Electronic copy available at: http://ssrn.com/abstract=1933686 Electronic copy available at: http://ssrn.

com/abstract=1933686











The Jyothy Laboratories Henkel India Deal
This case has been prepared by Ajay Parmar, Neetesh Misra & Sundaram Iyer (WeSchool, Executive
PGDM Batch of 2010) along with Prof. Shuaib M Fakih. It is based on published sources and has been
prepared as the basis for class discussion rather than to illustrate either effective or ineffective handling
of an administrative situation.


Electronic copy available at: http://ssrn.com/abstract=1933686 Electronic copy available at: http://ssrn.com/abstract=1933686
Page 2

Pre-Acquisition dialogues

I was looking at the girl (Henkel India) for five years. But the father-in-law (parent Henkel
AG) was too demanding. They wanted us to be a part of their family, become a ghar-jamai.

Chairman and managing director M P Ramachandran and deputy managing director K Ullas Kamath of
Jyothy Laboratories had Henkel India on their radar for nearly five years before they spotted a chance to
swoop down and grab it.
Reminiscing on his trip to Henkels headquarters in Dusseldorf, Germany about five years back, Kamath
says his company had approached the German consumer goods giant take over its beleaguered India
division, or at least form a joint venture. But the prey had shown its predator instincts, by wanting to
buy out Jyothy instead.

Years went by and Henkel India continued to be a loss-making subsidiary with most of its brands
declining and available only in the urban markets, while Jyothy went on to make huge profits. Later
through sources in January 2011, Jyothy was alerted about the possibility of Henkel putting its Indian
unit on the block. Mr.Kamath made an offer to the Germans to take a sabbatical from India for five years
and offered an option to return after five years in a merged entity at 26%.
In which Direction Jyothy-Henkel Marriage will go from here?

Acquisition detail

Acquiring Henkel was not a UJALA (easy) way for the Jyothy but Mutiah deal act as trump card for the
deal to materialize. Henkel did not involve its Indian partner Muthiah (14.9% shareholder in Henkel
India), when it gave a sell mandate to HSBC. Muthiah was wary as he had to find a buyer, before Henkel
sold its 50.9% in the business. On March 14, Muttiah offered his stake in Henkel India to Jyothy. With
14.9%, Jyothy got a foot at the door and an edge over other bidders like ITC, Godrej Consumer Products,
Emami, CavinKare and several private equity players, who were willing to pay much more for the stake.
In March 2011, Jyothy Laboratories snapped up Henkel AG and Co. 50.97 percent stake in its Indian unit
for 142.9 crore. At one shot, the three brand company leapt in to the big league with six new brands in
its stable, namely, Henko, Mr.White, Fa, Pril, Margo and Neem.
Page 3

On May 6, 2011 Jyothy announced that it had successfully acquired a majority stake in Henkel India. The
acquisition will catapult Jyothy Laboratories into one of the leading FMCG companies in India. Jyothy
currently controls 65.87% of Henkel India and has launched a mandatory open offer for an additional
20%. Jyothy will pay INR 3,308 million to acquire the 85.87% stake in Henkel India. In addition, Jyothy
bought Henkel AGs outstanding preference shares for a cash consideration of INR 439 million. The
implied Enterprise value works out to INR 8,042 million as Jyothy has also taken over the debt of INR
4,296 million on Henkel Indias balance sheet.

To fund the acquisition of Henkel India, Jyothy, a debt-free company since its inception in 1983, would
have to raise a debt of Rs600 crore. The Germans were placated and decided to sign on the dotted line.

Jyothy has undergone a major corporate transformation with its acquisition of Henkel India to become
one of Indias leading FMCG companies. It has expanded its presence in the fabric care and dishwasher
segments and gained entry to the personal care segment after its acquisition of Henkel India. The
merger with Henkel India gives Jyothy a portfolio of well recognized brands like Henko, Mr. White, Fa,
Pril, Margo and Neem, entry to the personal care segment and immediate scale compared to its current
operations in the detergent segment.
Exhibit 1 shows the product basket post acquisistion.

Why Henkel?

