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TOMCO HLL MergerSubmitted by Akhilesh Dalal (907)

FMCG sector The Indian FMCG sector with a market size of US$13.1 billion is the fourth largest sector in the economy. A well-established distribution network, intense competition between the organized and unorganized segments characterize the sector. To grow by 60% Increased focus on farm sector will boost rural incomes, hence providing better growth prospects to the FMCG companies.

Tata oil mills company ( TOMCO) TOMCO was incorporated as a public limited company on December 10, 1917. It was engaged in the manufacture and marketing of Soaps Detergents Glycerin's Vanaspati edible oils toilet preparations cattle and poultry feeds oil cakes deoiled meals fish and fish products.

TOMCO affiliates/associate companies: Industrial Perfumes Ltd. Tata Vashisti Detergents Ltd. Tata Ceramics Kerala Ltd. "Kalyani Soap Industries Ltd. Tata Oil Company Ltd.

Background TOMCO Listed at Bombay, Cochin, and Madras. In 1991 -92, TOMCO's turnover was Rs 425 crore It employed about 5,700 people Sold 1,66,000 tonnes of soaps and detergents During 1991-92, Tata Sons (a holding company for other Tata companies) decided to review their business strategy. Was decided to concentrate on few core areas of competence. TOMCO was seen as a company that did not suit the new strategy of Tatas. TOMCO was seen as poor in marketing and distribution. The raw material cost and wage bill were also excessive. The company continued to make losses and in 1992-93 The dividend was skipped.

Balance sheet of TOMCOBalance Shee of TOMCO (as on 31 March) 1993 1992 1991 Assets Fixed assets Investments Current assets Loans and advances Miscellaneous Expenditure Total Liabilities Share Capital Reserves and surplus Secured loans Unsecured loans Current Liabilities Total 31.38 23.39 105.56 84.96 1.40 246.69 22.65 43.88 85.14 18.34 76.68 246.69 32.57 13.43 178.33 72.14 1.46 297.93 22.65 43.35 103.22 29.92 98.79 297.93 34.70 16.01 125.01 40.54 0.62 216.88 10.88 26.16 116.11 1.24 62.50 216.88350 300 250 200 150 100 50 0 1993 1992 1991

Profit and loss TOMCO450

Profit and loss statement of TOMCO400

(Rupees in crore) 199293 Gross Sales revenue Other income Profit before dep. And int. Less : Interest Less : depreciation Profit before tax Less : provision for tax Profit after tax 312.24 59.5 27.18 22.63 3.59 0.96 0.31 0.65 1991-92 199091 428.4 17.73 23.20 18.44 3.64 1.12 1.12 382.8 5.71 23.92 14.20 3.18 6.54 0.90 5.64

350 300 250 1992-93 200 150 100 50 0 Gross Sales revenue Other income Profit before Profit after tax dep. And int. 1991-92 1990-91

Equity share data TOMCO31.3.9 3 10 29.75 0.30 31.3.92 31.3.91 10 29.45 12.5 0.50 10 36.17 20 5.19

Face value Rs Book value Rs Dividend (%) EPS Rs

Distribution of TOMCO shares 22% Tata Group 41% Indian financial institutes owned by government 37% General public

The market price as on June 17,1993 was Rs 52.50 per share.

Hindustan lever Limited HLL was incorporated as a private limited company on October 17, 1933 and was converted into a public Limited company on October 27, 1956. It is a subsidiary of the Anglo-Dutch international giant Unilever. HLL is engaged in the manufacturing and marketing of soaps, detergents, toilet preparation, basic chemicals, fertilizers, and other agricultural inputs. HLL is also a recognized export trading house. HLL s presence in the Indian soaps and detergents market is truly dominant: some of its brands such as Lifeboy , sunlight , Lux Rin and surf are household names in India. These brands are also unilever s international bands. It was generally opined that HLL s brands did leave gaps in the product line. In fact, Nirma exploited this weakness of HLL fully in the 80s.

Affiliates/associate companies of HLL Brooke Bond India Limited Lipton India Ltd Pond's India Ltd

Background HLL The HLL equity shares are listed on stock exchanges at Ahmedabad, Bombay, Calcutta, Cochin, Delhi and Madras. Between 1984 and 1992, HLL's gross turnover grew at 16 per cent The profit before tax grew at 18 per cent per annum The profit after tax showed an annual growth rate of about 21 per cent per annum During 1956-1992, a period of 37 year, HLL earned profits and declared dividend in every year.

SWOT analysis of HLL Strengths HLL enjoys a formidable distribution network covering over 3400 distributors and 16 million outlets. This helps them maintain heavy volumes, and hence, fill the shelves of most outlets.

Weakness HLL's market dominance, originating from its extensive reach and strong brand presence, allowed it to raise the prices even as raw materials were getting cheaper. Hence, though the volumes decreased, the margins grew, and company was able to earn more profits. But higher margins attracted competition in areas of operations. HLL's strategy remained focused on creating power brands and earning higher margins.

