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All out efforts to make Unilever open offer a success
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All out efforts to make Unilever open offer a success

FP Archives • December 21, 2014, 02:42:54 IST
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Is the Hindustan Unilever open offer, due to open on 21 June, a move preparatory to delisting? From the company’s strenuous efforts, it would appear so.

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All out efforts to make Unilever open offer a success

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Looks like Hindustan Unilever (HUL), one of India’s best-known multinationals which sells everyday stuff from soaps and hair oil to detergents and beverages, is going all out to ensure that the open offer from its Anglo-Dutch parent does not flop when it opens on 21 June.

Representatives claiming to represent Hindustan Unilever have been visiting the company’s large shareholders, armed with a sheaf of papers to explain why they should subscribe to the Rs 600 per share open offer by Unilever plc and Unilever NV. Spurn the offer and be prepared for follow-up queries from HUL.

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So far, the response to the HUL offer has reportedly been lukewarm. Already big investors like Life Insurance Corporation and Aberdeen Asset Management have opted to sit out as shareholders for a while, citing a weak share price. The HUL scrip, which spiked 17.28 percent to Rs 583.60 on 30 April, a day after the offer was announced, is currently trading at 595 levels, just shy of the open offer price. Even HUL’s affiliates and employees - current and former – it appears, are refusing to bite the bait.

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[caption id=“attachment_877515” align=“alignleft” width=“380”]Is the Hindustan Unilever open offer, due to open on 21 June, a move preparatory to delisting? From the company’s strenuous efforts, it would appear so. AFP Is the Hindustan Unilever open offer, due to open on 21 June, a move preparatory to delisting? From the company’s strenuous efforts, it would appear so. AFP[/caption]

“I have advised my clients not to sell their shares,” says Mumbai-based tax consultant Tarun Modi, who is advising many of HUL’s former top brass.

The lack of enthusiasm to accept the open offer goes beyond just the share price. Any gains from the offer are not exempt from long-term capital gains even if held for over a year (the tax-free status applies only to shares bought and sold over the stock exchange). The gains will be taxed at10 percent without indexation, or 20 percent after indexation. “It’s better to sell the shares in the open market as they will be tax-free,” says Modi. Another reason why he’s dissuading divesting the HUL shares is that he feels the offer price is not attractive.

Unilever’s plans to up its 52.48 percent stake to 75 percent for $5.4 billion is in sync with its strategy. It has a controlling stake in Indonesia (85 percent) and Pakistan (75 percent, with plans to delist), while Brazil, China, Russia and Mexico are wholly-owned subsidiaries. Today emerging markets pitch in with over half the revenues of Unilever, and India is a cash cow. However equity analysts believe that the open offer may be a precursor to a delisting.

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Moreover, Indian shareholders have had issues with HUL for paying royalty to the parent which is increasing from 1.4 percent to 3.15 percent in stages. “We sell their products made in India and we pay the parent royalty?” asks a furious Mumbai-based HUL retailer. At the World Economic Forum at Davos last December, HUL’s non-executive Chairman and Chief Operating Officer Harish Manwani was forced to defend the company’s decision to raise its royalty payout. In an interview to Economic Times, he attributed the HUL turnaround to leveraging the innovation and functional expertise of Unilever, with local insight and expertise. “We have to be globally leveraged and locally relevant,” said Manwani.

That’s one of the reasons why tax expert Tarun Modi believes that HUL will walk the delisting aisle in the next couple of years. “The company will not be up for scrutiny as it will not have to comply with statutory obligations imposed by BSE, NSE or Sebi. It will not have to publish results or bonuses, royalty and the like and also escape shareholder ire.”

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If that happens, HUL will join a growing list of multinationals like Cadbury, Panasonic and Disney which jumped off the Indian bourses.

(Editor’s note: This is a modified version which corrects the earlier version which said an agency representing HUL has been visiting shareholders, whereas we now say representatives claiming to represent HUL have been doing so. We also clarify the open offer is from Unilever plc and NV).

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