MERGERS & ACQUISITIONS STRATEGY

Section-A | Group 1

Abhay Chandran - PGP38002

Vineeth Thakkilla - PGP38158
Indulekha - PGP38188
Aayush Saxena - PGP38272
Rahul - PGP38305
Rahul Kumar - PGP38306
Aravind Krishnan - PGP38406
Vibhav Jain - PGP38432
 Table of Content
1. Introduction and Deal Concept
2. Macro, Industry & Firm Analysis

3. History of Corporate Strategies

4. Merger Motives

5. Due Diligence
6. Deal Structuring & Analysis

7. Post Merger Integration

8. Deal Outcome
9. Market Reaction

10. Other Deals

Introduction & Deal Concept
Acquirer Hindustan Unilever Limited
Hindustan Unilever limited
Target GlaxoSmithKline Consumer Healthcare
Limited • Indian subsidiary of Unilever Plc
• In 1931, they set up their first Indian subsidiary - Hindustan
Vanaspati Manufacturing Company, followed by Lever
Announcement date 3rd December 2018 Brothers India Limited (1933) and United Traders Limited
(1935)
Completion date 1st April 2020 • Major Product Portfolio : Brooke Bond, Clinic Plus,Lakme,
Pepsodent, Ponds, Knorr, Taaza, Taj Mahal, Bru, Cornetto,
Deal Value $4650 Million Kissan, Horlicks
Payment Type Equity share
Nature of bid Friendly GSK Consumer Health care
Acquirer Industry FMCG
• Indian subsidiary of GSK Plc.
Target Industry Pharmaceuticals/Consumer Healthcare • Merger of Glaxo Welcom and Smith, Kline & company to
form GSK
% of ownership post • GSK Plc (including Group Companies) • #1 HFD portfolio in the largest HFD market
merger to own 5.7 % of the merged entity. • 20+ different products in the malt based drinks category
• Unilever’s holding in HUL will be • Major product Portfolio : Boost, Horlicks, Sensodyne, Otrivin,
diluted from 67.2% to 61.9 %. Voltaren, Eno
 Macro, Industry & Firm Analysis
SWOT Analysis - Target - GSK CH

Strengths
• Strong product portfolio
• Investment in its Research and
Development division
• Global Distribution network
• Strong Market share in Oral care and
Nutritional supplements segments
Weaknesses
S • Intense Competition in the Indian market
• Dependence on a Limited Product Range,
This makes them vulnerable to market
W fluctuations and consumer preferences
• Bad Media reputation - Some of the facts
claimed by the nutritional products of GSK
were later disproved in the media.

Threats
• Regulatory Challenges - Several health
T Opportunities
• Growing number of health-conscious
regulatories may impose regulations leading
to some products potentially being deemed
unhealthy
O consumers
• Increase in the disposable income of the
average Indian consumer
• Economic uncertainties - high interest, tax • Possibility to exploit rural markets
rate on products would deter potential
buyers from consumer health products
 Macro, Industry & Firm Analysis
SWOT Analysis - Acquirer - HUL

Strengths Weaknesses
• Wide product portfolio
•Innovative FMCG company – R&D
S •Declining Market share - Competitors
focusing on a particular product & eating
investment highest up HUL’s share
•Extensive & integrated distribution
system
W •Product cannibalization –
e.g., pepsodent and closeup
•Strong financial positioning •Controversial products like skin lightening
•Strong Social Media presence creams

Threats
•Intense competition in each category
T Opportunities
•Online retailing (possibility) vs OTC store
•Very low margin cause of intense price wars
•Switching costs are low
• Multiple new local businesses which are
O •Complementary business tie – ups and
acquisitions: building brand loyalty through
product differentiation without increasing
based on changing trends and consumer the price.
preferences. E.g., natural products, healthier •Opportunity of the potential rural market
products
 Macro, Industry & Firm Analysis
PESTEL Analysis – Pharmaceutical Industry
Macro, Industry & Firm Analysis
Porter's 5 Forces Analysis – Consumer Healthcare
Macro, Industry & Firm Analysis
Value chain Analysis : Target

• Strong research capabilities

enhances its competitive position
in the market.
• Adherence to strict regulatory
standards.
• Distribution Network: An efficient
distribution network ensures
products are available to
consumers through various retail
channels, contributing to customer
satisfaction.
• Global reach and partnerships
strengthen its market presence
and enable expansion into various
regions.
Macro, Industry & Firm Analysis
VRIO Analysis of Target
VALUE RARE INIMITABLE ORGANIZED

