GSK’s Horlicks sale: Nestle, Kraft Heinz, Unilever, ITC seen as likely buyers2 min read . Updated: 29 Mar 2018, 01:04 PM IST
Horlicks, which accounts for 85-90% of GSK Consumer Healthcare's, could fetch a valuation of 4-4.5 times of sales considering the low growth scope of the brand
New Delhi: Global food giants Nestle SA of Switzerland, Chicago-based Kraft Heinz Co., Dutch packaged goods maker Unilever, New Jersey-based Mondelez International Inc., and ITC Ltd are expected to bid for GlaxoSmithKline’s Horlicks and other health nutrition products, according to analysts tracking the sector.
The 145-year-old dietary nutrition brand that accounts for about 85-90% of GSK Consumer Healthcare Ltd’s sales in India could fetch a valuation of 4-4.5 times of sales (going by recent trends) considering the low growth scope of the brand, said Sachin Bobade, an analyst with Mumbai-based Dolat Capital Market. According to GSK statement, its nutrition products portfolio including Horlicks had total sales of $550 million in 2017.
However, Reuters estimated the valuation to be around $4 billion, citing unidentified people. The British drug maker on Tuesday said it has initiated a “strategic review" of Horlicks and other nutrition products to support funding of its $13-billion buyout of Novartis’s stake in the global consumer healthcare joint venture formed in 2015.
Besides the Horlicks brand, GSK is exploring sale of its 72.5% stake in Indian subsidiary GSK Consumer Healthcare. “GSK needs the money to support the Novartis deal. Naturally, it would look to conclude the deal in foreign exchange. Global companies, with presence in both India and Malaysia, such as Unilever, Danone and Nestle are the most likely ones to fight for the brand. ITC, which is looking at a bigger presence in dairy, is the only Indian company that could look at buying Horlicks for multiple reasons. While a few others may be interested, they may opt out because of the deal size that could be 2-3 times of sales," said Sunil Alagh, chairman, SKA Advisors, and former managing director and chief executive officer of biscuit maker Britannia Industries Ltd.
“Going by current market capitalization, the stake is worth close to $3 billion. And Horlicks accounts for about 85% of its total business in India. Besides India, Horlicks has small business in countries like Sri Lanka, Bangladesh, Nigeria and Malyasia," said a Mumbai-based analyst seeking anonymity.
A second analyst said that American companies such as PepsiCo Inc. and Coca-Cola Co. may bid as both are trying to expand presence in health and nutrition segment.
A possibility of pharmaceutical companies such as Abbott Laboratories looking at Horlicks cannot be ruled out, especially because the company already has a sizeable presence in nutrition space with Pediasure and Ensure, added a third analyst based in Mumbai, adding that Danone of France that has been struggling to find its feet in India and recently exited the dairy business to focus on nutrition may also look at buying Horlicks. Danone already has strong presence in nutrition supplement space in India with Protinex brand.
Nestle already has a presence in the health nutrition space in India with Milo. “We do not comment on market speculation," said a Nestle India spokesperson. Citing unnamed officials, Reuters on Tuesday reported that Nestle has previously told GSK :“privately of its interest in Horlicks on several occasions".
Kraft Heinz, which acquired malt-based health food drink brand Complan from GSK in 1994, did not respond to Mint queries.
Spokespersons at ITC and Indian subsidiaries of Mondelez, Unilever, Coca-Cola and PerpsiCo said that they “do not comment on market speculations" as a company policy or practice. Abbott, and Danone did not respond to Mint queries.
In India, Horlicks dominates the malt-based hot drinks market with a commanding 42.8% share (off trade volume), followed by Mondelez International’s Cadbury Bournvita with 12.6% and Boost with 10.6% (another GSK brand), according to data compiled by Euromonitor International.