Unilever Report

SURF EXCEL+

LIPTON+

Delisting of Unilever Pakistan

from Stock Exchange

Financial Research Report

http://www.unilever.pk/our-brands/detail/Surf-Excel/327635/?WT.contenttype=view%20brands

http://www.unilever.pk/our-brands/detail/Lipton/337236/?WT.contenttype=view%20brands

Case Study: Delisting of Unilever Pakistan from Stock Exchange

POND’S+

Table of Contents

Preface …………………………………………………………………………………………………………………………………..Page No. 3

Case Background…………………………………………………………………………………………………………………….Page No. 4

First Offer……………………………………………………………………………………………………………………………….Page No. 4

Offer Analysis…………………………………………………………………………………………………………………………Page No. 4

Response from Investor…………………………………………………………………………………………………………Page No. 5

Response from Karachi Stock Exchange………………………………………………………………………………...Page No. 5

Unilever Acceptance……………………………………………………………………………………………………………..Page Mo. 6

Buy Back Cost…………………………………………………………………………………………………………………………Page No. 6

Unilever Pakistan Delisted……………………………………………………………………………………………………..Page No. 7

Critical Analysis……………………………………………………………………………………………………………………..Page No. 8

Buy Back Impact…………………………………………………………………………………………………………………….Page No. 11

Annexure……………………………………………………………………………………………………………………………….Page No. 15

a. Unilever Financial Report 2012

b. Unilever Offer Acceptance Letter

c. Financial Articles

d. Newspapers Clippings

http://www.unilever.pk/our-brands/detail/Pond-s/337643/?WT.contenttype=view%20brands


Unilever Pakistan (The Company) is a limited liability company incorporated in Pakistan and was listed on the Karachi, Lahore and Islamabad Stock Exchanges. It manufactures and markets home and personal care products, beverages, ice cream and spreads. Unilever has been serving the consumer needs of Pakistan since 1948.

Unilever Pakistan (Company), after almost 32 years of being listed, has decided to voluntarily delist from all Stock Exchanges of Pakistan. In this report, analysis will be made to evaluate the factors behind the delisting of the Company and share buyback program.

The source of information utilized in this research report includes financial statements of the Company, research articles, and information on financial and business news websites. h

This report is a joint effort of EMBA CM 12 study group as mentioned below along with the assistance of Mr. Sheheryar Saeed – (Associate Chartered Accountant):

Nasar Ailia Naqvi Mohib Ur Rehman Umair Hussain Rais Ur Rehman

PREFACE


In November 2012, Unilever Pakistan decided to seek voluntary delisting from all the three stock exchanges of the country, according to a letter issued by Unilever Pakistan. According to a letter of Unilever addressed to all the three stock exchanges, Unilever Overseas Holdings Limited, United Kingdom, which currently holds above 75 percent shares of Unilever Pakistan, has decided to acquire all the remaining outstanding ordinary shares of Unilever, and to seek its delisting from all the three stock exchanges of Pakistan.

Unilever Overseas Holdings – a wholly-owned subsidiary of London-based Unilever plc – currently owns just over 75% of Unilever Pakistan. The foreign parent is offering Rs 9,700 per share closing price on the Karachi Stock Exchange – to existing shareholders for their current holdings.

During the first three quarters of 2012, while the company’s revenues increased by 15% to Rs43.9 billion, its profits increased by a staggering 49%, on the back of improved margins. And it is that improvement in margins that has investors interested: “Unilever Pakistan currently has an operating margin of around 13.2%, which we feel will eventually reach 17% or 18% in the coming years,” said Saraogi. As a result, there is almost universal consensus that Unilever Pakistan has been grossly underpriced. “Given its growth prospects, the company should offer a higher earnings multiple, and the price should be at least Rs15,000 per share, if not higher,” said Shahid Aziz Siddiqi, the chairman of State Life Insurance Corporation, the country’s largest life insurer, which has about a 2.1% share in Unilever Pakistan.