Jyothys flagship product Ujala Supreme is dominant in the liquid whitener market with a 72% market
share by value. However, the fabric whitener segment is in decline and Jyothy has been trying to
diversify its revenue to reduce its dependence on one single product.
Jyothy has been attempting to diversify into new product categories by piggybacking on the Ujala brand
name. Jyothy extended the Ujala brand into detergents and entered the Mosquito repellant and
dishwasher markets through the Maxo and Exo brands. This has resulted in a decline in contribution
from Ujala Supreme. Ujalas contribution has reduced from 48.8% in fiscal 2009 to 46.3% in fiscal 2010,
while that of mosquito repellent has risen from 30.7% to 31% and that of dishwash has surged from
13.9% to 16.4% during the same period.

Henkel Indias brand portfolio includes Henko and Mr. White in detergents, Pril liquid dishwasher,
Margo soap, Fa deodorants, Neem toothpaste and Bref surface cleaners. Jyothy has been interested in
acquiring the Henkel India business for a long time in order to acquire this bouquet of brands to hasten
the process of reducing its dependence on Ujala Supreme. The biggest standout for Henkel India was
that its product offering was the closest in nature to those of Jyothy and it represented the most natural
fit for Jyothy. From a commercial standpoint, the transaction will enable Jyothy to reduce its
dependence on Ujala Supreme while complementing the other products offered by Jyothy, namely
detergents (Ujala Supreme and Ujala Technobright), dishwasher (Exo) and personal care (Jeeva).Also,
the Henko, Fa and Pril brands are players in the premium segment and are well positioned in the context
of the ongoing consumer shift towards premium brands.

Jyothy has one of the most extensive distribution networks among Indian FMCG companies with a total
reach of 2.9 million outlets through 3500 distributors. However its reach in the fast growing modern
retail channel is limited and modern trade accounts for only 2% of its revenue. Henkel India on the other

Page 4

hand has only 750 distributors and a total reach of 750,000 outlets but is extremely strong in the CSD*
and modern trade formats which account for 33% of its total revenue. Henkel India's predominantly
urban presence (70% of sales) neatly complements Jyothy Lab's semi urban and rural strengths (70% of
sales). The Henkel India acquisition gives Jyothy access to the modern trade distribution network and
will also enhance its skills in marketing and management of modern trade channels, which is relevant in
a changing Indian retail environment. On the other hand the acquisition provides an opportunity for
Henkel India to gain exposure to the large rural and semi-urban market through the distribution network
of Jyothy. Distribution is always a key for success in the FMCG sector and with Henkel India's distribution
network being complementary to Jyothy's own network; the combined distribution can be leveraged to
vend existing brands to new consumers. While the considerable scope for cross selling opportunities will
have a positive impact on sales growth.

Post Merger Synergy

Raw material procurement:

Henkel India currently sources the main raw material linear alkyl benzene (LAB) exclusively from
Tamilnadu Petro products, who was the JV partner in the business along with Henkel AG. Prior to the
acquisition of Henkel India by Jyothy this exclusive contract has been terminated and Jyothy will now be
able to procure its LAB requirements from its current suppliers at a much more favorable rate. Jyothy
will also benefit in negotiations with its current suppliers due to the larger scale of the combined entity.

Optimization of manufacturing:

Henkel India outsources almost 80% of its production to third party manufacturers in line with its
business strategy of concentrating on marketing and distribution activities. On the other hand Jyothy
prefers to manufacture its products in its in house manufacturing facilities. Post the acquisition Jyothy
intends to move Henkel Indias outsourced production in house leading to a 2 4% savings in
manufacturing costs. Jyothy expects to benefit from the savings on an immediate basis without any
additional investment.

Losses carry forward:

Jyothys unit in Uttaranchal enjoys tax exemption status till FY2013 enabling Jyothy to pay only the
Minimum Alternate Tax. Once the merger with Henkel India is complete in the next 6 9 months, Jyothy
will receive a tax shelter from Henkel India's INR 5,000 million accumulated losses. Jyothy will benefit to
the extent of INR 1,500 million and will be able to extend its tax breaks beyond FY2013.






