Henkel Begins Due Diligence For A Stake In Jyothy Laboratories
Jyothy Laboratories, Henkel AG have to reach an agreement before March-end.
Consumer goods maker Jyothy Laboratories Ltd. is in talks to sell a stake to Germany-based Henkel AG & Co., joint managing director Ullas Kamath told BloombergQuint.
The two parties have to reach an agreement before the end of this financial year as part of the 2011 deal when Jyothy Laboratories had acquired a majority stake in Henkel India’s consumer business.
Henkel had sold a little more than 50 percent stake in its India business for 29 million euros to the maker of Ujala fabric whitener, according to its disclosure to the stock exchanges. The German company had retained the option to buy up to 26 percent in Jyothy Laboratories after five years to re-enter the Indian market.
We are in talks with Henkel AG and have signed a confidentiality agreement with Henkel AG. They are aware of the deadline. A decision is yet to be reached and we will do so in the next one month’s time.Ullas Kamath, Joint Managing Director, Jyothy Laboratories
A confidentiality or non-disclosure agreement is usually signed when the target company agrees to provide access to its books for due-diligence by the acquirer.
An email by BloombergQuint to Henkel AG for a comment on the story did not elicit a response till the time of publishing this report.
The 2011 deal gave Henkel AG the option to buy up to 26 percent through purchase of equity or through issue of shares.
If Henkel AG does buy more than 26 percent in Jyothy Laboratories, it will trigger an open offer to comply with the takeover code of the the Securities and Exchange Board of India.
The open offer gives the acquirer a chance to buy up to another 20 percent from public shareholders.
The promoters own 66.92 percent stake in Jyothy Laboratories and the remaining 33.08 is held by public shareholders, including over 24 percent by institutions, according to the company’s disclosure to stock exchanges in December-end.
If this deal goes through, Jyothy Laboratories will get an access to more products and brands which Henkel AG owns internationally. The German company has over 100 consumer brands in its portfolio, including detergent Persil, stain remover Dynamo and hair styling spray Schwarzkopf.
This (potential deal) will give Jyothy Laboratories access to Henkel AG brand portfolio. The company (Jyothy Laboratories) can compromise on valuations if they get access to Henkel’s brand portfolio, as creating a new brand is difficult in any consumer category.Sachin Bobade, Senior Research Analyst, Dolat Capital
For the next one year, Jyothy Laboratories does not have any plans to launch new brands and will launch new products under its existing brands, Maxo and Margo, Kamath said.
“If this (Henkel AG picking up stake in Jyothy Laboratories) happens, the company will get access to Henkel’s brand, However, execution will be a challenge because of existing competition in the consumer space,” said Sageraj Bariya, vice-president and analyst at broking firm East India Securities.