Unilever to Spend Billions on Increasing Its India Stake
May. 2 – Unilever has earmarked a whopping US$5.4 billion to increase its equity stake in its Indian joint venture (JV). As Indian rules relax concerning the amount of equity foreign corporations can hold in JV’s, Unilever has taken the opportunity to increase its stake in Hindustan Unilever (HUL) from 52.5 percent to the maximum 75 percent permitted. HUL manufactures well known brands such as Dove soap, Flora margarine and many others.
Unilever is offering a premium of 36 times next year’s earnings to acquire the stake. GlaxoSmithKline has recently done the same in lifting its stake in its own Indian JV from 43.2 percent to the maximum 75 percent threshold.
“The long heritage and great brands of Hindustan Unilever, and the significant growth potential of a country of 1.3 billion people, makes India a strategic long-term priority for the business,” said Paul Polman, Unilever’s Chief Executive.
Other companies are expected to follow suit. Large brands such as Colgate-Palmolive, Procter & Gamble, Nestle and Castrol are all intent on raising the bar in their Indian equity holdings of their own subsidiaries. Indian equity prices are generally deflated, the rupee is fairly weak and the Indian market is growing rapidly. In addition to this, the ability to buy into your own subsidiary means no due diligence is required and the products are already well understood by the parent.
It appears that India’s M&A stars are finally coming into alignment.
Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam as well as liaison offices in Italy and the United States.
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