Opportunities India is one of the world's largest producer of FMCG goods but its exports are miniscule as compared to production. Though Indian Cos. have been going global, their focus is more towards Asian countries because of the similar preferences. HLL is one of the top companies exporting FMCG goods from India. An expansion of horizons towards more and more countries would help HLL grow its consumer base and henceforth the revenues. Opportunity in Food Sector - The advent of modern trade has opened up greater opportunities for HLL to diversify its brand and strength its food division. It could look at introducing products from its parents stable like margarines and could also look at expanding its Knorr range of products.

Threats ITC has reduced its dependence on the cigarettes business - Contribution of the core business in revenues has come down from 87% in FY99 to 70% in FY05. Over a period of five years, ITC has extended its presence into areas like foods, retailing, hotels, greetings, agri, paper, etc. These are businesses that can give it growth impetus in the long run. With ITC gaining momentum in each of these businesses, it is turning into a consumer monolith, and hence, the greatest threat to HLL's Business.

Balance sheet HLLHLLs Balance Sheet 19901992 (as at 31 March) (Rupes in Crore) 1992 1991 Assets Fixed assets Investments Current assets Loans and advances Total Liabilities Share Capital Reserves and surplus Secured loans Unsecured loans Current liabilities700 600


500 400 300 1992 1991 1990

222.75 12.24 597.74 96.83 929.56 139.99 193.31 93.32 106.96 395.98

193.53 7.60 533.49 76.06 810.68 139.99 151.11 77.31 87.44 354.83

179.19 8.52 441.34 75.47 75.47 93.22 162.06 80.00 79.07 260.07

200 100 0 Fixed assets Current assets Liabilities Share Capital Reserves Current and liabilities surplus

Profit and loss HLLProfit and loss account of Hindustan Lever (Rupees In Crore) Gross Sales revenue Other income PBDIT Less :interest Less : depreciation Profit before tax Less: Tax Provision Profit after tax 1992 2,86.87 12.00 217.77 32.19 19.60 165.98 67.50 98.48 1991 1,776.32 6.16 177.52 20.63 19.19 137.70 57.50 80.20 1990 1,460,27 5.99 146.30 18.31 17.25 110.74 52.00 58.74250 200 150 100 50 0 Other income PBDIT Profit before tax Profit after tax

1992 1991 1990

Equity share data for HLLEquity Share Data for HLL 1992 10 23.8 42.% 7.03 1991 10 20.75 38.50% 5.73 (Rs) 1990 10 27.36 42% 6.29 Face Value Book Value Per Share Dividend (%) EPS

Foreign shareholding FIs Public

51.16% 16.79% 32.05%

The share capital of HLL as on December 31, 1992 was Rs 140 crore The market price as on June 17, 1993 was Rs.375 per Share. For 1991 and 1992 enlarged capital base to bonus issue of 1:2

Sales mix HLL and TOMCO1991 92 (Rupees in crore) Soaps, detergents, and related items Chemicals and agro Personal products Total1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 Soaps, detergents, andChemicals andPersonal products Total related items agro HLL TOMCO

HLL 1,219 236 302 1,757

TOMCO 270 85 67 322

The merger 90% of the shareholding power agreed to merger -sec 394-391 of companies act 2 shares of HLL to 15 shares of TOMCO face value Rs.10 - valuation techniques. Experts examined the valuation on 3 criterias Comparison of book value of asset per share Market price on date Present value of the future cash flows of the two companies if merger did not take place.

Accounting of merger In the account for the year ended December 31, 1994 the following notes appear with regard to the merger of Tomco: Pursuant to the scheme of amalgamation of the Tata Oil Mills Company Ltd. (Tomco ) with the company sanctioned by the Hon'ble Bombay High Court During the year, the assets and liabilities of Tomco were transferred to and vested in the company with retrospective effect from 1st April 1993 The amalgamation has been accounted for under the ' pooling of interests ' method and, accordingly, the difference, aggregating Rs 6,74.76 lakh being the net assets taken over less the paid-up value of the shares of the company issued and other reserves assumed, has been added to the company's General Reserve. The Share Swap Ratio Tomco Share Capital: Paid-up equity capital 2,15,04,849 @ Rs 10 each Ratio: for every 15 Tomco = 2,15,04,848 2 / 15 Shares two HLL shares = 28,67,314 shares in HLL

HLL 1. Date of incorporation 2. Business 17.10.1933 Soaps detergents, toilet preparations, basic chemicals, fertilizers, agri.inputs, exp ort house

Tomco 10.12.1917 Soaps detergents, toilet preparations, glycerine, vanaspathi, edi ble oils, soaps, cattle and polutry, feeds, oil cakes, deoiled meals, fish and fish products Maharashtra, West Bengal, Kerala, Uttar Pradesh, Bihar, Gujarat, Tamil Nadu.

3. Maharashtra, West , J, M