Strong R & D capabilities

Strategic partnerships

Brand Reputation and strong

product portfolio

Technological Capabilities

Strong corporate culture and

Skilled workforce

GSK's commitment to research, innovation and diverse product portfolio helps in possessing valuable, rare and
inimitable resources and capabilities that contributes to its competitive advantage in the industry.
Macro, Industry & Firm Analysis
VRIO Analysis of Acquirer
VALUE RARE INIMITABLE ORGANIZED
Strong market penetration
among Indian rural areas

Global Distribution and Supply

chain network

Brand Reputation and strong

product portfolio

Strong Financial Capital

Strong corporate culture and

Skilled workforce

HUL’s strong financial capital and it’s access to one of the most advanced supply chain networks in the world can help
GSK to advance the reach of it’s product
Corporate Strategies - HUL
Corporate Strategies – GSK CH
Merger Motives – HUL
Acquiring GSK will provide HUL an opportunity to diversify its product portfolio and
Market expansion and
enter new markets related to healthcare, prescription medicines, vaccines, and
diversification
consumer healthcare products
By acquiring GSK, HUL could gain access to GSK's R&D expertise, infrastructure, and
Strengthening research and resources. This could enhance HUL's capabilities in developing innovative products,
development capabilities accelerating new product launches, and staying competitive in the evolving
consumer healthcare market.
By acquiring GSK, HUL leverages GSK's distribution channels and expand its reach
Access to distribution
into new geographic regions. This would provide HUL with an opportunity to
networks and market reach
increase its market share and grow its customer base.
Synergies and cost HUL potentially identified areas where overlap exists between the two companies
efficiencies and streamline processes, supply chains, and administrative functions.
HUL and GSK have strong brands and product portfolios.
Brand and product
This could create cross-selling opportunities and enhance market positioning for
complementarity
the combined entity.
Financial gains for HUL HUL’s foods and refreshments business will cross Rs 10,000 Crores, compared to
post-merger Britannia Industries Ltd having consolidated revenue of Rs 9,990 Crores.
Merger Motives – GSK CH
GSK will reap the benefits of the Hindustan Unilever’s distributorship, vast market
Increased Marketing power
access, visibility, and its awareness of its consumers.
HUL would provide their distribution channels and would also keep their margins
Increased Supply Chain making it a win-win situation for both entities.
efficiencies Export of GSK India products would be handled by Unilever India Exports Limited
(UIEL), a subsidiary of HUL.
GSK decided to divest GSK India’s energy drink products to obtain capital in return.
Financial gains for GSK A combination of divestment was made by GSK in India, Bangladesh and other
post-merger territories against which the company will receive a total consideration of £3.1
Billion approximately.
Post the deal, GSK’s losing market share and the threat of competition from other
Avoiding threat of
Key players like Mondelez International (Bournvita), Pediasure (Abbott Nutrition)
competition
and Complan (H.J. Heinz) shall be effectively dealt with.
Due Diligence

• #1 HFD portfolio in • GSK CH EBITDA margin • Steer Engineering • Scale efficiencies in

largest HFD market in line with HUL owned the Intellectual areas such as advertising
• High market • Rs 42 Bn Turnover with Property of GSK CH • Operational
development 20% EBIT Margin improvement & supply
opportunity • Deal gives HUL a boost chain opportunities
• High science and R & in its F & R segment
D expertise

Strategic Financial Legal Operational

Positioning Performance
Due Diligence
Deal Structuring & Analysis / Term Sheet
• It was an all-equity deal with 4.39 shares of HUL Important metrics for deal analysis
for every share of GSK Deal Announcement date 3rd December 2018
• GSK CH shareholders get a premium of 15% with Deal Completion date 1st April 2020
the deal
Acquirer HUL
• HUL expects synergies of 800-1000 bps
post-merger in EBITDA GSK Ch s's margin over Target GSK Healthcare
the next few years led by rationalization of Deal value Rs. 31,700 Cr.
overheads & scale efficiencies.
Value Equation 4.39 HUL shares for every share of GSK
• Advisors to acquirer:- Ernst & Young LLP, BoA healthcare
Merrill Lynch, HSBC Holdings
Ownership post-merger GSK PLC to hold 5.7% of merged entity
• Advisors to target:- Greenhill & Co. LLC, Morgan
Stanley, Axis capital Premium 15% (Rs 4237.51 Cr.)
• Valuation:- Walker Chandiok & Co. LLP(WCC) used Wealth transfer from acquirer to target Rs. 3996 Cr
two methods to value the companies and arrive at
the share exchange ratio Pre-announcement closing price HUL Rs.1717

a) Market Price Method ( 50% weightage) Pre-announcement closing price GSK Rs. 6531
Healthcare
b) Comparable companies Market Multiple
GSK share fundamental value post deal Rs. 7540
Method ( 50% weightage)
Average Growth of HUL stock between Dec ~18%
2018 & 1 April 2020
DEAL TERMS / RESULTS
Following the issue of new HUL shares, Unilever's holding in HUL will be diluted from 67.2% to 61.9%

