Godrej Consumer Products is in talks with Sara Lee to acquire its 51 per cent equity stake in Godrej Sara Lee. The joint-venture company owns brands like Good Knight, Jet and Hit and manufactures, markets and distributes Sara Lee’s international brands like Ambipur, Kiwi and Brylcream in the country.
The move follows Sara Lee’s decision to exit the consumer products business which has a turnover of over $2 billion to focus on food products. It has appointed investment bankers to find a buyer for this business. According to analysts, the list of potential buyers includes SC Johnson, Colgate-Palmolive, Reckitt Benckiser and Procter & Gamble.
The sale of the business could have created complications for Godrej. One, it could have a rival as a 51 per cent shareholder. Two, the Sara Lee products could move out of its portfolio. Cleverly, Godrej had built defences against such an eventuality in the joint venture agreement.
“If Sara Lee sells its consumer products business to a competitor, we will then exercise our right to buy it out in the joint venture. The agreement has a clause that in case of ownership change of one partner, the other partner can but it out,” says a Godrej official. Also, in case Sara Lee sells the business, the Indian company will retain the rights to sell its brands like Ambipur, Brylcream and Kiwi. However, it will need to pay a royalty to the new owner.
For the year ended March 2009, Godrej Sara Lee posted consolidated net sales of Rs 755 crore and profit after tax of Rs 104 crore. It is the leader in the domestic insecticide market with a share of 80 per cent as well as in the hair gel space. In shoe care, its Kiwi is the second-largest brand after Cherry Blossom.
The 49 per cent Godrej stake in the company was earlier held by Godrej & Boyce and Godrej Industries. The stake has now been transferred to Godrej Consumer Products which owns brands like Cinthol and Godrej No 1. Sharekhan had valued the 49 per cent stake transferred to Godrej Consumer Products at Rs 845 crore. Godrej Sara Lee is valued at 16.5 times its earnings of last year, says a recent research report of the brokerage. It is understood that Godrej is hopeful of a similar valuation of Rs 880 crore for the 51 per cent stake of Sara Lee.
