GlaxoSmithKline plcGSK announced that it is divesting its Horlicks and other nutrition products business in India and Bangladesh to London-based consumer giant Unilever PLC UL for 3.3 billion euros ($3.8 billion) in a cash and stock deal.
Per the deal structure, Glaxo's listed Indian subsidiary, GSK Consumer Healthcare Limited ("Glaxo India") - which sells these nutrition products - will merge with Unilever's listed Indian counterpart Hindustan Unilever Limited ("HUL"). Shareholders of Glaxo India will receive 4.39 shares in HUL for each share. In addition to selling its 72.5% stake in Glaxo India, Glaxo will sell its 82% stake in its subsidiary in Bangladesh, GlaxoSmithKline Bangladesh Limited, and certain other assets outside India to Unilever. These nutrition brands fetched Glaxo sales of around 550 million euros in 2018. Unilever commands 67.2% stake in HUL.
Following the merger, Glaxo will own 5.7% stake in HUL, which it intends to sell in tranches after completion of the transaction, currently expected by the end of 2019. Also, Glaxo India's OTC and other Oral Health brands like Crocin, Eno and Sensodyne will be distributed in India by HUL following closure of the merger deal.
Horlicks malted-milk drink is popular in the powdered hot beverages category in India. With Horlicks' buyout, Unilever is looking to strengthen its market position in India, an important growth market for the European consumer giant. However, a group of investors opine that Unilever has overpaid for the brand, which has been seeing slow growth in the past couple of years. Unilever sounds confident that it can develop the market for the nutrition brands with its far-fetched marketing capabilities.
So far this year, Glaxo's shares have underperformed the industry , rising 8.8% compared with an 11.3% increase for the industry.
Glaxo, in March this year, had said it is looking at strategic alternatives for its Horlicks and other nutrition products business. Several food giants, Nestle, PepsiCo and Coca-Cola KO other than Unilever were speculated as frontrunners to bid for the Horlicks business. Back then, Glaxo had said that Glaxo India will also be included in the strategic review process.
We remind investors that in June 2018, Glaxo bought Novartis' NVS 36.5% stake in their consumer health care ("CHC") joint venture for $13 billion (£9.2 billion).With the acquisition of Novartis' stake, Glaxo now has 100% ownership of its Consumer Healthcare unit, which includes products such as Sensodyne and Flonase.
Reportedly Glaxo put the Horlicks business up for sale to fund the buyout of Novartis' stake in CHC JV. Emma Walmsley, Glaxo's chief executive officer, said that the proceeds generated from the deal will be used to invest in Glaxo's growing pharmaceuticals business.
The transaction will be subject to approval of shareholders/creditors of both Glaxo India and HUL while the boards of both the companies have already given a green signal to the deal.
Glaxo currently carries a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .
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