Tug of war intensifies for Kraft Heinz's Complan; Zydus keen on buying biz

The push and pull for Kraft Heinz’s India operations, including brands Complan, Glucon-D and Nycil, which is on the block, is growing by the day. 

While Ahmedabad-based Zydus Cadila Group is keen on acquiring the India business, valued at over three-and-a-half times sales, Coca-Cola, the country’s largest beverage company, is not out of the race completely, sources told Business Standard.

Both Coca-Cola and Kraft Heinz are familiar with each other’s operations, persons in the know said, thanks to their US parentage. In addition, Coca-Cola is ready to absorb all tax liabilities of the Italian holding company that houses the Indian business of Kraft Heinz. Sales of the latter (India business) stand at Rs 12 billion per annum.

Kraft Heinz, according to sources, had unexpectedly decided to sell the Italian holding company midway through bidding, instead of the India business only as indicated earlier, throwing Zydus Cadila off the track briefly and giving Coca-Cola an upper hand in the process.

While the Ahmedabad-based firm has come back with an offer of Rs 45 billion for the India portfolio, Coca-Cola is likely to cough up between Rs 40-45 billion for the entire business that includes the Italian holding company and its tax liabilities. Kraft Heinz has to make a choice between the two, it is learnt.

Coca-Cola India said in a statement it could not comment on market speculation as a matter of policy. “We continue to grow organically. And as a growth company, we continue to evaluate right opportunities for inorganic growth,” it said. Zydus Cadila, meanwhile, was not immediately available for comment.

The American beverage major is also making a bid for Horlicks, which is undergoing a strategic review by UK-based GlaxoSmithKline (GSK) to fund a buyout of the residual stake in its consumer health care joint venture with Novartis. The review includes an assessment of the company’s 72.5 per cent shareholding in GSK Consumer Healthcare, its India subsidiary, as well as other consumer nutrition products within the India business.

Coca-Cola has been shortlisted along with Nestlé and Unilever for the second round in the bidding process for Horlicks and other GSK Health care brands, sources said. While the outcome of this transaction valued at a whopping Rs 300 billion will be clear by the end of the year given its size and complexity, Complan’s fate will be known by the end of this month.

The beverage company has been looking to make inroads into health drinks as part of its strategy to derisk business model, led by fizzy drinks. In August, the firm acquired Costa Coffee in a global bet to expand its presence across the beverage sector. 

Zydus, in the interim, has sent feelers to bankers for raising money for the Complan deal. Talks are on with some of the biggest private equity names, including ChrysCapital and True North, persons in the know said. 

“There has been no PE investment in Zydus Group so far. However, for this deal, it seems to be open to having a PE partner on board. As such, Zydus Wellness cannot pull off the deal alone, and the parent company (Cadila Health care) is going to support it with bank guarantees and loans,” an official with knowledge of the matter said.

Zydus Wellness, the group’s personal care arm and the owner of marquee brands such as Sugar Free and Everyuth, has been looking for potential acquisition targets. The firm has cash reserves of Rs 4,137 million (as on March 31) and its return on capital employed has come down from 63.3 per cent in FY11 to 23.3 per cent in FY18. Zydus is, thus, looking for avenues to deploy the cash sitting on its books to give it better returns, analysts said.