Unilever offer for Hindustan Unilever may not find many takers, say experts

Hindustan Unilever (HUL) investors may be unwilling to part with their shares at the Rs 600 a share that parent Unilever is offering, which could force the Anglo Dutch conglomerate to settle for a smaller stake or raise its offer price. The company, formed in 1956, generally trades at a heady multiple, and several market watchers said investors might be unwilling to part with their shares at the offer price. Unilever is paying nearly 36 times the unit's forecast earnings for the year ending March 2014, according to Thomson Reuters data. It trades on a price/earnings ratio for the next 12 months of 29.5, compared with 19 for Unilever. Its 2012 return on equity was 87 per cent, well ahead of an industry mean of 66.5 per cent. "Many of the foreign funds or institutional investors hold the stock and when they play the India growth story they love to play it with HUL (Hindustan Unilever)," said Aneesh Srivastava, chief investment officer at IDBI Federal Life Insurance, which holds shares in the company. "It is a very attractive stock and the quality of management is the best. So, given these factors, investors will not sell so easily," he said. On Monday, HUL beat expectations with a 15 per cent increase in March quarter earnings. The offer, payable in cash, is expected to begin in June. "(Will Unilever have to up the price?) I think so. The stock touched Rs 300 for the first time in 2000, and went nowhere for 12 years. It has doubled now in the last few years. But over the period of 12 years, the stock has just gone up probably 5 per cent. It has not appreciated that much," said Ramesh Damani, member of the Bombay Stock Exchange and an HUL shareholder. (Watch) When asked if he would tender to the offer, he refused saying, "I am a very happy shareholder." "Why is the stock getting such multiples? Since the global financial crisis of 2009, the stocks that have moved higher have been consumer franchises with a stable cash flow -- Johnson & Johnson in the US, Unilever, or Godrej Consumer in India. Those with a stable cash flow are the stocks that are powering the bull market. I will study the offer. But it is unlikely at this point that I will tender," Mr Damani added. However, brokerage CLSA says the acceptance ratio is likely to be 71 per cent. It says the HUL stock can settle at Rs 520 post tender closure. With inputs from Reuters

Unilever offer for Hindustan Unilever may not find many takers, say experts

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