GlaxoSmithKline Plc’s Horlicks drink products, center, are displayed in a local grocery store in the Kalahati market area in Siliguri, West Bengal, India (Photographer: Sanjit Das/Bloomberg)  

Unilever $3.8b Glaxo Deal to Aid India Unit Profit, Analysts Say

(Bloomberg) -- A plan by Hindustan Unilever Ltd.’s parent to buy GlaxoSmithKline Plc’s Indian consumer business for 3.3 billion euros ($3.8 billion) in cash and shares is positive for the local unit’s earnings, according to analysts, even as the price tag is said to be about $1 billion more than rival Nestle SA’s offer.

Shares in Hindustan Unilever rose 4.1 percent on Monday to a record, while GlaxoSmithKline Consumer Healthcare Ltd. added 2.8 percent to its highest level since Sept. 21. In London, GlaxoSmithKline slumped 7.6 percent, the most in a decade, while Unilever NV was little changed in Amsterdam.

The buyout “is accretive from both an EPS and margin perspective” and “may lead to ~800-1000 basis points synergy on margins in a phased manner once the merger happens in 12 months time,” Jefferies analysts Varun Lohchab and Tanmay Sharma wrote in a report Monday.

For more on the $3.8 billion deal click here

Here’s What Analysts Are Saying:

Credit Suisse (Arnab Mitra)

  • Merger will make HUL’s food and refreshment business 1.6x larger and give it a strong nutrition brand which can be leveraged in more categories
  • Raises FY21 earnings estimates by 6.5 percent
  • Maintains neutral, lifts PT to 1,900 rupees from 1,770 rupees

Citigroup (Jamshed Dadabhoy)

  • Deal may take a year to complete given regulatory/shareholder approvals but it should be EPS accretive from day 1
  • Even without synergy benefits, the merger is EPS accretive for HUL to the extent of ~3.7% on FY21 earnings estimates
  • HUL may have to pay parent a royalty from Horlicks brand sales

Jefferies (Varun Lohchab)

  • HUL’s distribution footprint is ~3x GSK’s, so it has potential to improve sales growth
  • Valuations of Hindustan Unilever leave no room for error
  • Maintains Hold, PT 1,650 rupees

Prabhudas Lilladher (Amnish Aggarwal)

  • Synergy benefits will start accruing from FY21
  • Expects one-time dividend in FY21, given that Glaxo has cash of 38 billion rupees ($539 million) on its books and Hindustan Unilever has 80 percent dividend payout
  • Maintains hold, PT 1,880 rupees

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Watch the Hot Money debate on the HUL-GSK Consumer Health merger here: