Nestle, the world’s largest food and drinks company, is pitted against Anglo-Dutch consumer giant Unilever in the final round of negotiations for GlaxoSmithKline’s consumer nutrition business in India that includes the prized Horlicks malt drink brand, said three people aware of the development. Between the two, Nestle is believed to be the frontrunner with a more aggressive offer. Coca-Cola, the third contender selected for the protracted due diligence process, is said to have opted out.
GSK Consumer Healthcare shares have climbed about 10% this year, outperforming the Sensex gain of 3.6%, taking it to a market cap of Rs 30,249.29 crore. The bids are believed to be in the $3.1-3.5 billion range for GSK’s stake. The winner will have to launch an open offer to mop up an additional 26% stake. It’s not clear if it would want to take the company private or scale down to adhere to listing regulations.
The deadline for submitting the final binding offer, Saturday, November 17, has been extended by a few days.
Nestle spokesperson declined to comment on speculation. Mails sent to Unilever did not get a response till press time. “Earlier this year, GSK had announced a strategic review for its nutrition business globally. The review is expected to be concluded in December, 2018,” a GSK Consumer Healthcare spokesperson said.
The transaction has been a boon for FMCG bounty hunters looking at growth opportunities in India.
The Zydus Group pipped Coke to the Kraft Heinz portfolio of drinks, ghee, glucose and talcum powder with a bid of Rs 4,595 crore last month.
Nestle India looking to widen portfolio.
The Horlicks sale process has had some of the biggest consumer companies of the world and India—Reckitt Benckiser, General Mills, Kellogg’s, Danone, private equity fund KKR among others—vying for a firm footing in the $1 billion malt-flavoured, powdered health drinks segment.
ET reported on October 25 that three players had been shortlisted.
Nestle seeks to pip Unilever to grab GSK’s consumer nutrition business as Coca-Cola opts outIn March, GlaxoSmithKline Plc chief executive Emma Walmsley had announced a strategic review of Horlicks and its other consumer healthcare nutrition products, adding that the company was exploring a partial or full sale of its 72.5% stake in Indian subsidiary GSK Consumer Healthcare by the year end. GSK is looking to help fund its $13-billion buyout of the Novartis stake in their consumer healthcare joint venture.
Nestle is being advised by Credit Suisse while Bank of America Merrill Lynch is assisting Unilever. Morgan Stanley and Greenhill have the sell side mandate.
GSK’s brands Horlicks and Boost dominate the market, accounting for almost 60% pf volume share. Horlicks alone has a value market share of 43.3%.
Nestle India, which already sells malt drink Milo, is looking to widen its portfolio. The acquisition of Horlicks would give it immediate category leadership, besides helping the food giant synergise Milo’s distribution through pharmacy channels that already sell infant food brands Cerelac and Nan, an executive close to the process said. The conglomerate has been an active buyer and seller of businesses and brands of late, especially in the hyper-competitive coffee segment.
For Unilever, foods happen to be the core growing business, having merged it with refreshment in July for greater leverage in the space. Its foods business, which has brands such as Knorr, Kissan and Annapurna, and refreshment, which includes Brooke Bond, Bru, Lipton and Kwality Walls, together account for 18% of Hindustan Lever’s Rs 35,000 crore annual sales.
OF MALTS, MILK, MEAT AND PROTEINS
However, the malt drink category has been stagnant in the country as sugary drinks have become less popular even though some believe there is scope for ramping up.
Horlicks reached Indian shores when soldiers brought it home with them from fighting in the First World War. With large parts of India having no regular access to fresh milk, parents turned to Horlicks and its competitors to fill the gap. The habit endured long after independence when fresh milk became widely available, according to a June report from market researcher RedSeer. Mothers now say they give malted milk products to children who don’t like the taste of plain milk, or to fill nutritional gaps.
But they have been overshadowed by protein beverages, seen as a necessity in a country with among the lowest per-capita levels of meat consumption. Competition has come from Danone’s Protinex Grow, aimed at teens, and Nestle’s reintroduction of Milo, a top seller in countries such as Malaysia and Singapore. Local producers are also ramping up offerings and the market is attracting newcomers such as juice-drink maker Manpasand Beverages. Some analysts say Kraft Heinz and GSK haven’t adapted to changing lifestyles and tastes.
After a decade of double-digit growth, sales in India rose 8.6% in 2017 and could drop to half that this year. By 2022, the market will expand by only 2.7%, Euromonitor forecasts.
Key risks are “an increase in competitive intensity from new players such as Abbott, change in consumer preference to breakfast cereal or oats, leading to slower growth in core,” said Mihir Shah of Deutsche Bank.
GSK launched a version of Horlicks with added protein earlier this year to compete with the proliferation of energy drinks and ayurvedic products.
“GSK’s strong focus on innovation (Horlicks Immunity, Growth+, Boost restage) and sharper focus on sachets (relaunch of Re 5 pack of base Horlicks and Boost) will also help recoup growth. However, parent company’s decision to put Horlicks on the block, thereby undertaking strategic review of its investment in GSK India, is an overhang,” said Abneesh Roy of Edelweiss.