The merger includes the totality of operations within GSK CH India, including a consignment selling contract to
distribute GSK CH India's over-the-counter and oral health products in India

This deal makes GSK consumers the largest subsidiary of Hindustan Unilever in terms of market valuation

Brands owned by GSK CH India (Boost, Viva & Maltova) to be retained by merged entity

Operational Rights:- GSK Consumer Healthcare will Limited will carry out its function independently; HUL will get
distribution rights to the following brands for a 5-year period: Sensodyne, Eno, Crocin

Horlicks brand in India and international markets currently owned by GSK plc ( including group companies) is
being acquired by Unilever

With 8.2 million outlets, HUL's wide network will expand the reach of Horlicks three-fold to untapped parts of the
country

HUL will upgrade and unlock the northern and western regions of India for GSK where it lacks the resources
Post Merger Integration
Very Much Not at All
Multi- Cultural Cultural
Perception of Attractiveness

Attractive

Diversification Strategy &

Related
Integration Assimilation
Integration Assimilation

Relatedness
Attractive

Unrelated
Separation Deculturation
Separation Deculturation
Not

Target’s Modes of Acculturation Acquirer’s Modes of Acculturation

Collier’s Acculturation Matrix
Target: Acquirer:
● Proud of their culture & the same time ● Multicultural company with long history of
understand the attractiveness of the deal mergers
● GSK’s top executives formerly worked at ● Merging business of both organizations
HUL have similar distribution channels ,S&M etc
Post Merger Integration

Structure: GSK Asia retains the marketing and R & D rights. The residual entity
was be led by a GSK Consumer MD. The merger was carried out by 2 units: The
first handled core integration and the second handled the core nutrition portfolio

Emphasis & Timeline: Integration of IT, sales, distribution was emphasized. Due
to Covid 19 supply chain &manufacturing integration was delayed. Integration time
period was extended

Culture & HR related issues: Many of GSK ‘s India’s top executives come from the
HUL,cultural integration was easy.3500 employees of GSK CH was retained post
integration
Market Reaction
Deal Announcement Date : 3rd December 2018

