Hindustan Unilever ends 1% lower after GSK sells stake in open market deal

Shares of Hindustan Unilever (HUL) slipped 5 per cent to Rs 1,902 on the National Stock Exchange (NSE) on Thursday in early morning trade after UK-based Glaxo-SmithKline (GSK) offloaded its stake in fast moving consumer goods (FMGC) major via block deals.  However, the stock erased almost all its early morning losses and ended less than 1 per cent lower at Rs 1,992 on the NSE and BSE. It touched a high of Rs 2,007 in the intra-day today.

According to the term sheet, an 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. The deal will be valued roughly between Rs 24,600 crore to Rs 25,900 crore.

A combined 262 million equity shares changed hands on the counter on the NSE and BSE. The name of the buyers and sellers were not ascertained immediately.

Since the stock turned ex-date for amalgamation with GSK Consumer Healthcare on April 16, 2020, the share price of HUL has slipped 22 per cent, as compared to a 3.65 per cent rise in the S&P BSE Sensex. With today’ decline, the stock of HUL has fallen 26 per cent from its all-time high level of Rs 2,614 touched on April 8, 2020.

As per the scheme of amalgamation amongst GSK Consumer Healthcare and HUL, GlaxoSmithKline Pte and Horlicks Limited had received 54.08 million shares of HUL (representing 2.3 percent of total paid-up equity) and 79.69 million shares (3.39 percent stake) respectively in April. The merger of GSK Consumer with HUL had taken place on the basis of an exchange ratio of 4.39 HUL shares for each GSK Consumer share.

Accordingly, parent company Unilever Plc and group companies' stake in HUL reduced to 61.90 per cent, from 67.19 per cent earlier after the issue of new shares.

"Exiting stake is a planned strategy as regards GSK. They never intended to keep holding on to this. While the deal is cash neutral for HUL, GSK will get around Rs 26,000 crore from the stake sale via this block deal, which it can use to build a war chest in these Covid-19 impacted times. Investors - both foreign and domestic - have shown a good appetite for HUL stock. The deal will satiate this to some extent," says Ambareesh Baliga, an independent market expert.

Going ahead analysts at Edelweiss Securities remain confident of margin expansion trajectory owing to cost savings programs and building synergies from GSK acquisition. The brokerage firm expects HUL to be key beneficiary of the rural demand recovery. Although COVID-19 related lockdown will affect near-term volumes, we expect volumes and earnings to bounce back once things normalize, it added.