* CSD-Centralized Sales & Distribution
Page 5

Jyothy laboratories Investors Concern

Investors have not been convinced regarding the suitability of the acquisition of Henkel India. It resulted
in the share price falling 23.7% YTD compared to the 10.2% decline in the broader market Sensex and a
gain of 4.8% in the FMCG index. The market concerns should be taken seriously; it seems from here that
more might go right than go wrong as company move through FY2012. The concerns of investors
regarding the ability of Jyothy to turnaround the Henkel India business, while legitimate and well
founded, are perhaps running ahead of the real near and long-term risks.

Reposition, Rehaul

Jyothy has a lot of work (catching-up) to do in terms of its Brand building and repositioning itself in the
market. Henkel brands have always harped on product technology and never built an emotional connect
with the Indian consumer. Mr. Menon of Kotak Securities agrees Take Fa deodorant which has a good
recall but is still only a `25 crore brand. Compare that to HULs Axe that has become a 350 crore brand
with the help of concerted investments.
Experts say Jyothy can leverage its knowledge of the Indian consumer to work its magic on Henkel
brands. Ujala was built through sharp advertising, and understanding of the Indian consumer, says
Dheeraj Sinha, regional planning director.
In the process, Jyothy helped resurrect a category where Reckitt Benckisers Robin Blue was the only
branded player.
Arvind Mohan, founder of culture and branding firm, agrees: Ujala Supreme tapped into the emerging
class value system and made white a powerful sign of social mobility. This
Questioned the Brahmanical status quo where white was coded as a reflection of the inner self. For
Jyothy, the next step will be to build power brands with in Henkel, adds Sinha.
The company is already orchestrating a new branding strategy. Our priority will be Henko Champion
and Mr. White which are the largest contributors to Henkels business, says Kamath.
The next wave will include Pril, Margo and Fa. Of Henkel Indias `400 crore turnover from its brands,
Henko Champion rakes in35per cent, Margo brings
In 20per cent, 17.5per cent comes from Pril, 14per cent from Mr.White, whereas Fa, Chek and Neem are
miniscule and bring in 6 per cent, 5 per cent and 2.5 per cent each. Kamath is clear that some of the
existing advertising agencies will have to fight in the coming months to keep their assignments.

Post Merger Scenario

Henkel shifted the corporate office with 30 employees from Finance/Operations/Marketing to Mumbai
w.e.f October 2011.

Saving: Rs. 2 crore per annum towards rent and other expenses

Reducing employees count, as on March 31, 2011: 421 and July 31, 2011: 280

So far Jyothy have managed only with the existing frontline staff of Henkel


Page 6

Henkel Turnaround:

Production taken control keeping only key important manufacturing location
All other outsourcing arrangements will be shifted to JLL manufacturing facilities
Purchase/Supply chain shifted to Mumbai w.e.f August 2011
Marketing New Campaign to start from October 2011

























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Annexure-1


Indian FMCG Industry

The Indian FMCG sector is the fourth largest sector in the economy with a total market size in excess of
$13.1 billion. It has a strong MNC presence and is characterized by a well established distribution
network, intense competition between the organized and unorganized segments and low operational
cost. Availability of key raw materials, cheaper labor costs and presence across the entire value chain
gives India a competitive advantage. The FMCG market is set to treble from $11.6 billion in 2003 to
$33.4 billion in 2015. Penetration level as well as per capita consumption in most product categories like
jams, toothpaste, skin care, hair wash etc in India is low indicating the untapped market potential.
Burgeoning Indian population, particularly the middle class and the rural segments, presents an
opportunity to makers of branded products to convert consumers to branded products. Growth is also
likely to come from consumer 'upgrading' in the matured product categories. With 200 million people
expected to shift to processed and packaged food by 2010, India needs around $28 billion of investment
in the food-processing industry.

