3:4 Ratio Announced For Hll, Ponds Merger

The Unilever group yesterday took one more step towards consolidating its India operations when the boards of its two subsidiaries, Hindustan Lever Ltd (HLL) and Ponds India, approved the merger of Ponds India into Hindustan Lever.

The boards, which met in Mumbai, also approved a swap ratio of 3:4 with Ponds India shareholders getting three HLL shares for every four shares held by them.

This will create a single Unilever entity in India, represented by HLL, with a combined net turnover of over Rs 8,290 crore. The new companys equity capital will be Rs 221.57 crore and its combined net profit will stand at Rs 621.37 crore.

 

The merger will be effective from January 1, 1998. The share swap ratio was arrived at by Y H Malegam of S B Billimoria & Co and Arun Gandhi of N M Raiji & Co. It was later independently confirmed by I-Sec for Ponds India and ANZ Investment Bank for Hindustan Lever.

The Ponds scrip witnessed a flurry of activity on the major bourses yesterday following the news of the swap ratio. On the Bombay Stock Exchange, the scrip flared up to an intra-day high of Rs 1,194 but slipped to close at Rs 1138.75, up Rs 33.25 over the previous close. On the National Stock Exchange, the scrip closed at Rs 1135.90, up Rs 23, after touching an intra day high of Rs 1186. About 1.73 lakh shares were traded on the BSE and 2.26 lakh shares on the NSE.

Market players predicted that the Ponds scrip would witness a sharp downturn in the days to come. The scrip will be entering its no-delivery period on the National Stock Exchange from tomorrow.

The HLL scrip, now in its no-delivery period on the Bombay Stock Exchange and the National Stock Exchange, remained stable. It touched an intra day high of Rs 1605 before closing at Rs 1579 on the BSE, up Re 1 over the previous close. On the NSE, the scrip closed at Rs 1582.35 ( down Rs 2.90) after touching an intra-day high of Rs 1610.25.

On the Bombay Stock exchange, 1.1 lakh shares were traded while on the NSE, 2.28 lakh shares changed hands. Market sources attributed the subdued scrip price movement to selling pressure from a leading financial institution.

A statement issued by the two companies said, the proposed amalgamation will ensure for the group benefits from economies of scale, both in domestic and export markets, and enable it to fund investments required for aggressively building new categories, such as deodorants and other personal products.

The statement added that steps would now be taken to seek the approval of the shareholders of the two firms and the High Courts of Bombay and Madras for the merger scheme, including the exchange ratio. A Hindustan Lever spokesperson said all Ponds India employees would become employees of Hindustan Lever.

The two companies have been slowly integrating a large portion of their businesses. The distribution and personal products marketing of the two companies have been functioning as one for some time. Both companies are owned 51 per cent by Unilever Plc.

Globally, Unilever operates as single entity in a majority of countries, while it had five companies in India in the early nineties. After the global buy-out of Brooke Bond and Cheeseborough Ponds worldwide in the eighties, the companies had functioned separately.

The integration process in India began in 1993 when the group merged Lipton India Ltd with Brooke Bond to form Brooke Bond Lipton India Ltd. In 1995, Hindustan Lever swapped businesses with another group company, Stepan Chemicals, under which it took over Stepans popular detergent business and sold its bulk chemicals and fertiliser business to Stepan.

The next year, Lever merged Brooke Bond with itself, leaving only Ponds outside. In 1997, the Unilever group reached an out-of-court settlement with the Reserve Bank of India on the preferential allotment issue, thus paving the way for a merger of Ponds India with Hindustan Lever.