “may lead to ~800-1000 basis points synergy on margins in a phased manner once the merger happens in 12 months time,” Jefferies analysts Varun Lohchab and Tanmay Sharma wrote in a report Monday.

Here’s What Analysts Are Saying:

Credit Suisse (Arnab Mitra)

— Merger will make HUL’s food and refreshment business 1.6x larger and give it a strong nutrition brand which can be leveraged in more categories

— Raises FY21 earnings estimates by 6.5 percent

— Maintains neutral, lifts PT to 1,900 rupees from 1,770 rupees

Citigroup (Jamshed Dadabhoy)

— Deal may take a year to complete given regulatory/shareholder approvals but it should be EPS accretive from day 1

— Even without synergy benefits, the merger is EPS accretive for HUL to the extent of ~3.7% on FY21 earnings estimates 

— HUL may have to pay parent a royalty from Horlicks brand sales

Jefferies (Varun Lohchab)

— HUL’s distribution footprint is ~3x GSK’s, so it has potential to improve sales growth

— Valuations of Hindustan Unilever leave no room for error

— Maintains Hold

Prabhudas Lilladher (Amnish Aggarwal)

— Synergy benefits will start accruing from FY21

— Expects one-time dividend in FY21, given that Glaxo has cash of 38 billion rupees ($539 million) on its books and Hindustan Unilever has 80 percent dividend payout

— Maintains hold, PT 1,880 rupees