Following the completion of its previously announced strategic review, GlaxoSmithKline plc (LSE/NYSE: GSK) today announced the divestment of Horlicks and other consumer healthcare nutrition brands to Unilever plc (“Unilever”) and the merger of GSK Consumer Healthcare Limited (“GSK India”) with Hindustan Unilever Limited (“HUL”) for a total consideration valued at approximately £3.1 billion based on the 15-day volume weighted average price (VWAP) ending Friday 30 November 2018 of HUL shares of INR1,717. Net proceeds are estimated to be approximately £2.4 billion on the same basis.
In India, Horlicks and other nutrition products are sold by GSK India, a public company listed on the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE), in which GSK holds a 72.5% stake.
The proposed transaction involves the merger of GSK India with HUL, a public company listed on the NSE and BSE, following which GSK will own approximately 5.7% of HUL. The merger values GSK India at INR317 billion in total, or INR7,540 per share, a 15.4% premium to the un-disturbed share price of INR6,531 as at close of business on 26 March 2018.
Following completion of the transaction, currently expected by the end of 2019, GSK intends to sell down its holding in HUL. Such sell down will be in tranches and at such times as GSK considers appropriate, taking into account market conditions.
In addition, GSK is to sell its 82% stake in GlaxoSmithKline Bangladesh Limited and other related brand rights for GSK’s consumer healthcare nutrition activities in certain other territories to Unilever, for which it is expected to receive cash proceeds equivalent to £566 million.
India remains an important market for GSK and the company will continue to invest in growth opportunities for its OTC and Oral Health brands there, which include Crocin, Eno and Sensodyne. Following completion of the transaction, HUL will distribute GSK’s OTC and Oral Health brands, that are currently distributed by GSK India. This arrangement will be for a period of 5 years. HUL is the largest FMCG company in the country, with strong distribution reaching over seven million outlets across India.
Emma Walmsley, Chief Executive Officer, GSK, said: “Horlicks has made a significant contribution to GSK and to the health of consumers across India for many decades and we believe Unilever is well placed to maximise its future potential. Proceeds from this transaction will be used to support the Group’s strategic priorities, including investing in our pharmaceutical business.”
The transaction is conditional on the approval of the merger by the shareholders and creditors of each of GSK India and HUL. The Boards of GSK India and HUL have both approved the merger. Both GSK and Unilever, who hold 72.5 % and 67.2% of the shares in GSK India and HUL respectively, intend to vote in favour of the merger.
The transaction is also subject to certain other conditions including the receipt of anti-trust clearances in India, the approval of the merger by the relevant National Company Law Tribunals and certain other customary closing conditions.
Proceeds will be used to support the Group’s strategic priorities and reduce debt and the transaction is expected to be neutral to earnings. The businesses being divested had in the 9 months to 30 September, 2018 sales of £406 million and contributed an operating profit margin percentage in the low 20s.