Offer of Rs 600/shr for HUL fair; won't raise it: Unilever
Rajesh Desai
Speaking on the phone from London he said, “ Rs 600 per share is a fair price and it is a good opportunity for the company to own a bigger proportion in its Indian unit. This deal represents further step in strategy to invest in emerging markets.”
He further added that the company does not intend to increase its stake in Hindustan Unilever beyond 75 percent.
Unilever Plc, the parent of Hindustan Unilever would make an open offer for an additional 22.52 percent stake in the company at Rs 600 per share. The Anglo-Dutch consumer goods giant will pay USD 5.4 billion to raise its stake in the Indian unit.
The offer price represents a premium of 20.5 percent to Monday’s closing price of Rs 497.
Below is the edited transcript of James Allison's interview with CNBC-TV18.
Q: What is this interest in increasing your stake in Hindustan Unilever Ltd (HUL)? What were the reasons that Unilever has in mind?
A: HUL is a business that we know very well. It is a business that has been part of the Unilever family for as good as 100 years. We would certainly like it to be part of the Unilever family 100 years from now. It is a business that we understand very well; it is in a very important market.
It is the flagship business for Unilever, which is 57 percent of our turnover is from the emerging market. We do not have 57 percent of earnings coming from emerging markets because we have minority interest in businesses like HUL. So we think this is a good opportunity for us to own bigger proportion of our business in HUL.
We are then in a position where we have more earnings growth potential of HUL in the Unilever numbers. At the same time, we are able to offer an extremely attractive price to current shareholders of HUL who have the option of taking up on our offer or if they deicide they want to continue to have some of the freefloat then they can continue to do so.
Q: The stock is already up to Rs 585-590. Some of the large shareholders feel after having gone through a period of big under performance over last decade, it is only recently that the stock of Hindustan Unilever has started to outperform and that they may not be in a position or they may not want to tender at Rs 600 a share and Unilever may have to up the offer price significantly if it has to have any kind of hope of garnering enough shares. At Unilever what is the call? How serious you are in terms of taking the stake to 75 percent?
A: We are certainly not going to take our stake to 75 percent at any price. We think Rs 600 is a very fair price for the stock. We are not going to be increasing our offer.
We will have conversations with all of our institutional shareholders in India next week, I will probably come over and do that. We will talk about our rationale for the Rs 600 price, but we will not be increasing our offer beyond Rs 600, I can be absolutely categorical about that.
Q: Have you already touched base with any of your big investors? Are you getting a sense that you will make it to 20 percent?
A: Our desire is to get 22 percent. If in the end we don’t get all the way to 22 percent then so be it. This is a voluntary offer. Institutional shareholders and retail shareholders have the opportunity to take it up if they so desire. If they don’t that is fine. If we get a smaller amount than the 22 percent then that is a pity, but we will have a bigger share of Hindustan Unilever’s earnings than we do today and so that is fine as well.
Q: Five years ago the stock was at one fifth its current level. At one point in time, it quoted even below Rs 100. Unilever did not want to up its stake at that time. What is the attraction now? Are you sensing some big growth story here that you did not see five years ago?
A: Our business does very well. Definitely it has performed very well in the last couple of years, but we have always been very attracted to India and we are very lucky to have Hindustan Unilever which is one of the greatest businesses around anywhere.
The fact that we could have bought this long time ago for a lower price, I think one can always make that claim. This is a little bit late, but buying a house in Chelsea always seems expensive at that time, but then afterwards you are quite glad that you have done it.
Q: I was only wondering if that will change your strategy towards say introduction of products or your royalty policy. Was there any need to bring it to 75 percent and what will you do thereafter that you are not able to do at current levels?
A: In actual fact we have control over the operation of Hindustan Unilever in any event. So, the fact that we move to 75 percent doesn’t change that. We see longer term tremendous growth opportunity, market development opportunities in India per se. It is a very attractive place for Unilever to be doing business.
When we look at opportunities to acquire in emerging markets you quickly find that there are not many businesses that are like this business and it is a business that you know very well. So, that is why we are interested in making it successful.
Q: Will royalty policy depend on or change depending on the kind of stake you get from this open offer? Will this have any bearing on how Unilever treats Hindustan Unilever going forward in terms of royalty?
A: No. I would like to reassure you about. There is a firm logic behind the way in which we go about seeking royalty payments from the royalty investors. So, that remains unchanged. We have recently announced some royalty increases in India with a very clear logic associated with that. There will be no change as a result of the fact that we have a greater ownership of the company, if we do indeed end up having a greater ownership of the company.
--
CA. Rajesh Desai