GSK to offload HUL stake worth Rs 26,000 cr in largest secondary sale

Over 133 million shares, or 5.7% of the paid-up capital, are being offered for Rs 1,850-1,950 to investors through a special block window

UK-based Glaxo-SmithKline (GSK) will offload shares worth Rs 26,000 crore in FMGC major Hindustan Unilever (HUL) on Thursday.

Over 133 million shares — 5.7 per cent of the total equity shares — are being offered in the range of Rs 1,850-1,950 to investors through a special block window, according to the term sheet reviewed by Business Standard.

Shares of HUL closed at Rs 2,002 on Wednesday, down 1.9 per cent on the NSE. In the past fortnight, shares have declined 16 per cent on account of the share sale overhang, coupled with the earnings disappointment. The benchmark Nifty has remained flat during the same period.

At the top end of the price band, GSK will mop up Rs 26,085 crore ($3.45 billion), and at the lower end the deal size works out to Rs 24,748 crore ($3.27 billion).

JPMorgan, HSBC, and Morgan Stanley are the lead bankers handling the share sale.

The transaction will be the largest secondary share sale in the domestic market, surpassing the Daiichi Sankyo’s $3.2-billion stake sale in Sun Pharma in 2015. Back then, the Japanese drug maker sold its entire 8.9 per cent stake, obtained after the merger between Ranbaxy and Sun Pharma.

Just like Daiichi, GSK’s stake in HUL was acquired through the merger between HUL and GlaxoSmithKline Consumer Healthcare. The deal between the two multinationals was announced last year but was completed only last month. Following the deal, Unilever’s stake in HUL declined from 67.2 per cent to 61.9 per cent, while GSK obtained 5.7 per cent stake in the merged entity.

 

 

GSK’s move comes at a time when the market has seen a huge sell-off, driven by the pandemic. After plunging close to 40 per cent, the benchmark indices saw sharp rebounds in April.

Share of HUL were largely unaffected by the sell-off during March. However, in recent weeks, the stock has hugely underperformed the market.

Most analysts had expressed disappointment over HUL’s March quarter numbers announced last week. The subdued performance was due to supply chain disruptions caused by the lockdown. Experts, however, said the company’s medium-to-long-term earnings potential remains intact.

The HUL stock is viewed as a safe-haven, thanks to its debt-free balance sheet, high cash holding, strong cash flow generation capabilities, and strong brand power.

Some analysts expect HUL to gain market share from weaker players. Its return on equity of over 85 per cent is the best compared to peers. It may increase further to 105 per cent in a couple of years, say analysts at Motilal Oswal. The deal with GSK is also expected to be earnings-accretive.

The HUL stock, however, is trading at a rich valuation of 70x its trailing 12-month earnings. According to Bloomberg, the consensus 12-month price target for the stock is Rs 2,290. Two dozen analysts have a ‘buy’ rating on the stock, 15 have a ‘hold’ call, and three have a ‘sell’ rating.

Investment bankers said they were confident that the share sale would go through with “firm commitment” from several large funds. According to the term sheet, the book-building process will close at 8:30pm IST, trades will be carried out on May 7, and settlement will take place on May 11. Capital markets regulator Sebi allows a separate 15-minute window to carry out such deals.

Market experts said the large share sale could weigh on the HUL stock in the short term.