HUL Delisting?



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Code : COS0112

Year :
2015

Case Length : 17pages

Industry :FMCG

Organization:Unilever,Hindustan Unilever.

Period : 2012-2013

Region :

Teaching Note: Available

Structured Assignment : Not Available

Countries : India, Euro zone, US

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ABOUT HINDUSTAN UNILEVER: Unilever set up its first Indian subsidiary on November 27, 1931, when Hindustan Vanaspati Manufacturing Company came into being. Later, it also incorporated Lever Brothers India Limited on October 17, 1933, followed by United Traders Limited in 1935. However, the presence of Unilever products in the country can be traced back to 1888, (Refer to Exhibit 3) when Sunlight soap was introduced in India. Unilever introduced Lifebuoy soap in 1895, Pears soap in 1902, Brooke Bond Red Label tea in 1903, and Lux Soap and Lux flakes in 1905. For marketing Lifebuoy, Lever Brothers appointed agents in Bombay (now Mumbai), Madras (now Chennai), Calcutta (now Kolkata), and Karachi, port cities during the colonial rule. ..

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HUL BRANDS:
The company had 45 brands and these were categorized under – Soaps and Detergents, Personal Products, and Packaged Foods . (Refer to Exhibit 7). Its portfolio included leading household brands such as Lux, Lifebuoy, Surf Excel, Rin, Wheel, Fair & Lovely, Pond’s, Vaseline, Lakmé, Dove, Clinic Plus, Sunsilk, Pepsodent, Closeup, Axe, Brooke Bond, Bru, Knorr, Kissan, Kwality Wall’s, and Pureit. HUL brands were No.1 in the categories of Laundry, Soaps, Hair Care, Home Care, Skin Care, and Deodorants and No.2 in the categories of Tea and Oral Care. Among the 45 brands, the company had 10 brands that each generated annual sales of more than 1,000 crore. The Ten 1,000 club accounted for more than 60% of Hindustan Unilever’s annual sales of `Rs. 25,810 crore during the fiscal year that ended in 2012.

PERFECT STORES AND PROJECT SHAKTI:
HUL products were manufactured in over 100 factories across India and involved more than 2000 suppliers and associates. The giant HUL distribution network comprised around 7500 redistribution stockists and about 6.4 million retailer outlets and offered direct coverage to over 2 million outlets . In the urban areas, HUL sold its products through traditional retail outlets and by direct selling through Hindustan Unilever Network (HULN). HULN was set up in 2003 with the objective of becoming the most preferred business opportunity in India. In 2010, facing stiff competition from its global archrivals, Procter and Gamble (P&G), as also from home grown firms such as ITC, Godrej Consumer Products, and Dabur in the battle for India’s burgeoning consumer class, HUL launched ‘Perfect Stores’ to boost sales and to regain its past glory as the fastest consumer producing goods company. During the period 2004-05 to 2008-09, HLL sales grew at 110 percent compared to Godrej’s 148%...

UNILEVER BETS BIG ON INDIAN AND OTHER EMERGING MARKETS:
HUL’s domestic consumer business grew by 16% in the fiscal year 2012-13 with a 7% underlying volume growth to Rs.241.677 billion. At the end of the fiscal year 2012-13, HUL’s Profit before interest and tax (PBIT) grew by 23% with the PBIT margin improving 80 bps. Profit after tax but before exceptional items, PAT grew by 28% to Rs. 33.14 billion with Net Profit at Rs.37.97 billion growing by 41%, the highest in the previous five years . The company proposed a dividend of Rs.6 per share for the financial year ending March 31,2013. Earlier, HUL announced an interim dividend of Rs.4.50 per share and a special dividend of Rs 8 per share; as a result, the total dividend for the financial year ending March 31,2013, amounted to Rs. 18.50 per share.

BUY-BACK OFFER:
The open offer came at the time when HUL surprised the markets with better than expected volume growth. Assuming that it would acquire these shares, Unilever opened a war chest of $5.4 billion (Rs. 291 billion) on the open offer. Speaking to the press on the open offer, the CEO of Unilever, Polman, had said, “The Unilever’s stake hike bid represents a further step in Unilever’s strategy to invest in emerging markets.” He added that the “long heritage” and the “significant” growth potential of India's economy made it a long-term priority for the group.

EARLIER SHARES BUYBACK BY HUL:
Earlier, HUL bought back shares in the years 2007 and 2010. In 2007, it bought back 3,02,35,772 equity shares of Re 1/- each for a total consideration of Rs 6262.7 million, at an average price of Rs.207.13 per share. HUL’s paid up capital after the buyback offer stood at Rs.2177.5 million comprising 2,17,74,63,355 equity shares of Re.1/- each .The aim of the buyback was to effectively utilize the surplus cash and make the balance sheet leaner and more efficient to improve returns. To buy back the shares, HUL set aside 25 per cent of its Rs.22.61 billion net liquid funds. According to market analysts, this was the first time that the company had used its excess funds for a buyback. Earlier, the excess funds on its balance sheet were given to shareholders by way of bonus debentures.

HUL BARGAIN OFFER:
ICICI Direct’s research report on Unilever’s offer stated that it was at a premium of 4.61% at the prevailing price of 573 and opined that the price differential between the prevailing price and the offer price provided an arbitrage opportunity. The report also opined that as institutional investors like Life Insurance Corporation of India (LIC) had shown reluctance in tendering their shares, the acceptance ratio was expected to be high. It opined that if any investor tendered his or her shares he would gain from the price differential existing between the current price and the buyback offer.

WILL UNILEVER STAY PUBLIC OR DELIST FROM BOURSES?:
After the buyback offer from Unilever, Dalal Street was bullish that other multinational companies such as Nestlé, Colgate-Palmolive, and Sanofi, would also announce similar offers. Earlier in February 2013, GlaxoSmithKline Consumer Healthcare had increased its stake in its Indian Consumer healthcare subsidiary from 43.2% to 72.5% . During the offer period, which commenced on January 17,2013, and closed on January 30,2013, shareholders of GlaxoSmithKline Consumer Healthcare tendered 12,319,749 shares representing 29.3% of the total shares outstanding. GSK offered Rs. 3,900 (£43.80) per share for stock and spent $900 million ( Rs. 48 billion or 568 million Pounds) to raise its stake in its Indian Subsidiary.

EXHIBITS:

Exhibit -1:Shareholding Pattern of Promoter and Promoter Group and Indian Insurance Company

Exhibit -2:Key Financial Indicators of Unilever for the Year Ended 2012

Exhibit -3:Important HUL Milestones

Exhibit -4:Capital Structure - Hindustan Unilever Ltd.

Exhibit -5:BSE FMCG Sector

Exhibit -6:CNX FMCG Sector

Exhibit -7:HUL Brands

Exhibit -8:Forbes List of World Most Innovative Companies

Exhibit -9:Global Biggest Company

Exhibit -10:Share of Sales from Emerging Markets

Exhibit -11:Hindustan Unilever Financial Performance

Exhibit -12:HUL Stock has Performed Poorly when Compared to its Peers (2007-2012)






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