CASE BACKGROUND

FIRST OFFER

OFFER ANALYSIS


Unilever’s application for delisting invited the interest of investors and its share price increased by Rs485 per share to Rs10,185 per share from Rs 9,700 per share. A total of 3,460 company shares were traded in the session.

In early 2013, Karachi Stock Exchange (KSE) announced that the Unilever will be required to pay nearly 55% higher than its initial offering price to its minority shareholders if it wants to go ahead with the plan of taking its Pakistani subsidiary private. In a notice released, the KSE stated that its internal committee that will be supervising the delisting process has recommended a price of Rs15,000 per share for delisting and given Unilever seven days to respond to the price, much higher than the Rs9,700 per share that Unilever had offered when it first announced its intention to delist one of its two Pakistani subsidiaries.

RESPONSE FROM INVESTORS

RESPONSE FROM KARACHI STOCK EXCHANGE


In April 2013, Unilever has accepted the Karachi Stock Exchange’s (KSE) proposal to de-list its subsidiary Unilever Pakistan from the KSE at a price of Rs15,000 per share, about 55% higher than its initial offer price of Rs9,700 per share. The move will come as a blow to many of the institutional investors who had hoped to be able to persuade the exchange to either stop the delisting outright, or at the very least permit a direct negotiation between Unilever and its minority shareholders.

The buyout will cost Unilever nearly Rs 50 billion ($503 million), which the company is keen to bill as a symbol of its commitment to Pakistan. “This decision reinforces the parent company’s confidence in, and commitment to, the opportunity that the Pakistani consumer market offers and therefore the growth potential of the Pakistan business,” said Ehsan Malik, CEO Unilever Pakistan.

UNILEVER ACCEPTANCE

ESTIMATED BUYBACK COST


In Sept 2013, Unilever Pakistan delisted from Karachi Stock Exchange after completing formalities of Buy Back of Shares and at Rs. 15000/- per share.

Official announcement of delisting was made through stock exchange web sites.

UNILEVER DELISTED FROM STOCK EXCHANGE


Normally there are various reasons for any company to be delisted from Stock Exchange including financial crises, poor stock performance, and complex statutory and reporting regulation. However, Companies also opt for delisting according to their business needs. However, it is pertinent to mention here that it is not only Pakistan but also in India and Nigeria that Unilever is buying back their stake. Therefore, the decision of Unilever Pakistan delisting must be evaluated after considering global performance of Unilever.

1- Share Performance of Unilever

The first thing that comes to mind while analyzing delisting is bad performance of shares. However, in this case, Unilever Share is performing well. Following graph is self-explanatory:

Hence, we cannot assume this might be the reason for delisting of Unilever share. [

2- Strong Business need

Before starting our evaluation, first let’s just summarize the global performance of Unilever with emerging markets performance.

Particulars Unilever Group Hindustan Unilever Unilever Pakistan

2013 2012 2013 2012 2013 (Based on HY results)

2012

Sales Growth 4.30 % 6.90 % 17% 12.4 % 13.11 % 15 % Net Profit 10.50 % 9.42 % 13.91 % 11.61 % 10.11 % 9.19 %

UNILEVER DELISTING – CRITICAL ANALYSIS


The other important aspects that also need to be included are Unilever Global Turnover mix on geographical basis. Summary for the same is as under:

Particulars Turnover Percentage mix

2013 2012 2013 2012 Asia/

AMET/RUB1 20,085 20,357 40.33 % 39.66 %

Americas

16,206 17,088

32.54 % 33.29 %

Europe

13,506 13,879 27.12 % 27.04 %

Total 49,797

51,324

100 % 100 %

From the above table, we can analyze that emerging markets are performing better in term of growth and profitability as compared to American and European markets which are almost saturated. Therefore, this might be a reason that globally Unilever strategically decided to acquire shareholding of emerging markets subsidiaries to provide maximum benefits to local shareholders. Further delisting also provides the Company to work more cost effectively due to less reporting requirements and concise management structure.

