HUL open offer: Large investors not enthused

The stand of Indian financial institutions such as LIC remains unclear, as after initial posturing, FIs tend to sell shares in open offer

Large investors, led by Aberdeen and Life Insurance Corporation of India (LIC), aren’t enthused by Unilever’s offer of Rs 600 a share for Hindustan Unilever Limited (HUL), its Indian subsidiary. LIC, along with other Indian financial institutions and mutual funds, owns about eight per cent in HUL.

Unilever has made a Rs 29,220-crore open offer to increase its stake from 52.5 per cent to 75 per cent.

An LIC official said the company felt the HUL stock would rise from its current levels, and the premium offered by Unilever wasn’t attractive enough. Domestic institutions and mutual funds are expecting about Rs 1,000 a share. They say as they are long-term investors, they would not disinvest their shares in the open offer.

Financial institutions had taken a similar ‘anti-sell’ stand during the Glaxo open offer, when the British pharmaceuticals giant increased its stake from 52 per cent to 73 per cent by investing about $1 billion in its consumer goods company in India. But Indian financial institutions, led by LIC and GIC, later sold at Glaxo’s offer price, while large foreign investors and mutual funds remained invested in the company. The stand of Indian financial institutions such as LIC remains unclear, as after the initial posturing, financial institutions tend to sell the shares in the open offer.

Another large HUL investor, Aberdeen, on Tuesday said the premium offered by Unilever wasn’t attractive enough, as the open offer was based on a share price that had collapsed, following the recent rise in royalties. “As investors with a long-term view, there’s still quite a bit of money to be made from the business. “Hindustan Unilever has a portfolio of well-known household brands and a very strong incumbent position in the Indian market---a market that is still in the early stages of its development in consumer staples,” Adrian Lim, fund manager at Aberdeen Asset Management told Bloomberg in Singapore.

As of March 31, Aberdeen Asset held 87.5 million HUL shares, or about four per cent of the outstanding stock. Foreign institutional investors own 22.11 per cent stake in the company, while small investors own about 14 per cent.