POLICY
India has enacted policies aimed at attaining international competitiveness through lifting of the
quantitative restrictions, reduced excise duties, automatic foreign investment and food laws resulting in
an environment that fosters growth. Cent per cent export oriented units can be set up by government
approval and use of foreign brand names is now freely permitted. Automatic investment approval
(including foreign technology agreements within specified norms), up to 100 per cent foreign equity or
100 per cent for NRI and Overseas Corporate Bodies (OCBs) investment, is allowed for most of the food
processing sector except malted Food, alcoholic beverages and those reserved for small scale industries
(SSI). 24% foreign equity is permitted in the small-scale sector. Temporary approvals for imports for test
marketing can also be obtained from the Director General of Foreign Trade. The evolution of a more
liberal FDI policy environment in India is clearly supported by the successful operation of some of the
global majors like PepsiCo in India. The Indian government has abolished licensing for almost all food
and agro-processing industries except for some items like alcohol, cane sugar, hydrogenated animal fats
and oils etc., and items reserved for the exclusive manufacture in the SSI sector.
Quantitative restrictions were removed in 2001 and Union Budget 2004-05 further identified 85 items
that would be taken out of the reserved list. This has resulted in a boom in the FMCG market through
market expansion and greater product opportunities.
Page 8

Page 9



TRENDS AND PLAYERS

The Indian FMCG sector is the fourth largest sector in the economy and creates employment for three
million people in downstream activities. Within the FMCG sector, the Indian food processing industry
represented 6.3 per cent of GDP and accounted for 13 percent of the country's exports in 2003-04. A
distinct feature of the FMCG industry is the presence of most global players through their subsidiaries
(HLL, P&G, Nestle), which ensures new product launches in the Indian market from the parent's
portfolio.
Demand for FMCG products is set to boom by almost 60 per cent by 2007 and more than 100 per cent
by 2015. This will be driven by the rise in share of middle class from 67 per cent in 2003 to 88 per cent in
2015.
The boom in various consumer categories, further, indicates a latent demand for various product
segments. For example, the upper end of very rich and a part of the consuming class indicate a small but
rapidly growing segment for branded products.
The middle segment, on the other hand, indicates a large market for the mass end products. The BRICs
report indicates that India's per capita disposable income, currently at $556 per annum, will rise to
$1150 by 2015 - another FMCG demand driver. Spurt in the industrial and services sector growth is also
likely to boost the urban consumption demand.

Page 10

HOUSEHOLD CARE

The size of the fabric wash market is estimated to be $1 billion, household cleaners to be $239 million
and the production of synthetic detergents at 2.6 million tonnes. The demand for detergents has been
growing at an annual growth rate of 10 to 11 per cent during the past five years. The urban market
prefers washing powder and detergents to bars. The regional and small un-organized players account for
a major share of the total volume of the detergent
Market.

PERSONAL CARE

The size of the personal wash products is estimated at $989 million; hair care products at $831 million
and oral care products at $537 million. While the overall personal wash market is growing at one per
cent, the premium and middle-end soaps are growing at 10 per cent. The leading players in this market
are HLL, Nirma, Godrej Soaps and Reckitt & Colman. The oral care market, especially toothpastes,
remains under penetrated in India (with penetration level below 45 per cent). The industry is very
competitive both for organized and smaller regional players.
The Indian skin care and cosmetics market is valued at $274 million and dominated by HLL, Colgate
Palmolive, Gillette India and Godrej Soaps. The coconut oil market accounts for 72 per cent share in the
hair oil market. In the branded coconut hair oil market, Marico (with Parachute) and Dabur are the
leading players. The market for branded coconut oil is valued at approximately $174million.

