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Hindustan Unilever NSE 4.08 %, India’s biggest pure-play consumer goods firm said it will merge GlaxoSmithKline Consumer with itself for a transaction worth Rs 31,700 crore in the country’s largest deal within consumer goods market.

The all-equity merger deal includes an exchange ratio of 4.39 HUL shares for each GSK Consumer India share, along with GSK entire operations of nutrition business and contract to distribute the latter’s over-the-counter (OTC) and oral care brands such as Sensodyne, Eno and Crocin, agency reports. “With this proposed strategic merger with GSKCH India, we will be expanding our portfolio with great brands into a new category catering to the nutritional needs of our consumers,” said HUL chairman Sanjiv Mehta adding that the merger will create significant shareholder value through both revenue growth and cost synergies. “The turnover of our food and refreshment business will exceed Rs10000 crore and we will become become one of the largest F&R businesses in the country.”

With the HUL deal, the 140-year old brand will retain its British ownership – Horlicks came to India with the British Army after the end of World War I after Indian soldiers of British Indian Army brought it back with them as a dietary supplement. Since then, the brand has been marketed, first as a family beverage mostly for affluent Indians and later as a nutritional drink for children.
In 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 stake in Indian subsidiary GSK Consumer Healthcare by the year end. This was triggered by GSK looking to help fund its $13-billion buyout of the Novartis stake in their consumer healthcare joint venture. GSK Consumer India business had a turnover of about Rs4200 crore in the year ended March 2018, primarily through its Horlicks and Boost brands. Horlicks is by far the market leader in the malt-based beverages segment with 43% market share followed by Mondelez International’s Bournvita, which has around 13% share. The business generated £550 million in 2017 and roughly 80% of the sales came from India. However, growth of malt beverage segment has slowed down over the past few years in India as consumers increasingly shift to specialised products made by nutraceuticals companies such as Abbott and Danone that sell brands such as Ensure, Pediasure and Protinex.

In India, the packaged food and beverages market is heavily skewed toward biscuits, salty snacks and aerated drinks that together is nearly Rs 75,000 crore in size. In comparison, healthier segments such as malt beverages, cornflakes, oats remains a fringe segment and has not made much progress in convincing Indians to switch their dietary habits.
This year, HUL combined its foods and refreshments business into a single division in an effort to increase agility. The combined business including Knorr soup, Kissan Jam, Bru coffee, Lipton tea and Magnum ice-cream accounted for Rs 6,328 crore, or less than a fifth of HUL’s overall sales in FY18.

For Unilever, food is a core growing business and was the second-largest category for Unilever until last year, contributing euro12.5 billion to its overall sales. After Unilever merged it with the refreshments portfolio, the combined business accounts for 41% of sales, and is headed by former Hindustan Unilever CEO Nitin Paranjpe.