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Hind Lever offers to takeover Ponds, Lakme

Addressing a press conference in Bombay today, the HLL chairman said that both the companies are subsidiaries of Unilever PLC, which holds 51 per cent equity in each. The two companies have significant overlaps in personal products, especially chemicals and exports business, besides a common distribution system since 1993 for personal products.

The two also have a common management pool and a technology base. The managements of PIL and HLL believed that the proposed amalgamation will enable these companies to realise greater synergies, he said.

Dadiseth said as a first step, it is proposed that HLL, a superstar trading house, will also act as a merchant exporter for PIL. This will ensure greater profitability to PIL and all other sister concerns.

The announcement of the intended amalgamation is being made at an early and preliminary stage to put the information in public domain and to make it available to the stock markets and investigators in general, HLL officials added.

The proposed amalgamation will also ensure for the group benefits from economies of scale both in domestic and export markets and enable it to fund investments required for aggressively building new categories, such as deodorants and other personal products, the HLL chairman said.

The two companies propose to appoint Y H Malegam, senior partner of S B Billimoria and Co, and Arun Gandhi, senior partner of N M Raiji and Co, as joint valuers to recommend the share exchange ratio. They will submit their recommendations to the two boards in due course, he said.

The two managements have started drawing up the proposed scheme of amalgamation and other plans for integration. The formal scheme of amalgamation of PIL with HLL together with the proposed share exchange ratio recommended by the joint valuers will be placed before the two boards, after due notice to the stock exchanges, for their evaluation, consideration and final decision, after the valuation report is available, Dadiseth added.

In another strategic move, Hindustan Lever has made an offer to its partner to acquire the Lakme brands, factories, and Lakme Ltd's 50 per cent shareholding in the 50:50 joint venture Lakme-Lever Limited. It has also proposed acquiring the Lakme trade marks from Lakme Limited's wholly-ownned subsidiary, Lakme Brands Limited. Lever is offering a consideration of approximately Rs 2 billion, announced Dadiseth.

Dadiseth said that the transaction is expected to be completed by mid-April 1998. Lakme brands limited is expected to redeem, from the sale of Lakme trade marks, the optionally convertible debentures worth Rs 700 million, held by HLL, out of the Rs 750 million worth of optionally convertible debentures issued by it to finance the acquisition of Lakme trade marks. Therefore, the net cash outflow for HLL will be around Rs 1.3 billion only, he said.

Dadiseth further said that HLL also proposed to acquire from Lakme Ltd its manufacturing undertakings at Deonar in Bombay and Kandla in Gujarat (the latter owned by Lakme Exports Limited) together with the employees of these undertakings. HLL assured continuity of service and full protection of the workers existing terms and conditions. The factories would be paid for separately, based on the fair value to be determined by an independent valuer, he said.

Meanwhile, in a separate press statement, Lakme said that the Lakme Limited board of directors met today to consider HLL's offer and were of the view that acceptance of the offer will best protest the shareholder's interest.

Lakme will now take the necessary steps to obtain appropriate corporate and legal approvals, including approvals from its shareholders, the release added.

Dadiseth said that HLL acknowledges the enormous contribution made by Simone Tata in making and building up Lakme's successful business. HLL and Lakme Limited have had an extremely cordial and excellent working relationship in running the joint venture and the business has benefited from the full support and involvement of both the partners.

However, the increasing intensity of international and domestic competition had forced the company to keep on making substantial investments in brand building, new product developments, and launches. Thus, it has became evident to the joint venture partners that the effective investment needed would be substantially higher than what was originally envisaged, thereby necessitating the two joint venture partners to inject fresh cash into the joint venture to fund its growing investment needs.

This could have diluted the earnings for the shareholders of Lakme Limited, which is why HLL made the offer it did in the above context, realising the limitations of Lakme Limited. HLL made it clear that if the partner was willing to pursue the high investment strategy, it would be very pleased for them to stay on as the joint venture partner.

Lever views the proposed acquisition as a long-term investment and is confident that this would produce commensurate commercial returns in the longer term.

HLL also believes that as a 100 per cent owned subsidiary, Lakme Lever Limited would be able to derive several synergies from the HLL group's larger personal product portfolio than what would have been possible under the joint ownership, the HLL chairman said.

UNI