FOOD AND BEVERAGES

The size of the Indian food processing industry is around $ 65.6 billion, including $20.6 billion of value
added products. Of this, the health beverage industry is valued at $230 million; bread and biscuits at
$1.7 billion; chocolates at $73 million and ice creams at $188 million.
The size of the semi-processed/ready-to-eat food segment is over $1.1 billion. Large biscuits &
confectionery units, soya processing units and starch/glucose/sorbitol producing units have also
Come up, catering to domestic and international markets.
The three largest consumed categories of packaged foods are packed tea, biscuits and soft drinks.
The Indian beverage industry faces over supply in segments like coffee and tea. However, more than half
of this is available in unpacked or loose form. Indian hot beverage market is a tea dominant market.
Consumers in different parts of the country have heterogeneous tastes. Dust tea is popular in southern
India, while loose tea in preferred in western India. The urban-rural split of the tea market was 51:49 in
2000. Coffee is consumed largely in the southern states. The size of the total packaged coffee market is
19,600 tonnes or $87 million. The total soft drink (carbonated beverages and juices) market is estimated
at 284 million crates a year or $1 billion. The market is highly seasonal in nature with consumption
varying from 25 million crates per month during peak season to 15 million during offseason. The market
is predominantly Urban with 25 per cent contribution from rural areas. Coca cola and Pepsi dominate
the Indian soft drinks market. Mineral water market in India is a 65 million crates ($50 million) industry.
On an average, the monthly consumption is estimated at 4.9 million crates, which increases to 5.2
million during peak season.



Page 11

Annexure-2

Jyothy Laboratories Ltd

Jyothy Laboratories came into being in 1983, powered by the vision of one man M P Ramachandran -
the current Chairman & Managing Director. Started as a proprietary concern, manufacturing and selling
a single product in a single district, the organization has grown to become a multi-brand, multi-product
company with operations all over the nation.

The company has the distinction of making a mark in the virtually non-existent category of liquid fabric
whitener. With products that are reasonably priced, conveniently packaged, extensively distributed and
supported by strategic communication, Jyothy Laboratories Limited has well and truly earned its place in
the market as well as in the minds of millions of households in India.

Today, Jyothy Laboratories Limited has a pan Indian presence with brands catering to the needs of
consumers across the length and breadth of the nation. From a fledgling entity that embarked to
translate the dream to make a difference, from starting operations with a corpus of INR 40,000 to a
company with a turnover of over INR 400 crores, Jyothy Laboratories Limited has come a long way.
Jyothy Laboratories Limited is surging ahead to keep its tryst with the founding ideals - Untapped
markets, Innovative products & Cater to the common man. Jyothy Laboratories through its market
analysis looks out for a vacuum that can be filled.

Jyothy Laboratories Limited making a difference to millions of households across India.
The genesis of the organization has been a defining moment in our journey. Jyothy Laboratories Limited
has ensured that the founding principles remain as relevant as they did a quarter of a century ago.

In keeping with the tenet of offering a solution rather than a mere product, Jyothy Laboratories Limited
has consciously ventured into product categories that provide simple but tangible benefits to consumers
through a portfolio of value for money brands.

Starting from the momentous launch of Ujala carving out a new product category of liquid fabric
whitener - Jyothy Laboratories Limited today manufactures and distributes brands across product
categories as diverse as Fabric Care, Household Insecticide, Utensil Cleaners, Fragrances, Personal Care,
besides marketing tea and coffee brands.

At Jyothy Laboratories Limited, we act on key insights from consumers, market research and sustained
in-house analytical processes. Combined with continuous research & development, these insights help
us in offering innovative products while ensuring enhanced value from existing brands.

In addition to our own brands, Jyothy Laboratories Limited has ventured into the business of coffee, tea
Page 12

and spiritual / astrological dhoops. The company has also inked a Move to establish a joint venture in
Bangladesh to manufacture and market Ujala and Maxo.

Incisive insights into consumer preferences, market dynamics and distribution, winning marketing
strategies and focused product positioning, combined with sustained R & D have ensured expansion of
the product portfolio and consistent growth.

The fact that each brand from the Jyothy portfolio makes a positive difference to the lives of millions is
our greatest inspiration egging us to do more.
Jyothy Laboratories Limited is guided by a corporate philosophy that embodies values and objectives
that determine the way we conduct business and cater to the needs of our customers.

Vision:
Develop innovative brands, tap high growth categories, reach untapped markets and explore untapped
segments to meet the day-to-day requirements of every Indian household.

Mission:
Provide brands that denote superior quality, to touch and positively impact the daily lives of consumers.
To ensure that our brands, business operations and corporate policies translate the core philosophy of
offering value for the money spent to experience our products. Ensure that our people, processes and
products reflect the ideals of integrity, ethics and professionalism.




