Same argument has been supported in various financial articles published. Summary of these articles are as under:

Sr.No. Important points in articles Website reference

In all, Unilever's eight subsidiaries are listed at the local bourses. In the rest of the word including Europe, North America and key emerging markets such as China, Turkey, Russia, Brazil, Mexico and Thailand, Unilever operates through wholly owned unlisted subsidiaries.

http://www.business-standard.com/article/companies/unilever-s-footprint-in-emerging-countries-113050100042_1.html

Unilever is not changing its strategy in emerging markets despite an economic slowdown last year that has shrunken consumer demand, said its chief executive, Paul Polman. He added that growth in emerging markets remains well above that in developed markets.

http://www.theguardian.com/business/2014/jan/21/unilever-emerging-markets-sales-profits

Going private—By acquiring 100% stake in Indian subsidiaries and delisting, any strategic decision-making (e.g. royalty payment) process gets a lot

http://www.financialexpress.com/news/buybacks-signs-of-green-shoots/1217857

1 Refers to Asia, Africa, Middle East, Turkey, Russia, Ukraine and Belarus.












smoother for the parent company. Also, as a private entity, disclosure norms are more relaxed compared to a public entity.

Unilever Pakistan has been among the biggest beneficiaries of the boom in consumption in Pakistan, a country of 200m people that will soon be the fourth largest in the world.

http://www.ft.com/cms/s/0/c083e9e4-6c87-11e3-ad36-00144feabdc0.html#axzz2w4AsEcqU

Unilever Plc will get a larger share of sales and profits from emerging markets, which are growing faster than developed markets. Emerging markets provided 57 per cent of Unilever’s revenues in the March quarter, up by 10 percentage points over five years. These markets have been steadily delivering sales growth of over 10 per cent for the past eight quarters. Developed regions, in contrast, saw deceleration — sales in Europe, for instance, declined by 3 per cent in the March quarter

http://www.thehindubusinessline.com/markets/stock-markets/why-unilever-wants-a-larger-slice-in-hul/article4670825.ece

Unilever growth in Pakistan is significantly higher, while Unilever’s global revenues grew by around 5%, revenues in Pakistan grew by a much stronger 9.9%, even when taking into account the rupee’s depreciation against the euro, the company’s, global reporting currency. In Pakistani rupees, gross revenues of both companies grew by nearly 17%.

http://tribune.com.pk/story/469350/food-consumer-goods-unilever-targets-pakistan-among-top-priority-markets/














A) Catching the High Growth Potential:

Unilever has been among the biggest beneficiaries of the boom in consumption in Pakistan, a country of 200m people that will soon be the fourth largest in the world. This vibrant consumer sector stands in stark contrast to the nation’s image as either a feudal, agrarian rent-seeking economy – or as a violence-ridden failed state.

One area where Unilever Pakistan has succeeded is in tapping into rising prices for agricultural and dairy products – the country is now the fifth largest rice producer in the world. But its performance is also testimony to the resilience of Karachi’s business community, which has learnt to operate in a harmful environment, adopting resourceful strategies to overcome the daunting obstacles they face

In last few years, Unilever Pakistan has witnessed high business growth from Pakistan due to right strategies, product mix and market potential compared to more developed markets.

The company had been so profitable that it made more sense for the parent, and its shareholders, to enjoy all of the upside rather than sharing it with local investors.

BUYBACK IMPACT – UNILEVER’S PERSPECTIVE

http://www.ft.com/cms/s/0/689168b4-ba27-11e2-b597-00144feab7de.html

http://www.ft.com/intl/cms/s/0/4b7ad064-7202-11df-a0fd-00144feabdc0.html

http://www.ft.com/intl/cms/s/0/4b7ad064-7202-11df-a0fd-00144feabdc0.html

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