Sara Lee Corp has agreed to sell its 51% stake in the Godrej Sara Lee Ltd joint venture--which markets Good Knight, Hit and Jet brands--to Godrej Consumer Products Ltd (GCPL) for €185 million (approx $234 million or Rs ,056 crore).
The move to buy out Sara Lee’s stake follows Godrej’s recent acquisitions, Tura in Nigeria and PT Megasari Makmur in Indonesia, as it continues with its strategy of inorganic growth.
In fiscal 2009, the Godrej Sara Lee business generated annual sales of approximately Rs 750 crore ($158 million based on fiscal 2009 exchange rates) and accounted for 9% of the adjusted operating segment income for Sara Lee’s International Household and Body Care business. The transaction, which is subject to customary closing conditions, is anticipated to close before the end of Sara Lee’s fiscal year on July 3, 2010.
The key businesses of Godrej Consumer Products Ltd (GCPL) are spread across the personal care segments of soaps, hair colours, toiletries and liquid detergents, with most of them operating at margins of over 20%. In FY10, GCPL reported consolidated revenue of Rs 2,042 crore (up 47%) with net profit of Rs 340 crore (up 97%).
For the fourth quarter of FY 10, Godrej-Sara Lee (GSL) contributed Rs 147cr to the top-line. According to Anand Shah, FMCG Analyst, Angel Broking, there will be a gowth of 25% in topline and 8-10% growth in bottomline in FY11, following the 51% stake buyout in Sara Lee JV.
According to a recent Angel Broking report, GCPL is expected to post a 15% CAGR in the top-line and a 14% CAGR in earnings during FY2010-12E, as the benefits of price hikes fade out, GSL’s consolidation effect forms a base and Gross Margin expansion peaks out. "With GCPL's wider portfolio, stronger performance of its international business, the likely acquisition of the remaining 51% stake in GSL from Sara Lee and a potential upside trigger from further acquisitions (likely in Latin America), we believe that the stock still offers significant triggers for sustained performance," the report said.
GCPL has been in the news following its plans on raising capital to fund its acquisition. Recently, VCCircle had reported that GCPL is holding talks with private equity majors such as Carlyle, Standard Chartered Private Equity and ChrysCapital for raising around $130-$140 million as part of its overall capital-raising plans estimated at over $650 million.
“The sale of our stake in the Godrej Sara Lee joint venture, combined with the previously announced binding offers with P&G and Unilever, underscore the significant value of our Household and Body Care portfolio,” said Brenda C. Barnes, chairman and chief executive officer, Sara Lee Corp.
"This sale is the next step in our strategy to focus on our core food and beverage businesses, where we’re positioned to continue to drive strong shareholder value,” he added. Barnes added, “Having partnered with Godrej for 15 years, we're confident that their great team will build on the success we've shared to date and ensure that these leading brands will continue to thrive.”
Last week, Godrej Chairman Adi Godrej told CNBC TV18 that GCPL would look at raising Rs 3,000 crore, or roughly $668 million going by Tuesday's exchange rates, through a mix of debt and equity. He added that this would be raised in tranches and deployed for effecting larger acquisitions in the future, and the equity portion could be a small part of this overall fund raising exercise.