• For a period of 6 months before and after the merger the stocks return is plotted and
• The stock price increases post the announcement of the deal which shows the positive
compared with the market index, the Nifty50 in this case.
reaction of the investors in the merger.
• There is a rally in the stock price of GSK Consumer healthcare following the merger with
• 5.06% rise in the HUL stock on the announcement day
a consistently higher returns over the next period of 6 months, the remaining noise could
• This signals that the market views this deal as being positive for both the companies HUL
be explained by the movement in the market index
and GSK Consumer health care, at least in the short run.
• 5.76% rise in the stock on the announcement day
Market Reaction
GlaxoSmithKline Consumer Healthcare – Cumulative abnormal returns
Day Date PriceGLSM ReturnGLSM PriceNifty50 ReturnNifty50 ExpGLSM ResGLSM CAR
12 Dec 19, 2018 7,802.25 -0.07% 10,967.30 0.54% 0.339% -0.409% 0.03473
11 Dec 18, 2018 7,807.50 0.19% 10,908.70 0.19% 0.203% -0.013% 0.03882
10 Dec 17, 2018 7,792.50 0.34% 10,888.35 0.77% 0.428% -0.088% 0.03895
9 Dec 14, 2018 7,766.10 0.19% 10,805.45 0.13% 0.180% 0.010% 0.03982
8 Dec 13, 2018 7,751.05 0.90% 10,791.55 0.50% 0.323% 0.577% 0.03972
7 Dec 12, 2018 7,682.20 2.03% 10,737.60 1.79% 0.823% 1.207% 0.03396
6 Dec 11, 2018 7,529.40 0.42% 10,549.15 0.58% 0.354% 0.066% 0.02188
5 Dec 10, 2018 7,497.85 -0.24% 10,488.45 -1.92% -0.614% 0.374% 0.02122
4 Dec 07, 2018 7,515.70 0.56% 10,693.70 0.87% 0.466% 0.094% 0.01749
3 Dec 06, 2018 7,473.75 -2.23% 10,601.15 -1.69% -0.525% -1.705% 0.01655
2 Dec 05, 2018 7,644.60 1.94% 10,782.90 -0.80% -0.180% 2.120% 0.03360
1 Dec 04, 2018 7,498.90 -0.64% 10,869.50 -0.13% 0.079% -0.719% 0.01240
0 Dec 03, 2018 7,547.40 3.84% 10,883.75 0.06% 0.153% 3.687% 0.01960
-1 Nov 30, 2018 7,268.20 0.82% 10,876.75 0.17% 0.195% 0.625% -0.01728
-2 Nov 29, 2018 7,209.05 0.23% 10,858.70 1.21% 0.598% -0.368% -0.02352
-3 Nov 28, 2018 7,192.40 1.31% 10,728.85 0.40% 0.284% 1.026% -0.01984
-4 Nov 27, 2018 7,099.05 -1.04% 10,685.60 0.54% 0.339% -1.379% -0.03010
-5 Nov 26, 2018 7,173.70 1.47% 10,628.60 0.97% 0.505% 0.965% -0.01631
-6 Nov 22, 2018 7,069.70 -1.14% 10,526.75 -0.69% -0.137% -1.003% -0.02596
-7 Nov 21, 2018 7,151.40 0.06% 10,600.05 -0.53% -0.076% 0.136% -0.01593
-8 Nov 20, 2018 7,147.35 -0.05% 10,656.20 -1.00% -0.257% 0.207% -0.01729
Regression Parameters
-9 Nov 19, 2018 7,150.75 -0.64% 10,763.40 0.76% 0.424% -1.064% -0.01937 Intercept 0.00129608
-10 Nov 16, 2018 7,196.45 2.80% 10,682.20 0.62% 0.370% 2.430% -0.00873 X Variable 1 0.38710069
-11 Nov 15, 2018 7,000.45 -3.12% 10,616.70 0.38% 0.277% -3.397% -0.03303 R Square 0.02236922
-12 Nov 14, 2018 7,225.55 0.20% 10,576.30 -0.06% 0.106% 0.094% 0.00094 Standard Error 0.01741351
Market Reaction
Hindustan Unilever Limited – Cumulative abnormal returns
Day Date Price_HUL Return_HUL PriceNifty50 ReturnNifty50 Exp_HUL Res_HUL CAR
12 Dec 19, 2018 1,844.80 0.22% 10,967.30 0.54% 0.531% -0.311% 0.0474
11 Dec 18, 2018 1,840.75 -0.54% 10,908.70 0.19% 0.256% -0.796% 0.0505
10 Dec 17, 2018 1,850.70 -0.53% 10,888.35 0.77% 0.711% -1.241% 0.0584
9 Dec 14, 2018 1,860.55 0.27% 10,805.45 0.13% 0.208% 0.062% 0.0708
8 Dec 13, 2018 1,855.55 0.89% 10,791.55 0.50% 0.499% 0.391% 0.0702
7 Dec 12, 2018 1,839.10 2.46% 10,737.60 1.79% 1.513% 0.947% 0.0663
6 Dec 11, 2018 1,794.90 -0.05% 10,549.15 0.58% 0.562% -0.612% 0.0569
5 Dec 10, 2018 1,795.80 -1.56% 10,488.45 -1.92% -1.402% -0.158% 0.0630
4 Dec 07, 2018 1,824.30 1.27% 10,693.70 0.87% 0.790% 0.480% 0.0645
3 Dec 06, 2018 1,801.50 -2.52% 10,601.15 -1.69% -1.222% -1.298% 0.0597
2 Dec 05, 2018 1,848.10 2.24% 10,782.90 -0.80% -0.522% 2.762% 0.0727
1 Dec 04, 2018 1,807.65 -0.98% 10,869.50 -0.13% 0.004% -0.984% 0.0451
0 Dec 03, 2018 1,825.60 4.08% 10,883.75 0.06% 0.153% 3.927% 0.0549
-1 Nov 30, 2018 1,754.00 -0.82% 10,876.75 0.17% 0.240% -1.060% 0.0157
-2 Nov 29, 2018 1,768.50 2.10% 10,858.70 1.21% 1.057% 1.043% 0.0263
-3 Nov 28, 2018 1,732.20 -0.06% 10,728.85 0.40% 0.421% -0.481% 0.0158
-4 Nov 27, 2018 1,733.30 -0.61% 10,685.60 0.54% 0.531% -1.141% 0.0207
-5 Nov 26, 2018 1,744.00 4.11% 10,628.60 0.97% 0.868% 3.242% 0.0321
-6 Nov 22, 2018 1,675.10 -0.88% 10,526.75 -0.69% -0.436% -0.444% -0.0004
-7 Nov 21, 2018 1,689.95 -0.24% 10,600.05 -0.53% -0.310% 0.070% 0.0041
-8 Nov 20, 2018 1,694.00 -0.43% 10,656.20 -1.00% -0.680% 0.250% 0.0034 Regression Parameters
-9 Nov 19, 2018 1,701.40 0.73% 10,763.40 0.76% 0.703% 0.027% 0.0009 Intercept 0.00106277
-10 Nov 16, 2018 1,689.10 -0.99% 10,682.20 0.62% 0.593% -1.583% 0.0006 X Variable 1 0.78578702
-11 Nov 15, 2018 1,706.05 -0.55% 10,616.70 0.38% 0.405% -0.955% 0.0165 R Square 0.1852744
-12 Nov 14, 2018 1,715.50 2.66% 10,576.30 -0.06% 0.059% 2.601% 0.0260 Standard Error 0.01121252
Market Reaction
Cumulative Abnormal Return (CAR) Analysis