Page 13

Annexure-3

Henkel India Ltd.


Henkel operates worldwide with leading brands and technologies in three business areas: Laundry &
Home Care, Cosmetics/Toiletries and Adhesive Technologies.
Founded in 1876, Henkel holds globally leading market positions both in the consumer and industrial
businesses with well-known brands such as Persil, Schwarzkopf and Loctite.
Henkel, headquartered in Dsseldorf / Germany, has about 48,000 employees worldwide and counts
among the most internationally aligned German-based companies in the global marketplace.
In India:
Henkel India Ltd: Henkel India Ltd., established in 1987 is a subsidiary of Henkel AG & Co. KGaA,
Germany. Headquartered at Chennai in India, Henkel India Ltd., operates in business areas of Laundry,
Home Care, Cosmetics, Toiletries and Hair Care. It comprises of national and international brands such
as Pril, Henko, Fa, Margo, Mr. White, Chek, Bref, Igora Royal, BC Bonacure, Strait Therapy, Glatt &
Natural Styling and Osis.
Henkel Adhesive Technologies India Private Limited is a subsidiary of Henkel AG & Co. KGaA, Germany.
Henkel Adhesive Technologies has manufacturing facility in Jejuri, Maharashtra. Henkel Adhesive
Technologies operates in the business areas of manufacturing Loctite anaerobic adhesives,
cyanoacrylate adhesives, silicone sealants and polymer composites. Loctite products provide solutions
across whole spectrum of adhesives technologies and manufacturing processes. They are used in as
diverse as electronics, automotive, aerospace, and biomedical and many manufacturing industries.
Henkel Teroson India Limited, headquartered at Gurgaon is a Joint Venture Company of Henkel KGaA
and Anand Automotive Systems and has Technical License with Sunrise MSI Corporation Japan. Henkel
Teroson India has manufacturing facilities at Gurgaon, Chennai and Parwanoo. Henkel Teroson India is
TS 16949, ISO 14001 and OHSAS 18001 Certified Company by DQS of Germany. The company
manufactures and supplies Adhesives, Sealants and NVH Products to all Automotive OEMs in India
Henkel Chembond Surface Technologies Ltd., established in 1996, is a joint venture between Henkel
KGaA and Chembond Chemicals Ltd. Headquartered in Navi Mumbai, India, Henkel Chembond operates
in the business areas of Metal Treatment Chemicals, which includes pretreatment chemicals, neutral
cleaners, lubricants, and coatings. The company offers its products to the Indian automotive OEMs and
component suppliers, steel industry, general industry, appliance, construction equipment, and aviation,
defense, and aluminum customers. The renowned brands offered by Henkel Chembond in the country
include Bonderite, Multan, P3, Turco, Autophoretic, Aquence, and Passerite. Henkel
Chembonds manufacturing facilities are located in Tarapur and Sitarganj with warehouses and offices
across the country.
Page 14

Henkel CAC Pvt Ltd (formerly Converter Adhesives and Chemicals Pvt Ltd.), established in 1985 is a
subsidiary of Henkel AG & Co. KGaA, Germany. Headquartered at Mumbai in India, Henkel CAC operates
in business areas of manufacturing of solvent based, solvent free and cold seal laminating adhesives
used in flexible packaging industry. Most of manufactured items come under the brand of Liofol. In
addition to these Liofol products Henkel CAC sells the legacy CAC products in domestic and International
markets.


Henkel has three globally operating business sectors:
Laundry & Home Care Cosmetics / Toiletries Adhesive Technologies


The Companys success story started
with a product from the Laundry &
Home Care business sector.


Henkel's cosmetic division is one of the
largest of its kind in the world and its
brand-name products business is
continuously expanding.


Henkel is the world market leader in
adhesives, sealants and surface
treatments for consumers, craftsmen
and industrial applications.


Vision:
A global leader in brands and technologies.




Page 15

Exhibit 1: Product basket post acquisition





Exhibit 2 Product Market share


Page 16

Exhibit 3 Cost of Acquisition







References:

www.dnaindia.com
www.business-standard.com
www.thehindubusinessline.com
www.moneycontrol.com