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Though the offer price was at a premium to the share price at the time of the announcement, a sharp rise in the stock has brought it close to the price at which the company has offered to buy back holdings. Institutional shareholders such as Life Insurance Corporation (LIC) and Aberdeen Asset Management think the price offered by Unilever isn’t good enough for them to part with their shares.
A senior LIC official said the insurer might sit out the offer, as it didn’t see enough incentive in tendering shares at the current offer price. The insurer owns about three per cent in HUL. Aberdeen Asset Management, which owns about five per cent stake, is also said to be against tendering its shares at this price. An email sent to the fund remained unanswered. Sources said company officials had been meeting shareholders, seeking their participation in the open offer.
On Tuesday, the HUL stock closed at Rs 595.6 on the BSE, marginally lower than Rs 600, the price the company is offering to existing shareholders in the voluntary open offer. The offer would be open from June 21 to July 4. The company is spending about Rs 29,220 crore to acquire the incremental stake.
“Whether one should tender his shares depends on the time horizon of investment and confidence in the company. HUL is the best play on India’s consumption story. Tendering shares in an open offer means selling for good. Going ahead, it would be difficult to buy shares in large quantities. So, it makes sense to hold on,” a fund manager said on condition of anonymity, as he wasn’t allowed to talk about specific companies.
A section of the market feels it makes sense for investors to tender their shares in the open offer as HUL’s valuations are at historic highs, and a disappointing performance in any forthcoming quarter may lead to a drop in the share price. “For HUL, the high price-to-earnings ratio of 40 isn’t justified. No FMCG (fast-moving consumer goods) company is trading at more than 30-32 times. It makes sense to sell and invest in a cheaper stock,” said independent market analyst S P Tulsian.
Sandip Sabharwal, chief executive (portfolio management services), Prabhudas Lilladher, agreed. “It’s better to exit a stock when the valuations climb to record highs. No logic can justify multiples of 40. One should look for cheaper play.”
Bankers said as was the case with the GlaxoSmithKline Consumer Healthcare open offer, the success of the HUL open offer would hinge on the participation of large institutional shareholders. Earlier this year, through a voluntary open offer, GSK had increased its stake in the company from 43.2 per cent to 72.5 per cent.
“GSK Consumer shares have moved up 50 per cent from the open offer price. The consumer theme might continue to do well in the years to come. It makes sense to stay put in HUL,” said the fund manager quoted earlier.