GSK CH HUL
Day Range CAR T-Statistic Significance Day Range CAR T-Statistic Significance

(-1,1) 3.592% 0.92 NO (-1,1) 1.883% 0.53 NO

(-3,3) 4.665% 0.77 NO (-3,3) 3.909% 0.71 NO

(-5,5) 4.718% 1.49 NO (-5,5) 6.332% 1.00 NO

(-11,11) 0.0379 0.39 NO (-11,11) 0.0245 0.35 NO

•Market Reaction Model: Taking the data from -13 to -1 months from deal announcement date to get an unbiased correlation with
the market index, we obtained regression equation for both the stocks. Based on these equations, we calculated the predicted
returns and thus, the resultants abnormal returns.
•The Cumulative Absolute Return for HUL is largely positive on days just before and after the days of announcement. However the
CAR for GSK CH was in the negative ranges leading upto the merger but became and stayed positive after the announcement which
could imply positive market
•For both, even as we increase the event horizon but still it is insignificant considering significance of 95% (1.96)
-t to 0 days included to account for information leakage and 0 to t days included for information lag according to the market
inefficiency theory
Similar Deals
SDC Filters
Target Industry Drugs
Target Country India
Acquirer Country India
Time period considered 2010- Present

• Only 2% of the acquisitions have consumer

products companies as acquirors
• Majority of the acquisitions are done by other
Pharmaceutical companies and investment
companies

• Drug industry follows a cyclical pattern as

expected
• 2019-2020 were peaks
Similar Deals: Deal Parameters

One of the biggest deals in the Among the highest Among the 48% of the
industry. premiums paid deals in which 100% is
54x the average deal value ~3x the average deal acquired
Similar Deals: Target Specifications

The target is having a next income • Most of the targets are Pharma
almost 2x of the average target preparations companies
• 77% of the target companies are
profitable. Low proportion of
distress sales
Unique Aspects about the Deal

The deal value was at almost 54x of the average deal value in the industry. This was among the
largest deals in the timeframe considered

The deal premium is significantly higher than the industry average. The target is in a strong
financial position, and this would have influenced this

Acquisition by a consumer products company is not common in the industry. This was among a
handful of those deals

Deal was done at a relatively shorter duration of 15 months despite the COVID restrictions
overlapping the time
Deal Verdict
• In December 2018, when HUL announced the
acquisition of GSK Consumer, the former’s
shares were around ₹1,717 each. But only in
May 2020 did GSK Consumer’s parent
company GlaxoSmithKline Plc (GSK) sell the
HUL shares it had received as compensation.
The good news is that the share sale was
concluded at ₹1,905 per share.

• For GSK Consumer’s minority shareholders in

India, the deal has worked out far better.
Trading data shows that most of them sold
their shares in mid-April, as soon as they were
allowed to, and HUL’s shares traded
between ₹2,450 and ₹2,500 at the time,
implying returns of 44% compared to the
valuations in end-2018.
THANK YOU
Deal Structuring (Calculations)