The world’s second largest consumer goods company Unilever has failed to meet its buyback target in its subsidiary Hindustan Unilever (HUL), as it could raise its stake in to 67.3 per cent on, well short of the intended 75 per cent, at the end of the open offer which closed Thursday, which saw the company making the largest buyback offer in the history of the domestic stock market at Rs 19,180 crore.
The Anglo-Dutch giant could mop up only 14.8 per cent of the targeted 22.58 per cent stake hike in the domestic subsidiary. At the offer price of Rs 600 per share, this works out to be worth Rs 19,180 crore, which works out to an average price of Rs 601.40 a share, the London-based consumer goods major said in a statement issued from London.
HUL shareholders tendered only 3.2 crore shares, as against the target of 48.7 crore, worth $3.17 billion, or Rs 19,180 crore, during the offer that began on June 21, it said. At 14.8 per cent, the success rate of the buyback programme was around 66 per cent. The original plan was to buy back 48.7 crore shares from HUL shareholders.
The offer value was 37 times HUL's earnings before interest, taxes, depreciation and amortisation (Ebitda) at Rs 600 apiece. According to analysts, investors held back from tendering shares at that would have entailed them paying a hefty 21 per cent in capital gains tax adjusted with a government-provided index for inflation against a paltry 0.01 per cent security transaction tax if they sell in open market.
HUL shares rose 1.4 per cent to Rs 609.15 today on the BSE after rallying to Rs 631.95, up 5.1 per cent, in morning session, while the benchmark Sensex gained 0.44 per cent. Since the buyback announcement, the HUL shares have soared 22.5 per cent as of today. HUL accounts for about 8 per cent of Unilver's total sales, making India the Anglo-Dutch firm's third-largest market. HUL products on an average command a hefty 40 percent market share here, the highest for Unilever in the world.
The HUL offer is worth around 30 per cent of the money that FIIs have pumped into the domestic equities so far this year. The additional liquidity has helped the rupee, which lost over 9 per cent against dollar since this April, snap a three-day drop and end up at 60.13 to the dollar Thursday. But Friday, the rupee again lost ground and closed at 60.21.
Unilever ruled out another buyback in HUL. In any case, it will not be able to do so until the end of this fiscal. The Anglo-Dutch company in April had announced to buyback 22.58 per cent, entailing an investment of USD 5.4 billion, or Rs 29,220 crore, into HUL, making the offer the biggest ever in the history of Indian market. Based on the shares tendered, which represent 14.8 per cent of HUL, Unilever would increase its stake from 52.48 percent to 67.28 per cent.
Commenting on the development, Unilever chief executive Paul Polman said, "we are pleased to have received such a good response to our voluntary open offer. As a result, we will significantly increase our stake in HUL, which has the potential for attractive long-term growth." The payment for shares tendered and accepted will be completed on or before July 18, the statement said. The open offer, announced on April 30, was managed by HSBC Securities.
It is learnt that LIC, which held 3.22 per cent in HUL prior to the offer, has sold a substantial part of its stake in the open offer. The largest public shareholders of HUL are Aberdeen, with 4.4 per cent stake, LIC (3.22 per cent), Oppenheimer Developing Markets Fund (1.76 per cent) and Virtus Emerging Markets Opportunities Fund (1.44 per cent). While many MNCs have delisted from the Indian market, many chose to up their stake in local arms. Early this year, GlaxoSmithKline increased its stake in the domestic unit to 72.46 per cent from 43.16 per cent, investing Rs 5,222 crore.
Prior to that Tata Steel had raised its stake in Tinplate Company and Tata Sponge Iron. Yesterday, another British giant Diageo completed its open offer in United Spirits, securing 25.02 percent in largest liquor company – till the other day controlled by Vijay Mallya – for Rs 3,135 crore. Diageo has so far spent Rs 5,235 crore to own about half the stake it targeted last November when it entered into an agreement with Mallya to buy 53.4 per cent stake in United Spirits for Rs 11,166 crore.
Post-deal, Diageo nominated Gilbert Ghostine and Ravi Rajagopal as non-executive directors and P A Murali as chief financial officer and executive director of USL. Mallya will continue as non-executive director and chairman. The Diageo open offer, however, fell way short of target with investors selling just 0.4 per cent after USL shares soared over the offer price of Rs 1,440 a piece. Today, USL shares closed at Rs 2,531.70, down 0.7 per cent.
