Unilever (ULVR) will spend as much as 292.2 billion rupees ($5.4 billion) lifting a majority stake in its Indian unit as the seller of Lipton tea and Dove shampoo seeks to capture more emerging-market profit and combat slower European growth with its biggest deal in 13 years.
Unilever will pay 600 rupees a share in a public offer to raise its holding in Hindustan Unilever Ltd. to 75 percent from 52.48 percent, it said in a statement today. The price is 21 percent higher than the stock’s closing price yesterday.
The London- and Rotterdam-based company is seeking greater control of India’s largest consumer-goods maker after this month reporting the slowest quarterly growth in two years as Europeans curbed spending. Mumbai-based Hindustan Unilever (HUVR) yesterday posted a 15 percent jump in fourth-quarter profit as it expanded in rural areas and benefited from lower raw material prices.
The acquisition “is a way of trying to benefit even more from growth that is higher in these markets than in western Europe and North America,” Robert Jan Vos, an analyst at ABN Amro in Amsterdam, said by phone. “Growth is slowing down a bit also in India, but that is still way, way higher than what we see in western Europe and north America.”
Hindustan Unilever surged as much as 20 percent to 597 rupees in Mumbai today before trading at 583.90 rupees at 3 p.m. local time. Unilever fell 0.9 percent to 32.19 euros at 11 a.m. in Amsterdam.
Shares of Unilever’s Indonesian (UNVR) business rose as much as 14 percent, the most in almost eight years, as investors expected the unit’s valuation to catch up with that of Hindustan Unilever, said John Teja, director at Ciptadana Securities.
Unilever’s offer values Hindustan Unilever at 37 times the subsidiary’s earnings before interest, taxes, depreciation and amortization. The median multiple for similar deals was 10.8 times Ebitda, according to data compiled by Bloomberg.
“It is very expensive,” Jeff Stent, an analyst at Exane BNP Paribas, said in an interview. “However, these companies can borrow at such low rates that it is still earnings accretive and in the market’s current mood that is what people will tend to focus on over time.”
The offer is “fair” and will allow Unilever to capture more earnings from India, James Allison, the company’s head of investor relations and M&A, said in a phone interview with Bloomberg TV India. Unilever has no intention to delist the Indian unit, he said. In November, the maker of Axe deodorants moved to delist its subsidiary in Pakistan, and in 2009 it took full control of its business in Vietnam.
The deal will be funded by cash and bank facilities and the business will continue to be run in the same way following the stake increase, Unilever spokeswoman Lucila Zambrano said.
“The confidence they are showing in Hindustan Unilever, at a time when consumption in India is slowing, is out of the world,” said Ambareesh Baliga, managing partner of global wealth management at Edelweiss Financial Services.
India’s economy grew 5 percent in the year through March, according to an estimate from the statistics agency. That’s less than the average of about 8 percent in the past decade.
Hindustan Unilever has the biggest share of India’s consumer-goods market. The Unilever unit last year has a 32 percent share of the country’s beauty and personal care market, which is expected to grow 44 percent to $14.2 billion by 2017, according to data from Euromonitor International.
Colgate-Palmolive Co. is second-largest with a 6.6 percent share, followed by Procter & Gamble Co. (PG:US) with 5.2 percent.
Among other consumer-goods stocks, Dabur India Ltd. (DABUR) advanced as much as 6.3 percent and Colgate-Palmolive India Ltd. (CLGT) gained as much as 8 percent today. The 10-member S&P BSE Fast Moving Consumer Goods Index rose as much as 6 percent.
Unilever “may consider that the valuations are cheap compared to what it will be in five or 10 years,” said Sachin Bobade, Mumbai-based analyst at Brics Securities Ltd. “Hindustan Unilever has the biggest share of India’s consumer market and Unilever wants a larger chunk of the profits.”
Unilever has said developing markets will account for more than 90 percent of its annual sales growth this decade. Today’s acquisition is the company’s biggest since its 2000 purchase of Best Foods Ltd. for $23 billion.
Europe supplied about 27 percent of revenue for Unilever in 2012, according to data compiled by Bloomberg. Sales in Asia and Africa accounted for 40 percent.
The Anglo-Dutch company said it is making the offer for 487 million shares of the Indian company. The price offered by Unilever is “good” and Bajaj Allianz Life Insurance Co. would sell some of its holding to Unilever, Chief Investment Officer Sampath Reddy, who manages about $7 billion in assets, said in an e-mailed response to questions.
The offer, which opens in June, is being managed by HSBC Holdings Plc, according to the statement. Hindustan Unilever spokesman Prasad Pradhan declined to comment beyond the stock exchange statement and directed questions to the parent company.
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