The second-biggest deal by value in the consumer goods space is that of Diageo picking up majority stake in United Spirits.
The merger includes the totality of operations within GSK Consumer Healthcare India Ltd, including a consignment selling contract to distribute GSK Consumer's over-the-counter and oral health products in India, the company said in a statement.
Incidentally, GSK CH is the leader in the HFD segment with over 60% of the market share of which Horlicks alone commands a share of almost 50%.
Unilever will also buy GSK's business in India's neighboring country Bangladesh as well as nutrition brand rights for "certain other territories" at a price tag of £566 million ($723 million). The transaction covers GSK's health food and drinks portfolio in India, Bangladesh and 20 other predominantly Asian markets. Sanjiv Mehta, chairman and CEO, HUL, said: "It will add huge amount of lustre to the great brands we already have in our portfolio".
Shares of GSK India and Unilever's India arm, Hindustan Unilever, rose more than 4% in Indian stock markets after the announcement. The merger values GSK Consumer Healthcare India at ₹31,700 crore, or ₹7,540 per share.
The average growth rate has been double digit over the last decade. "In the past few quarters, Unilever/HUL in India is increasingly getting aggressive on inorganic expansion - Indulekha hair oil, Adityaa ice cream", Abneesh Roy, research analyst, senior vice president, institutional equities, research, Edelweiss Securities, said in a note. HUL is well positioned to further develop the market given the extent of its reach and capabilities.
Post synergies, the implied EV/EBITDA multiple for the transaction would be below 20x.
By utilising HUL equity to fund the Indian component of the transaction, together with the synergies outlined above, Unilever shareholders are expected to benefit from returns well in excess of the cost of capital from the fourth year. The transaction is expected to be completed in one year subject to regulatory and shareholder approvals. The brand accounted for 45% of India's health drink market in 2017, according to consulting firm RedSeer.