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Unilever swallows GSK's Indian Horlicks business for $3.8 billion

Reuters  |  LONDON 

By Ben Hirschler

LONDON (Reuters) - is to buy GlaxoSmithKline's nutrition for $3.8 billion, boosting the Anglo-Dutch group's position in by adding the popular malted drink.

The deal, announced on Monday, increases the goods giant's reach in one of the world's fastest-growing economies and marks a notable addition to the portfolio by outgoing Paul Polman, who steps down in January.

Even though many of Unilever's recent acquisitions have focused on beauty and personal care products, buying is a rare opportunity for to increase its scale in India, particularly in and drinks.

For GSK boss Emma Walmsley, it is a chance to further streamline operations and generate cash for increased investment in A few hours later, GSK announced it had agreed to buy for $5.1 billion, marking a major biotech investment by the drugmaker.

The deal follows a competitive auction in which saw off rival Nestle, as well as earlier interest from

The transaction covers GSK's and drinks portfolio in India, and 20 other predominantly Asian markets. The has annual sales of around 550 million euros, primarily through the malt-based Horlicks and Boost brands.

Horlicks comfortably dominates the health-drinks market in and Unilever is expected to try to give it a fresh lease of life, following a slowdown in recent years as urban Indian consumers turn to healthier, less-sugary alternatives.

Bernstein analysts have said the business's growth slowed from 15 percent to 4 percent between 2013 and 2017, leading to lost market share, though management has indicated that performance has started to pick up in recent quarters.

Srinivas Phatak, head of Unilever's Indian unit, told reporters on Monday he expected the to grow at a double-digit percentage rate in the medium term, boosting both earnings and profit margins. That would be well beyond Unilever's overall sales growth, this year forecast at the bottom end of a 3-5 percent range.

"Growth has been a challenge in the recent periods," said. "They're clearly expanding their emerging market footprint further and buying growth."

Unilever will seek to leverage its to boost sales of Horlicks in smaller cities and rural areas.

The price is broadly in line with expectations. People familiar with the process had told it was likely to be sold for less than $4 billion.

INDIAN MARKET

GSK's decision to sell the business follows its $13 billion acquisition of Novartis's stake in the two groups' health joint venture this year. GSK said at the time that selling Horlicks could support the funding of the buyout.

The main asset being sold is GSK's 72.5 percent stake in Indian-listed Healthcare.

Unilever said its 3.3 billion euros ($3.75 billion) consideration would be paid in cash and shares in its subsidiary in India, (HUL).

Shares in both Indian companies rose more than 4 percent on Monday, highlighting a "win-win" deal for both sides, according to Anand Shah, senior vice-president, consumer at Axis Capital.

"GSK's portfolio gives HUL a strong foothold in foods and beverages, a space which it has been clearly lagging," he said.

It also gives the company greater access to India's middle-class parents who increasingly have more discretionary wealth and are willing to pay a premium for children's products.

But it may need to refresh Horlicks' traditional brand image and slogan, which promises that the drink makes children "Taller, Stronger, Sharper," marketing and brand experts said.

GSK said its net proceeds from the sale, after tax and hedging costs, were expected to be around 2.4 billion pounds ($3.1 billion).

Following the closure of the deal, which is expected in around 12 months, GSK will own approximately 5.7 percent of HUL and the British drugmaker intends to sell this down in tranches.

As part of the agreement, HUL will also distribute GSK's over-the-counter and oral health brands for an initial period of five years.

The deal comes a day before Unilever hosts a two-day investor event in

GSK was advised by and Greenhill, while BofA Merrill Lynch worked with Unilever.

(Additional reporting by in London, Tanvi Mehta, Noor Zainab Hussain and Sayantani Ghosh in Bengaluru and Rahul Singh in New Delhi; Additional reporting by in London; Editing by and Edmund Blair)

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

First Published: Mon, December 03 2018. 20:08 IST
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