Godrej Industries

Godrej Industries to divest its entire 43% stake in food & beverage JV to Hershey

10 September, 2012

Godrej Industries Limited has entered into a share purchase agreement to divest its entire 43 per cent stake in Godrej Hershey Limited to its foreign partner The Hershey Company for an undisclosed amount, it disclosed to the stock exchanges.

The transaction, expected to close by the end of this month, will make the JV firm a wholly-owned subsidiary of US-based Hershey, the largest North American confectionery maker. An individual shareholder is also exiting by selling his 6 per cent stake in the transaction.

According to a Business Standard report, Hershey is buying 49 per cent it doesn’t own for Rs 200 crore and assuming debt of Rs 260 crore. This would mean the value of the company has not budged much in the past five years (more on that below).

Commenting on the transaction, Adi Godrej, chairman of the Godrej Group, said:  “Over the last few years, we have been following a disciplined approach to doubling down on our core businesses to drive sustained and profitable growth. We have been making clear choices to focus on areas where we have a competitive advantage and that provide the best growth opportunities for us. Our decision to divest our stake in the Godrej Hershey joint venture is in line with this focused portfolio strategy.”

The JV operates in food and beverages space in multiple categories such as confectionery, beverages and grocery items. In its portfolio, it has brands like Hershey, Mahalacto, Nutrine, Jumpin and Sofit. For the fiscal year ended March 31, 2012, Godrej Hershey Limited had net sales of Rs 386 crore and losses of Rs 74 crore.

There were various rumours about the future of the loss making venture including Godrej buying out its foreign partner’s stake in the JV.

Hershey-Godrej Story

The JV was formed with Hershey acquiring majority stake in the food and beverage business of the Godrej Group called Godrej Beverages & Foods for Rs 238 crore ($54 million back then) in 2007. This marked the exit of financial investor IL&FS PE from the venture while the holdings of Godrej group and that of an individual investor A Mahendran shrunk.

The multi-tiered deal valued Godrej Beverages & Food at Rs 466 crore. Hershey acquired equity stake held by IL&FS PE besides the convertible preference shares held by IL&FS PE, Godrej Industries and Mahendran in addition to subscription to fresh issue of capital in the company.

At the same time Hershey licensed the firm some of its trademark rights for a lump sum payment of about $2 million in addition to royalty payments of 5 per cent for domestic sales and 8 per cent for exports.

Post acquisition, Hershey held 51 per cent equity while Godrej Industries retained 43 per cent stake with the remaining holding with Mahendran, a senior executive with the Godrej Group.

Godrej Beverages & Food was formed in 2006 when Godrej Industries transferred its foods division to another group company Godrej Tea. The combined entity was renamed as Godrej Beverages & Food Ltd.

The firm had a turnover of around Rs 400 crore back then (as it is five years hence) with presence in categories such as tea, edible oils, health drinks including soymilk, tomato puree, fruit drinks and bakery fats.

However, the main attraction for Hershey in the venture was the confectionery business where at one shot it became one of the key players in the domestic market. Godrej Beverages & Food had acquired Nutrine, one of the largest domestic confectionery brands, along with its assets in June 2006 in a deal worth Rs 250 crore from the South based Reddy family.

This deal brought under its fold strong confectionery sub-brands such as MahaLacto, Koko Naka, Milk Eclairs, Honey Fab, Aam Ras and Gulkand.

For Hershey, which has in the past also toyed with a possible alliance with Amul, it marked a significant entry into the Indian market. Apart from confectionery products, Hershey is engaged in product categories like baking ingredients, chocolate drink mixes, peanut butter, dessert toppings and beverages. However, it just launched one product from its global basket namely Hershey chocolate syrup

The India exposure for Hershey also came back to back with its manufacturing joint venture formed with Korean confectionery major Lotte to produce Hershey and Lotte products in China for the Chinese market. With the Godrej deal it create a significant business in two top emerging markets.

With this deal, Hershey will now be expected to be more aggressive in launching its global brands in India, thereby taking head on its international competitors such as Kraft (which now also controls Cadbury) and Nestle.


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Godrej Industries to divest its entire 43% stake in food & beverage JV to Hershey

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